What You Need to Know About the Savers Credit

If you are not familiar with the saver’s credit, then stop what you are doing right now because this is definitely a credit worth knowing about...one that could end up drastically cutting your tax bill.

The credit was designed to try and encourage people to save more for retirement, something that everyone really should be doing. Through this credit, low to moderate income individuals and couples can receive a tax credit worth as much as 50% of their retirement contributions in many cases. Thus, the more you save for retirement, the less you will pay in taxes, or, if you prefer and qualify, you can put the credit toward an increased refund. What could be better?

So, Are You Eligible?

Obviously, this tax credit sounds pretty great, and it definitely is...if you qualify. Your income is the main factor in determining if you are eligible for the saver’s credit, and, if so, how much of a credit you can get.

For single, married filing separately or widowed filers, your adjusted gross income must be between $18,250 or less and $30,500- any more and you won’t qualify. Your credit percentage is based on your exact income as detailed below:

l  10% credit for income levels between $19,751 and $30,500

l  20% credit for income levels between $18,251 and $19,750

l  50% (full) credit for income levels below $18,251

Here are the breakdowns for heads of household:

l  10% for incomes between $29,626 and $45,750

l  20% for incomes between $27,376 and $29,625

l  50% for incomes below $27,375

For married filing jointly individuals, the breakdowns are:

l  10% for incomes between $39,501 and $61,000

l  20% for incomes between $36,501 and $39,500

l  50% for incomes below $36,500

If you qualify for or think you could qualify for this credit, even if not for the whole 50%, be sure to bring this up with your tax adviser or preparer so that you can make the most of this awesome tax credit while boosting your savings in the process!

Are There Really Loopholes in Tax Laws?

If you think that United States tax law is 100% perfect and doesn’t have any problems or loopholes, then you might want to think again. There are actually quite a few loopholes within the tax law, and the IRS and the government as a whole are aware of these loopholes. They haven’t yet closed some of them, though, because...well...some loopholes can actually be beneficial to some people. While there’s no telling whether these loopholes will exist in the future, the fact of the matter is that you might as well take advantage of loopholes that apply to you while you can.   

Carried Interest Loopholes

This first loophole, known as the carried interest loophole, isn’t beneficial to everybody, but there certainly are some people they can help big-time, including venture capitalists, hedge fund managers, private equity firm partners, and more.

Basically, through this loophole, your compensation can be taxed at a lower rate than regular income tax. This loophole, which charges these specific professionals at the long-term capital gains rate, which is a reduced rate from the regular income tax rate, can really help the wealthy to stay wealthy while still accumulating even more money, which is why some people deem it as controversial and unfair. Regardless of how you feel about the issue, if you fall into one of these job descriptions, enjoy it while it lasts!

Deductible IRA Contributions

This second loophole will probably apply to a much larger amount of people than the first. Basically, if you have a 401(k) and you choose to fund it out of your own pocket, i.e. with pre-tax dollars, that will automatically reduce your taxable income amount, which means that you’ll pay less in taxes. In other words, you avoid paying taxes on the money you put into your retirement account, so the more money you put in, the more you save on taxes. Simple, right?

The Saver’s Credit

Have you recently started a savings account? If so, the IRS will reward you for this via what’s known as the “Saver’s Tax Credit.” Basically, you won’t have to pay taxes on some or, in some cases, even all of the money you’ve saved. That’s a pretty great reward for doing something you should already be doing anyway.

To learn more about these and other tax loopholes and to see which ones you may qualify for, talk to your accountant or tax preparer about finding loopholes that apply to you!

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How to Help Your Tax Adviser to Help You

Are you hiring someone else to prepare your taxes this year? If so, you’ll be glad to know that, as long as you hire a qualified preparer, this is almost always a smart move. You can help make your preparer’s job a lot easier...and do the same for yourself as well...by making sure to provide all of the necessary documentation to your tax adviser as soon as possible.   

The sooner you do this, the more quickly your tax preparer can get going on your taxes, and thus, the sooner you’ll see a return. Plus, giving everything over to your preparer all at once definitely beats a lot of back and forth trips because you forgot something. Keep reading for a rundown of what you’re most likely to need.

