February 23, 2021

Working Remotely in Different States? Find out Where You Need to File Taxes

With many companies either extending their remote work timeline due to COVID-19 or permanently switching to a remote work structure, it’s important for employees to understand the various tax implications of working remotely. Some people are taking the opportunity to travel or move to other states while they can work from anywhere. But establishing presence in additional states could cause additional tax filing and withholding requirements employees should be aware of.

Understanding State Filing Requirements

Tax filing requirements vary from state to state. If you’re planning on working remotely from a different state for an extended period of time, it is best to investigate the state’s tax filing requirements. Generally, employees pay taxes based on where they work or earn income. Employees could be subject to additional non-resident income tax return filings depending on the state they’re in and whether they meet thresholds based on income generated or time spent there. So, while taxpayers may maintain their permanent home in one state and work remotely from a different state, depending on how long they work or how much income they earn in that different state will determine if they are required to file as a non-resident of said state.

California and New York State Tax Example

A California taxpayer decides to move from California back to New York to be near family while they are working remotely. The taxpayer signs a short-term lease and works remotely in New York for six months.

Assuming the taxpayer spent 184 days or more in New York, the taxpayer is now required to file a part-year resident return for both New York and California. New York requires taxpayers who spend 184 or more days in the state during the year to file in New York, whether or not the taxpayer maintained a permanent residence there.

Missouri and Illinois State Tax Example

An Illinois resident works remotely on a temporary basis from their home for a Missouri-based company. The employee does plan to go back into the Missouri office once COVID-19 is over.

Historically, the Illinois resident has worked and earned their wages in Missouri, so they were required to file a non-resident return in Missouri and pay the tax due there. Additionally, they would file an Illinois resident return as well, where they would have to calculate and pay tax due in Illinois. Please note, Illinois does allow for a credit for taxes paid to other states in their calculation of current year tax, so this helps avoid the double taxation between Missouri and Illinois.

Now in this example, the employee worked remotely from their home for a significant portion of the year. This means their work performed is in Illinois instead of Missouri which would lead us to believe that the income sourced to Illinois would not be subject to Missouri income tax. Unfortunately, Missouri currently has not provided clear guidance on this situation. It is believed that even though the Illinois resident performed services in Illinois, Missouri will still want that Illinois resident to file and pay tax as a Missouri non-resident since the change was on a temporary basis and due to the COVID-19 pandemic. Time will tell if this stance will hold true though.

Filing requirements vary by state, so it’s important to keep track of which states you have been working remotely in and for how long. Find out how working from home affects state taxes in Missouri and Illinois. If you have specific questions on a particular state filing requirements, contact an Anders advisor below.

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February 22, 2021

Two-Week PPP Application Window Opens Specifically for Small Businesses

New changes to the Paycheck Protection Program (PPP) were announced by President Biden on February 22. These tweaks to the PPP rules are meant to help small businesses and give them an exclusive window of time to apply for PPP funding starting February 24.

Details of the Latest PPP Changes

Another $284 billion was injected into the PPP program as part of the $900 Billion COVID-19 relief package signed December 27, 2020. Since applications opened in January, it’s estimated that the SBA has approved around $134 billion in forgivable small business loans. To improve equitable distribution of loans and help give small businesses an advantage, President Biden introduced the following changes:

  • An exclusive window for businesses with less than 20 employees to apply for PPP loans beginning February 24. Businesses with 20 or more employees will be locked out of applying until March 9.
  • Self-employed, sole proprietors and independent contractors can now use gross income, much like the recently changed calculation for farmers.
  • Business owners with non-fraud felonies and those who were/are delinquent on student loans are now eligible to apply for PPP funding.
  • At least $1 billion will be allocated for minority-owned businesses.

The Biden administration has not indicated whether they will try to extend the program after the current round expires March 31.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed on our COVID-19 Resource Center. Tune in to our video series PPP with Paul and Dan to learn more about the Paycheck Protection Program. To discuss your situation and recovery options, contact an Anders advisor below.

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February 22, 2021

2021 Tax Pocket Guide

Access the 2021 Anders Tax Pocket Guide for this year’s corporate and individual tax rates, retirement plan contribution limits and more, including:

  • Estate tax and lifetime gift tax exemption increase to $11,700,000
  • AMT exemption increase
  • Standard deduction increase

View the 2021 Anders Tax Pocket Guide.

Contact an Anders advisor to learn how these rates affect you and your business.