Proper Identification

First things first, your tax adviser is going to need to see and make a copy of an official identification document. For most people, this simply means handing over their driver’s license. If you don’t have one, however, a passport and/or a state-issued identification card will usually do the trick. Be sure to bring along your social security card as well, and you should be all set.

Proof of Expenses

Another thing you’ll want to bring along, especially if you are trying to qualify for some deductions, is proof of any expenses that you have incurred. Being able to prove and deduct these expenses can save you a nice chunk of money, so be sure to bring proof of any of the following types of typically deductible expenses for your tax preparer to look over:

l  Any expenses related to being self-employed

l  Mortgage interest

l  Employee business expenses

l  Charitable contributions

l  Education expenses related to employment

l  Medical expenses that exceed 10% of your adjusted gross income

l  Union payments

l  IRA/Retirement plan contributions

Bank Account Information

Make sure you don’t leave your bank account information at home! You might need it to make a payment or, if you’re lucky, to set up direct deposit for your tax refund. Make sure you know the full bank account number and routing and tracking information.

Your tax preparer may request additional documentation and information from you, so, when possible, touch base with your preparer ahead of time and ask what you should bring to your appointment. This should make things go a lot more smoothly and easily all around.

Saving for Retirement can Equal a Lower Tax Bill

Saving for retirement is something that everyone should do, for their own sake. If you need an extra little push to get started on your retirement savings- and remember it’s never too late to start- or to up your savings, then you should know that saving for retirement can actually lower your tax bill!

Contribute to Your 401(k)

To start out with, if you don’t already have a 401(k) through your workplace and one is available, take advantage of it immediately! Otherwise, you are missing out on easy and even free money that could be put toward your retirement.

Then, when possible, put the maximum amount allowed in your 401(k). If you’re lucky, this could even put you into a lower and, thus, lower-taxed income bracket, but either way,  since contributions to your 401(k) are tax-deductible, you’ll lower the amount of taxed income you have and, thus, how much you have to pay.

Plus, of course, you actually WILL be saving for retirement in the process, which is always a good thing.

Contribute to Your SEP-IRA

Working for yourself absolutely does not mean that you can’t save for the future while also saving in the present. If you own your own business or are otherwise self-employed, you can usually open an SEP-IRA and then contribute to it tax-free, thus lowering your taxable income, even without the help of a standard employer.

These are just a couple of options you have for saving for retirement while also giving yourself a nice little tax break. If you want to discover more ways to lower your tax bill and plan for your future, be sure to talk with your accountant about your options.

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How to Choose a Tax Preparer

Tax season may only come once a year, but that due date always seems to come sooner than you expect. And, unfortunately, it’s not always easy to navigate the tax code and ensure that you are filing your taxes correctly and at maximum benefit to you. If you have any doubts or just don’t want to deal with the hassle, then it’s smart to just go ahead and hire a tax preparer.   

Before you do that, however, you’ll want to keep in mind that not all tax preparers are created equally and that you need to be selective about the person that you hire. The wrong adviser can end up making things worse, not better. Fortunately, though, choosing a good, knowledgeable tax preparer is easy, if you know how to go about it.

Qualifications Count

First things first, you want to make sure that the person you are hiring or thinking of hiring is actually qualified to handle your taxes in the first place. All legitimate tax preparers must have a preparer tax identification number (PTIN) that they should disclose to you without any problems. If a preparer doesn’t have or won’t disclose this number, steer clear.

You should also look for a tax preparer that has the necessary certifications within his chosen specialization area and that ideally belongs to a professional organization that holds its members to high ethical and educational standards.

Affordability

The whole point of hiring a tax preparer in the first place is to try and save some money.  Obviously, that’s not going to happen if your preparer is charging you an arm and a leg! Thus, find someone qualified but also someone who charges reasonable fees, typically no more than around $150 for a basic tax return.

Try and avoid preparers who make their money by taking a percentage of your income taxes since these preparers can sometimes be dishonest and may “fluff up” returns to get more profit, which could land you in some serious hot water!

Also, make sure that you know the fees AHEAD of time so that you don’t get trapped into paying unexpected fees.

Book Early!

As a final word of wisdom, bear in mind that the very best tax preparers are going to book fast, and the closer you get to tax season, the less likely it becomes that you’ll get the “best of the best” for filing your return.

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Does Your Business Owe Taxes?

Being a business owner is hard work even under the best of circumstances. When things go wrong, however, and when you find yourself owing taxes, things get even harder. In fact, many businesses crumple under the pressure; one of the most common approaches, if you can even call it that, is just to ignore the problem and to hope it goes away. Newsflash: it doesn’t! Ignoring owed taxes just makes the issue worse and more urgent.

There are many other “wrong” things you can do as well, things that could land your business in more trouble than it is already in. Thus, when you learn that your business owes taxes, it is extremely important that you know what NOT to do.

DON’T Throw All Your Money Away

To begin with, don’t make the mistake of emptying all of your accounts and, in short, everything that you have in an attempt to take care of your little (or not so little) tax problem. Sure, paying off a large chunk of what you owe can help, but unless you can pay the full amount all in one go, which isn’t likely, you are just setting yourself up for disaster.  

Making a large payment, even if it takes everything you have, might make the IRS think you’re made of money, which will make it even more demanding when it comes to collecting on the rest of what you owe, which could flat out ruin you and leave you and your business penniless. Even worse yet, it could make the IRS wonder where you got all that cash, triggering an audit and a deep investigation into your business on-goings that you are likely unprepared for.

A much better solution is to, with the help of a knowledgeable tax adviser, work out a reasonable, consistent payment plan with the IRS to settle what you owe in a long-term agreement. Not only will this help you to avoid the problems and scrutiny described above, but it will also help you to keep your finances in check and to avoid going destitute while paying off the IRS.

DON’T Parlay Over Full Responsibility

As mentioned, it is smart to find a tax adviser/ financial adviser who can help you to work through your difficult tax situation. The key thing there, however, is to find someone who can HELP you, not someone who will take over everything for you and leave you out of the loop.

No matter what may transpire in the course of owing and paying back taxes, it is still important that you maintain control over your business. After all, it is just that- YOUR business. If you do hand over full responsibility, you could end up with a business that is unrecognizable. Most people who take full control are going to work in the immediate best interest of your business, not in its long-term best interest, so you could come back to a business that, while its taxes may be paid, is in serious shambles.

It’s best to stay involved and in the loop. Look for an adviser that will carefully explain to you what each decision means, both now and in the long-run, and that will help you to make the best possible choices for your business overall.

If you can follow these simple tips and stay involved in the process, you can avoid turning your situation into something bad and ultimately come out on top.

Do You have a Tax Liability?

Many Americans live in fear of having “tax liability,” but the funny thing about that is that most Americans don’t truly know what that term means. They know, from their accountants and general talk, that it is a bad thing, but most of them cannot accurately define it.

In short, “tax liability” means owing money to the Internal Revenue Service (IRS) at the end of the tax year, and, while that’s certainly not a good thing, it’s not nearly as scary or, to put it bluntly,

nearly as big of a deal as most people make it out to be. In fact, a great many people and businesses regularly have tax liability at the end of the tax year.

The good news is that it is possible to reduce the likelihood of tax liability with the help of a knowledgeable financial adviser through finding and taking good advantage of available deductions, signing up for credits, and more. Plus, if you do have tax liability, there are ways to get around it, or, at the very least, to pay it off with ease. The key is to, first of all, not panic when you hear the term “tax liability,” and to, secondly, understand the ins and outs of tax liability and what you can do about it if it occurs and to prevent it from happening in the first place.

Claim Deductions Like Crazy

As mentioned, one of the best ways to deal with tax liability is to keep it from happening in the first place, and, also as mentioned, one of the easiest ways to do that is by claiming any and all available deductions for which you are eligible.