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February 19, 2021

5 Cybersecurity Lessons Businesses Should Learn from the Oldsmar, Florida Water Supply Hack

Disaster almost struck on Friday, February 5, when an unidentified outsider attempted to drastically increase the sodium hydroxide levels in the water supply of the city of Oldsmar, Florida. The impact could have been tragic as they attempted to raise the setting from 100 parts per million to 11,100 parts per million. Normally sodium hydroxide is harmless when used to regulate PH levels in drinking water, but at that high of a level it could have caused severe damage to anyone who consumed it. While this doesn’t sound like a typical data breach that could have been prevented with cybersecurity best practices, there are definitely cyber controls that could have helped avoid the attempt. Below we dig into the cybersecurity vulnerabilities we identified from the situation and our mitigation recommendations your business can learn from.

How could this have happened?

This is an active investigation that’s being analyzed to figure out what happened and identify the outsider. Reports following the incident indicate a significant number of basic cyber mistakes were made that left the city’s water supply vulnerable to anyone with an internet connection. Cyber risk can be substantially reduced by implementing basic technology controls and following good cyber hygiene. However, many businesses struggle to stay on top of cybersecurity, often because of a lack of manpower, lack of funding, or a lack of knowledge and expertise.

Let’s look at five cybersecurity vulnerabilities the water utility had that could possibly made the attempt possible. Applying these lessons to your business will increase your protection from cyber criminals.

Vulnerability #1: Sensitive SCADA equipment was exposed directly to the internet.

Initial reports indicate the outsiders utilized a common remote access software tool named TeamViewer to access the supervisory control and data acquisition (SCADA) control system. TeamViewer enables a user to remotely view a desktop’s screen and control the mouse to move and click. The use of tools like TeamViewer has substantial benefits, such as giving personnel the ability to perform system status checks remotely and responding to alarms or alerts. However, the risk of using remote access tools like TeamViewer can be massive.

Recommended Mitigation

Industrial Control Systems (ICS) and SCADA equipment should be kept isolated and ‘air gapped’ from the rest of the computer network. If ICS or SCADA systems are going to be exposed to the internet, additional controls must be implemented to mitigate the risk. If remote access software is going to be utilized, it must leverage a one-way unidirectional approach, meaning the user is limited to view only and cannot click or take action on the remote device.

Vulnerability #2: A firewall was not in place to protect sensitive SCADA equipment.

Connecting any technology to the internet without a firewall is a recipe for disaster. Publicly accessible tools and websites like Shodan are constantly searching and probing for unprotected systems connected to the internet. Once hackers identify an unprotected computer, they then begin probing with known vulnerabilities to take control of the device and wreak havoc.

Recommended Mitigation

Implement a firewall to protect all internet-connected devices and keep the firewall updated and current. Logging should be enabled on the firewall to watch for intrusion attempts.

Vulnerability #3: A single common password was shared by all computers for remote access, and no additional authentication was required.

The reuse of passwords is a major issue in cybersecurity. It is common for passwords to be compromised in a data breach, and then that user ID and password combination is shared by hackers on the dark web. Hackers will then use these compromised credentials for ‘credential stuffing’ attacks, where hackers use scripts to try these credentials on thousands of web sites – banking, shopping, etc. The use of unique passwords mitigates these risks but unfortunately many users will use the same password on multiple sites. In this case, a single password was the only thing required to access TeamViewer and control the water supply equipment.

Recommended Mitigation

Create unique passwords and utilize a password manager to help track your passwords. For sensitive access, like SCADA equipment or TeamViewer, utilize multi-factor authentication (MFA) to require additional levels of authentication beyond just a password.

Vulnerability #4: All computers used by water plant personnel were connected to each other, including the SCADA system.

If all computers are connected to the same network, and any node on that network is compromised, then the entire network is compromised. Specific attention should be paid to dividing the network into separate secure segments, thus providing an additional level of protection if one computer is attacked.

Recommended Mitigation

Sensitive pieces of technology, like SCADA and ICS, should be walled off from the remainder of the network and isolated.

Vulnerability #5: The technology was running on an outdated 32-bit version of the Windows 7 operating system.

Windows 7 is an end of life operating system that is vulnerable to attack (unless the customer purchases an Extended Security Update (ESU) plan. Microsoft ended support for Windows 7 in January 2020. Accordingly, Microsoft is no longer producing security updates for Windows 7 while it contains many well-known vulnerabilities that hackers are able to exploit. 