Even when you think you have filed for all possible deductions, if you are still coming up with liabilities, it is time to contact a professional accountant and/or tax adviser. These professionals know the ins and outs of every single tax law and deduction there is, and, those they don’t know, they can easily look up.

They know how to pull totally legally “tricks and tips” to help you obtain more deductions than you ever thought possible, so if, on your own, your deductions are coming up short, these are the people to turn to.

Give From the Heart (And Benefit the Pocket)

Another easy way to reduce your tax liability is to be a giving person; in other words, by making tax deductible donations to legitimate charities, you can reduce your tax liability. This is great because, not only can you help others, but you can help yourself as well.

Again, though, professional help is smart since you need to know how to donate, what to donate, and in what amounts in order to reduce your liability legally without raising suspicion and making yourself more likely to be audited.

As you can see, there are things you can do to reduce tax liability and to prevent it as well, but none of this is easy to do without professional help, so, if you don’t already have a trustworthy tax adviser, there is no better time than the present to find one.

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Tips for Filing an Amended Tax Return

Despite your very best efforts, you may, at some point in your life, end up filing a tax return that is incorrect in some way. This could simply be due to the fact that you were rushing to meet the impending tax deadline and made a mathematical error. Or, maybe you had a dishonest accountant or inaccurate software. Whatever the reason, if you made some serious error, like under reporting your income or forgetting to file for credits you deserved, or even a more minor one, don’t panic! The IRS knows that people make mistakes, and it has policies in place to allow for amended tax returns.

Whatever you do, don’t just avoid amending a wrongful tax return because you think it will be too stressful or too difficult; take the necessary steps now to amend your tax returns and set things right. If you don’t, you could miss out on great benefits, or, even worse yet, find yourself in legal and/or financial trouble or even facing an audit.   

Form Fitting

As mentioned, the IRS is quite used to people making (and amending) errors on their tax returns. In fact, it is so used to it that it has a specific and simple form you can fill out if you have made an error and need to fix it.

You can fill out Form 1040X to amend any errors as long as you initially filed one of the following very common tax return forms:

l  Form 1040

l  Form 1040A

l  Form 1040EZ

l  Form 1040EX-T

l  Form 1040NR

l  Form1040NR-EZ

If your originally filed form is not on the above list, you can still amend your taxes; it just may be a bit more complex of a process, so, if the form that you originally filed is not listed above, contact a tax adviser for help and information on how to amend your return. Most people, however, will simply be able to fill out the specialized amended form.

Pre-Filled Information

When you do have to file an amended form, the IRS does you a major favor by presenting you with a pre-filled form (at least if you go through the re-filing process online, which is recommended).

This form will contain all of the information you originally filed, which means that you won’t have to re-enter all of that tedious stuff, like your social security number, name, and address. Thanks to the pre-filling feature, you can simply go back through the form, find the spot or spots where you made a mistake, correct them quickly, and be on your way. What could be simpler? To get this nice benefit, however, make sure you are doing your filing and/or refiling online.

Provide Documentation

In addition to filing and/or refiling online, make sure that you have any necessary documentation of the changes you are making and, even more importantly, WHY you are making those changes available.

Providing this documentation will allow the IRS to quickly and easily see your error, to fix your form/status, and to move on, without opening you up to an audit or other issues.

If you do not have documentation, are not sure what documentation would entail, or have any other questions or “special circumstances,” just contact a qualified accountant in your area to make the amendment process even quicker and easier to go through.

The Truth about the Sin Tax

There’s a funny little term that floats around the tax world, and that term is “sin taxes.” This term is typically used, at least by laymen, to refer to the tax on “pleasurable” but “bad” things, such as alcohol, tobacco, soda, and junk food. These taxes, which, in reality, are called “excise taxes” are taxes executed on things that are bad for human health. The government likes to put up the front that it dissuades people from engaging in unhealthy behaviors by exacting “sin taxes,” but it also profits from these taxes in the form of state revenue, making the whole idea a bit of a Catch-22.  

While it may not be fair for the IRS to say it doesn’t want people to do or buy certain things but then to profit big time when they do, the fact remains that these taxes do exist and thus that they do have to be paid. As a consumer, you pay these taxes each and every time you buy such a product or service. As a business, though, if you offer these taxes and services, which also include things like tanning or selling gas, you must be sure that you pay these excise taxes, or you could face serious punishment that could potentially ruin you and your business.

The bad thing about these taxes is that they are the same for all people, regardless of income, which makes them even more unfair, especially when you consider that studies show that people in lower income brackets are more likely to partake in bad for them goods. No matter how you feel about these taxes, though, you have to pay them if you wish to partake in “sinful” products and even more so if you wish to profit from the sale of “sinful” products. However, the Catch-22 continues with the fact that businesses profit more off of the sale of “sinful” goods and/or services than they do off of so-called morally conscious ones.

No matter how you feel about it morally, however, the bottom line is simple: just pay up, whether you’re a consumer, seller, or, more than likely, both, and be done with it.

What You Need to Know about Employee Expenses

If you own a business and have employees, then there is likely a good chance that you regularly reimburse your employees for spending related to their jobs. Unfortunately, though, many smaller businesses aren’t as strict about following up on these”re-fundings” and ensuring that they are

legitimate as they should be. To really be sure that you are not overspending and that you can trust your employees, you should require proper identification and proof, such as receipts, of all funds that you reimburse.

 Though this may be a difficult thing to enact, it will benefit your business and make it much easier to prove your employee expenses come tax time. In addition to careful tracking of employee expenses, it is also wise for business owners to consider placing a cap on employee expenditures.

Eliminate Costs Where You Can

One thing that can help you to save money on employee expenses and to make your expenses appear more credible to the IRS is to eliminate any unnecessary spending when possible. Obviously, if you have your employees traveling, you need to be able to pay for their travel, lodging, and food while they are away. Most things outside of that, however, are not TRUE necessities.

If, for example, you cover the cost of your employees’ phones and phone plans or the cost of their pleasure outings while traveling for work, you may want to rethink that decision. These kinds of expenses can look questionable to the IRS and can also cause you to spend more money than you really need to.

While cutting off certain employee expenses may not thrill your employees, it is often a necessary and worthwhile step for businesses to take, especially businesses that are struggling financially or that are fearful of undergoing a highly scrutinous audit in the near future.

Take Deductions When Possible

In addition to putting an end to unnecessary employee spending on your dime, you should also take a close look at the expenses you are financing. There is a very good chance that many of them fall under governmental benefit plans. If, for example, you are reimbursing employees for relevant educational expenses, you could potentially get reimbursed for those expenses through tax-deductible government programs.

Your best bet is to work with a financial adviser to determine which programs exist and, then, if and how you can take advantage of them. This option provides you with a way to still encourage your employees and keep them happy without having to foot the entire bill for doing so yourself.

Capping Costs

As mentioned earlier, you will be expected, in most cases, to take care of employee necessities, such as dining and lodging. However, do keep in mind that you can control your business’ spending by placing a cap on employee expenses.

By only giving your employees a certain amount to spend on food, lodging, and other expenses per day or per instance, you can greatly reduce the number of employees that take (an unfair) advantage of your kindness and your overall costs.

While your employees may not love getting “capped” and “reduced” in these ways, the bottom line is that the tips presented here can help you to save money while still reasonably providing for those who work for you, and, at the end of the day, that is what matters most.

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What Your Business Needs to Know about the new Overtime Rules

If your business and its employees are used to the old way of doing things when it comes to overtime rules, it’s time to wake up! New overtime rules have recently been released, and, unfortunately, the vast majority of businesses aren’t aware of the new rules and/or don’t believe that their businesses will be affected. Unfortunately, however, the statistics from the United States Department of Labor, which estimate that over 4 million workers will be affected by these new rules, don’t line up with those beliefs.

Under the new rules, the salary threshold is raised for many executive, administrative, and professional employees, when it comes to being exempt from the Fair Labor Standards Act. In December of this year, when the new rules take effect, the threshold will raise a vast amount, from $455 per week for exempt status to $913 per week.