Recommended Mitigation

Use up-to-date versions of operating systems, such as Windows 10, and keep them current by applying the last updates. If a system cannot be updated to a modern operating system, it must be isolated from the internet and the rest of the network.

Understanding Your Cyber Risk

Businesses must ensure that appropriate cyber controls have been implemented through their enterprises, including both IT and operations technology (OT), like ICS and SCADA systems. If this water district had performed a basic cybersecurity audit or cyber risk assessment, the five vulnerabilities we’ve highlighted in this blog post would have been flagged. Then a remediation plan should have been created to implement these basic cyber controls over a period of time. Lack of awareness of cyber risks and controls is no longer acceptable in today’s world. The significance of the risk should link directly to the investment made to mitigate the risk.

Once cyber controls are implemented and operating effectively, then it is a good idea to perform quarterly vulnerability scans to identify potential weaknesses and out of date software. Periodic penetration tests, where a skilled white hat hacker attempts to infiltrate your systems, is a great idea to test your defenses.

Whether you’re looking for supplemental cybersecurity expertise to add to your team, or technology advisors to take care of it all for you, Anders Technology can help you implement cybersecurity best practices to protect you and your organization from evolving threats. Contact an Anders advisor below to see how we can help you mitigate security risk and defend against a costly cyberattack.

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February 16, 2021

PPP 1 and 2 Loans: What Expenses are Considered Covered Costs?

A second round of Paycheck Protection Program (PPP) loans brings many questions around funding eligibility and how the money can be spent to qualify for forgiveness. Once you have either a PPP1 or PPP2 loan, it’s important to understand what costs are covered so you can maximize forgiveness.

Similar to the first round, 60% of PPP2 funds will need to be used for payroll and 40% can be used for non-payroll expenses. Below is a list of nonpayroll costs that qualify and the related eligibility and documentation requirements.

Timing of Eligible Nonpayroll Costs

Eligible nonpayroll costs are those that are either:

  • Paid during the covered period
  • Incurred on or before the end of the covered period but paid by the due date after the covered period

Example: If rent for the month of October is due by November 1st and your covered period ended October 21, you would get to include a portion of that November payment to account for 21 of the 31 days.

Types of Nonpayroll Costs

Below is a list of eligible nonpayroll costs, assuming they meet the timing criteria above.

  • Interest payments on (most) business loan obligations that were in existence before February 15, 2020
  • Rent/lease payments on real or personal property under an agreement in place before February 15, 2020
  • Business utility payments for services in place before February 15, 2020, including electricity, gas, transportation, water, telephone and internet
  • Covered operations expenditures, including:
    • Payment for any business software or cloud computing service that facilitates business operations
    • Product or service delivery
    • The processing, payment or tracking of payroll expenses
    • Human resources
    • Sales and billing functions
    • Accounting or tracking of supplies, inventory, records and expenses
  • Covered property damage costs
    • Cost related to property damage and vandalism or looting due to the public disturbances that occurred in 2020, but cannot have been reimbursed by insurance
  • Covered supplier costs, including payments made to a supplier of goods for supply that meets the following criteria:
    • Is essential to operations of the business AND
    • Payment made pursuant to a contract, order, or purchase order that was either:
      • In effect any time before the covered period, OR
      • For perishable goods only, in effect any time prior to the end of the covered period
  • Covered worker protection expenses
    • Operating or capital expenditures to facilitate the change of business activities related to COVID. This may include purchases, maintenance or renovation of assets that create or expand:
      • Drive-through window facility
      • Indoor, outdoor, or combined air or air pressure ventilation or filtration system
      • Physical barriers such as a sneeze guard
      • Expansion of additional indoor, outdoor, or combined business space
      • Onsite or offsite health screen capabilities

Required Documentation

It’s important to keep proper documentation of expenses paid with loan proceeds to make the forgiveness process simpler when the time comes to apply. Make sure to keep track of the following documentation for each expense:

  • Copies of invoices, purchase orders, receipts or cancelled checks
  • Copies of account statements and lease agreements

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed on our COVID-19 Resource Center. To discuss your situation and recovery options, contact an Anders advisor below. Tune in to our video series PPP with Paul and Dan to learn more about the Paycheck Protection Program.

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February 16, 2021

Beth Schulte Joins Anders as Principal and Director + Outsourced CFO

Anders welcomes Beth Schulte as Principal and Director + Outsourced CFO. With over 30 years of accounting and fractional CFO experience working for Big 4 and regional accounting firms and within large companies, Beth will expand and grow the Outsourced CFO service line as part of the strategic plan for the firm’s Advisory practice.

At Anders, Beth will help clients gain a deeper understanding of their current and projected financial condition and constructively apply those insights to their strategic planning. Beth believes that the base of all business decisions is in the numbers and uses this mentality with businesses of all sizes and stages, from early-stage startups to large, publicly-traded companies. Companies in numerous industries including real estate, construction, mortgage lending, manufacturing, health care, technology, e-commerce and not-for-profit have benefitted from her direction and strategic planning efforts.

Beth has an MBA with an emphasis in Accounting and a Bachelor of Science in Business Administration and Accounting from Saint Louis University, where she serves as an adjunct professor and Executive Advisory Board Member for the Richard A. Chaifetz School of Business. An active investor and mentor for early-stage startup companies, Beth is a Board Member and Advisor for Capital Innovators and an Investment Committee Board Member for Cultivation Capital. Beth also serves as an Advisor for Cure8 Ventures, a food, health and wellness venture capital fund.

By expanding the Outsourced CFO practice area at Anders, the firm will offer broader expertise in high-level financial advisory including acquisition strategies and negotiation, financing and capital procurement, compensation plan design, budgeting process enhancement, financial forecasting and financial modeling for prospective purchases.

“Beth’s fractional CFO experience and intel will be an immense asset to Anders clients,” explains David Hartley, Partner and Director + Advisory. “Expanding our Outsourced CFO capabilities within the Advisory practice supports our goal of being a comprehensive partner for businesses.” Anders currently advises clients in the areas of technology, talent, forensics and litigation, outsourced accounting and outsourced CFO and will continue to grow these areas and add new opportunities that fit into the firm’s commitment to strategic growth. 

Learn more about Beth Schulte or Anders Outsourced CFO offerings.

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February 9, 2021

Do I Qualify for the Home Office Deduction While Working from Home?

If you are like many Americans, the Coronavirus forced you to work from home for some or most of 2020. You may have had to purchase items to make your home more conducive to a work from home environment, including computers, printers, desks, basic office supplies, office chairs or even faster internet. With all of these additions to your home office, you may be wondering, “Can I deduct these expenses or take a home office credit on my 2020 tax return?”

The answer depends on if you are an employee or if you are self-employed.

Home Office Deduction for Employees

The 2017 Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home. Additionally, there is no deduction for unreimbursed work expenses.

This means you will not be able to deduct home office expenses or purchases that allow you to work from home, and you do not qualify for the home office deduction.

Home Office Deduction for Self-Employed Individuals

There are two parts of the equation for self-employed individuals: ordinary business expenses and a home office deduction. Ordinary business expenses can be taken on your return and are usually reported on a Schedule C. They include any ordinary and necessary expenses to conduct business.

The home office deduction is available to self-employed taxpayers, independent contractors and those involved with short-term contracts or freelance work.

How to Qualify for the Home Office Deduction

There are two basic requirements to qualify for the home office deduction:

  1. You must use a portion of the home exclusively for conducting business on a regular basis, and
  2. The home must be your principal place of business

“Exclusive use” means you must use a specific portion of the home only for business purposes, and for nothing else. A home office does not need to be a separate room or permanently partitioned portion of a room. Any “separately identifiable” area can serve as an office. For instance, a corner of a room with a desk and file cabinet could qualify as a home office.

According to the IRS, to claim the deduction, you must use part of your home for one of the following:

  • Exclusively and regularly as a principal place of business for a trade or business
  • Exclusively and regularly as a place where patients, clients or customers are met in the normal course of a trade or business
  • As a separate structure that is not attached to a home that is used exclusively and regularly in connection with a trade or business
  • On a regular basis for storage of inventory or product samples used in a trade or business of selling products at retail or wholesale
  • For rental use
  • As a daycare facility

The IRS, defines the term “home” as:

  • A house, apartment, condominium, mobile home, boat or similar property
  • A structure on the property, like an unattached garage, studio, barn or greenhouse
  • Not including any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business

Qualified Expenses

Deductible expenses for business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.