It’s not just the salary threshold that will change either; the total annual compensation requirement necessary for the highly compensated employee exemption will also be raised. It’s moving from $100,000 per year to $134,004 per year.

If you think that your business may be affected in the coming months, then it’s time to take action now. With the help of a qualified financial adviser, you need to look at how your business and its bottom line may be affected by these changes and how you can avoid wage claims and other potential problems. The good news is that you still have time to make these changes and perform these preparations, so the sooner you get started, the better.

Perform an Audit

One of the best ways you can prepare your business for the rule change is to conduct an audit of all of your employees. This audit, which should be conducted with the assistance of a tax adviser and/or compensation specialist, should help you to know which of your employees will likely be affected by the rule changes. Once you have a better idea of how big of a change you are looking at, you and your helpers can more adequately prepare for that change and take steps to reduce the negative impact of it on your business and your employees.

Get the Right Tools Together

Another benefit of accurately understanding and evaluating the impact that these new rules will have on your business is that you can gather tools, such as compliance, time, and attendance software packages, that can help you to avoid back pay and stay in line with the new overtime rules.

The bottom line is that this change is coming, whether you want it to or not, and there is a good chance that, if you don’t prepare properly, it could end up having a vastly negative effect on your business. Don’t take that chance with the business you have built and with your livelihood; start planning and preparing now for best results.

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When You Owe $$ to the IRS

When you’re a business owner who is in debt to the IRS, it’s easy to feel very alone and like you’re the only business that has ever found itself in this position. However, nothing could be further from the truth; a great many businesses have found themselves, at one time or another, indebted to the IRS. Contrary to what you may think if you have found yourself in this situation, this is not a mark of failure on your part. It is just something that happens, even to the best and most organized businesses, from time to time.   

Sometimes, IRS debt happens as the result of true financial problems.Maybe something happened that caused your profits to go down, or maybe a series of “somethings” happened that landed you in a position where you were unable to pay your business taxes. Family tragedies, economic downturns, a slew of clients who refuse to pay, and other issues can all lead to being in debt to the IRS. Other times, making a few simple financial or even accounting mistakes here and there can add up, leading to owing money and potentially even facing legal and/or financial consequences as a result of these innocent mistakes

Regardless of the reason for your “fall behind,” the IRS certainly doesn’t make it easy or less intimidating to be in this position. Though it recently tried to soften its approach and referred to collecting on back taxes as a way to help the economy and the tax system in general, it can still be quite aggressive when it comes to enforcing compliance for businesses, which can easily make you feel fearful and anxious for the safety and security of the business you have worked so hard to build.

However, you should know that you do NOT have to go through this process alone. In fact, it’s better if you don’t. If you are in debt to the IRS, find a financial adviser who can assist you and walk you through the process of “getting right” with this government agency. Having support and, even more importantly, expertise on your side will make all the difference. By choosing not to go through the repayment process alone, you are saying “no” to fear and anxiety and “yes” to clarity, peace and understanding, and what could be better than that?

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Starting a Start Up? Make Sure You Know These Terms

When you’re starting a start-up, that usually indicates that you’re new to the business world, or at least to actually working and dealing in it. Being new, however, is not an excuse for not being knowledgeable and for not making every effort you can to educate yourself on common business, investing, and accounting terms that you need to know in order to have success.

We’ll help you out by teaching you a few basic, need-to-know terms right now, but remember, the more you educate yourself and the more you learn, the better.

Assets:

An asset is something that has financial value that your business owns outright. It is also something that you could lean on for financial benefit, if needed, in the future. It might be something you could sell off, like expensive equipment, or it could be plain cash, real estate, or investments. Essentially anything your business has of value is an asset and should be counted as such.

Equity

Equity is another important term you need to know. It is basically the ownership of your business and the value of that ownership. You use your equity and sell pieces of it off to get things you need to get the wheels turning on your project. You might sell off equity to obtain equipment, to rent a business space, or anything in between; equity is your value, so make the most of it!