Claiming the Home Office Deduction

You can use either the regular or simplified method to calculate the home office deduction. The IRS describes the regular and simplified methods as:

  • Using the regular method, qualifying taxpayers compute the business use of home deduction by dividing expenses of operating the home between personal and business use. Self-employed taxpayers filing IRS Schedule C, Profit or Loss from Business (Sole Proprietorship) first figure this deduction on Form 8829, Expenses for Business Use of Your Home.
  • Using the Simplified Option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to figure the business use of home deduction. A taxpayer claims the deduction directly on IRS Schedule C.

Contact an Anders advisor below to discuss the specific nuances of the home office deduction and if you qualify.

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February 5, 2021

Anders Ranks #4 on St. Louis’ Largest Accounting Firms

Moving up two spots from last year, Anders is ranked #4 on the St. Louis Business Journal’s largest accounting firms list by number of local CPAs. With 106 CPAs and 240 local employees as of January 2021, Anders is ranked #6 in St. Louis on total number of professionals.

View the largest St. Louis accounting firms ranked by CPAs.
View the largest St. Louis accounting firms ranked by local professionals.

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February 3, 2021

Anders Releases 2020 Community Impact Report

Giving back is part of our social responsibility and corporate culture at Anders, and we proudly support local charitable, civic, community and trade organizations. The Anders Community Impact Report takes an in-depth look at our commitment, connections and involvement in the community in the past year, individually and collectively as a firm.

2020 brought challenges unlike any other year. From business owners and not-for-profits doing all they could to keep their doors open and staff employed, to families transitioning to at-home learning and working, it was a year of constant change.

In 2020, Anders gave back to the community by:

  • Supporting 242 local organizations
  • Giving $191,000 in charitable sponsorships
  • Donating over $7,800 to our 2020 Charity of Choice
  • Offering over 100 timely insights in our COVID-19 Resource Center

Read more in the 2020 Anders Community Impact Report.

View our past Community Impact Reports:

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February 2, 2021

Updating Your W-4 Can Lead to Less Surprises Come Tax Season

Tax season is fast approaching, and for many individuals that means the anticipation of a tax refund check in their bank accounts. However, many people were shocked in 2019 when they discovered their refund amount was substantially lower or they even owed the IRS money.

The 2017 Tax Cuts and Jobs Act (TCJA) significantly changed how the federal tax system works. These tax changes didn’t always work well with the traditional W-4 form, resulting in many people not having enough taxes withheld from their paychecks in 2018 to cover the taxes they owed.  As a result, there is a new version of the W-4 form for employees to use starting in 2020 which is intended to make withholding more accurate in conjunction with the TCJA.

What is a Form W-4?

For some, a W-4 was something filled out years ago when you started your first job and confusingly asked your parents if you were a “dependent” and never thought of again. In fact, a recent study by the American Institute of Certified Public Accountants (AICPA) shows that 45% percent of Americans are unsure when the last time their withholdings were updated, and 11% of taxpayers had never heard of a W-4.

A W-4 is an IRS form employees are required to fill out so that an employer can withhold the correct federal income tax from their pay. Ultimately, the goal of proper withholding is that you neither owe nor are owed when filing your yearly tax return. Too little withholding can result in a substantial tax payment and possibly even penalty payments. Too much withholding results in a refund check, which may seem nice, but essentially you allowed the IRS to hold your money interest free—money that could have been possibly better spent staying current on bills, paying down debt or being invested.

What’s Changed on the W-4?

The old Form W-4 required employees to input the number of allowances they were claiming and any additional amount they wanted to be withheld. There were worksheets designed to assist employees in entering the proper number of allowances, but many found these to be complicated.

There are no more withholding allowances on the new Form W-4. Instead, employees provide their employer with the information needed to determine the amount of income tax to withhold and the employer takes it from there and does the necessary calculations. Employees will be asked to include items such as expected filing status, family income from other jobs, number of dependents and tax deductions they plan to take. This may mean the W-4 could possibly take a little longer to fill out because the necessary information will have to be collected.

Do I Have to Complete the New Form?

The short answer to this question is “no.” Existing employees are not required to complete a new Form W-4. If employees are happy with their current withholding, the old W-4 stays in effect indefinitely. However, if individuals want their withholding to be more accurate and aligned with current tax laws, they should fill out a new Form W-4. All new hires will have to complete the updated form, as should individuals with changes to their filing status.

Contact an Anders advisor below to discuss how recent changes in tax law, withholdings, and proper planning can help you achieve your tax and financial goals.

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