Gross Margin

If you aren’t familiar with “gross margin,” then you need to be. This term refers to the percentage of your sales revenue that you earn AFTER you have deducted costs and expenses involved in providing your service or making your products. Obviously, the higher your gross margin, the better because it means you’re actually making money instead of just breaking even.

Depreciation

When something depreciates, that means that it goes down in value. And, unfortunately, many of your assets are likely depreciating with each passing day. That brand new printer, for example, is becoming less “new” by the minute. When assets depreciate, it is important to factor that into your accounting and your taxes; some items can even be taken off of your assets lists once they reach a certain level of depreciation.

Accounts Payable/Receivable

This is another important term and one that you’ll hear referred to a LOT, so it’s smart to go ahead and familiarize yourself with it now.

Accounts payable are accounts or money that you need to pay out for bills, operating costs, and more. Accounts receivable are accounts that you are waiting to receive money on, such as unpaid client or commercial accounts.

Obviously, there are a lot of terms to keep track of, and really, this list just begins to scratch the surface. However, the more you work to educate yourself and to learn all you can, the faster you’ll pick up new terms and, even more importantly, more business knowledge that will help you to make your start-up a smashing success.

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Accounting Mistakes You Should Never Make

If you handle your business accounting on your own, you probably think you do a pretty good job. In truth, though, accounting is some pretty tricky stuff, and it’s very likely that if you’re not using a professional accountant or at least professional accounting software, you’re making some mistakes along the way.   

And the problem with accounting mistakes, even small ones, is that they can end up costing you big time. Mistakes can result in your company looking unprofessional and disorganized, in legal problems, in fines and fees from the IRS, in an audit, and in many other issues.

Obviously, the best solution is to not make accounting mistakes in the first place, but if you’re going to make errors, there are some that you REALLY want to avoid. Below, you’ll find some of the worst accounting mistakes you can make and, after reading, hopefully you’ll be inspired to double-check your figures and forms for mistakes or maybe even to hire a professional accountant to assist you.

Mistake #1: Overestimating Your Assets

One of the worst things you can do is to make an accounting error, such as adding an extra zero in somewhere, that leads you to believe you have way more assets than you actually do.

If the error is bad enough, it could easily lead to financial ruin, employee loss, and public scrutiny from those who think you’ve been dishonest.

These errors, as mentioned, can come from “bad math” or from just not understanding how to properly analyze and predict where your company will be, financially speaking, within a given timeframe.

Regardless of what caused this type of error, it’s always an indicator that a business needs professional help and fast!

Mistake #2: Not Being Consistent

When people who, to put it bluntly, don’t know what they’re doing are managing (or attempting to manage) the finances, problems often arise with consistency.

Inexperienced people will often do things like put in a different product costs for each order, only keep some receipts but not all of them, and forget to record certain payments or credits.

Obviously, this can lead to gaping errors, confusion, and a lot of disgruntled clients. Consistency is achieved by having standard financial plans and strategies that everybody follows all the time...or by having a financial pro on board who knows exactly what he’s doing!

Mistake #3: Not Taking Advantage of Credits and Deductions

Another common mistake that people make is not taking advantage of available credits and deductions. Sometimes, these get written off as not being that worthwhile or that big of a deal, but, when you consistently skip out on ways to save money, it can end up costing your business big time.

As you can see from these all-too-common mistakes, having a professional accountant on board or at least someone who knows what he’s doing is absolutely indispensable.

Bookkeeppers vs. CPA's - Which is Right for Your Business?

Business owners have the choice of hiring either a bookkeeper or a CPA to handle their business’s financial records and keep track of sales transactions. However, if they’re being honest, most business owners really don’t know or fully understand the difference between the two.  

It’s easy to see why they would have this problem since the distinction between the two professions is becoming less and less clear, especially with all of the combination bookkeeping and accounting software available today. However, there is still a difference between a bookkeeper and a CPA, and every business definitely needs one or the other. For that reason, it is imperative that business owners educate themselves on the two options and on which one is the best fit for their business.

Bookkeepers

Bookkeepers are responsible for keeping track of all of the daily transactions that go on within a business. Some of their responsibilities include:

l  Recording sales

l  Recording purchases

l  Keeping track of receipts

l  Noting payments from customers

l  Noting payments to vendors

l  Posting credits/debits

l  Generating invoicing

l  Balancing ledgers

l  Reconciling bank accounts

l  Preparing financial statements

Because they have so many major responsibilities, most bookkeepers have at least a two year degree in the field and work exclusively for one business. They tend to be a part of the workplace just like any other employee.

Accountants

Accountants or CPAs, on the other hand, are not quite as “hands on” or visible in the workplace. Most CPAs have several business clients that they work for, and more often than not, they will work from their own, separate business location.

Like bookkeepers, they deal in the finances of the businesses that they work for, but they are less concerned with day-to-day tasks and recordings than they are with looking at how a business is doing financially over all and on what choices would be wise for a business to make to maintain good financial footing.

Some of the tasks of a CPA include:

l  Analyzing budget and operational costs and suggesting improvements

l  Preparing financial reporting statements

l  Performing audits and assessing their findings

l  Making informed predictions about a business’s financial future, as well as suggestions for improvement and better performance

l  Completing tax returns

Which One Should You Choose?

Now that you understand a little bit more about accountants and CPAs, hopefully you’ll have a better idea of which one might be the right fit for your business.

If you’re still on the fence, then you should consider what exactly you’re looking for, as well as the size of your business. Smaller businesses can often handle bookkeeping tasks on their own, especially with the right software, and really only need an accountant. Larger businesses may need the help of both.

In general, if you can only choose one or the other, an accountant is the way to go since this person will basically serve as a financial adviser on your most important business decisions, but the choice is yours to make, so put some thought into it before hiring a CPA, a bookkeeper, or both.

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The Potential Power of a Payroll Tax Cut

Chris Christie, the governor of New Jersey, thinks he knows what will build up social security and encourage Americans to save for retirement- offering a payroll tax cut to any American who works past the age of 62.

The tax, which is at 12.4% requires workers to pay half themselves and puts the burden of the other half on their employers, but Christie hopes to do away with that for older workers.

His belief is that this proposed tax cut would give older workers an incentive to work longer. He also explains how he believes it would help Social Security as a whole by reducing the number of workers who start claiming it the moment they hit the age of 62.

On the flipside of the coin, he also hopes to encourage more young workers to enter into the workforce by getting rid of the payroll tax for workers under the age of 21.

While Governor Christie’s proposal has certainly garnered a lot of attention, both positive and negative, he actually isn’t the first to propose this type of tax cut. Senator Marco Rubio of Florida did the same thing, and, outside of the political spectrum, many economists and tax experts have also proposed the idea.

While it is obvious that many people have seen the potential benefits of this decision, others see problems with the idea. The biggest complaint among detractors is that the tax break would harm the reserves of the Social Security program. These people believe that, instead of eliminating the payroll tax for older and younger workers, the federal government should increase the maximum income that can be subjected to Social Security tax.

It is abundantly clear that there are all kinds of feelings and opinions surrounding these ideas, but what isn’t clear yet is what will happen in the future with regards to this matter. For now, only time will tell.

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Suggestions for Easier Tax Compliance for Small Business

If you’re a small business owner, then you probably already know all too well how difficult tax compliance can be. Once you think you’ve got the rules figured out, they change, and if you make a mistake, then you’re likely to be burdened by hefty fines and penalties. To make matters worse, small businesses typically don’t have the resources to leave all of the “figuring it out” up to professionals. 

The really unfortunate thing about all of this is the fact that tax compliance doesn’t have to be nearly as hard as the IRS makes it. On the positive side, though, the IRS does realize that its compliance rules have some issues, as do a lot of other important people. That’s why, recently, a hearing was held by the U.S. Senate Committee on Small Business and Entrepreneurship, and together, the members of the committee came up with some potential (and hopefully soon-to-be-implemented!) strategies for simplifying compliance for small businesses.

Proposed Solution #1: A Simpler Tax Code

It makes sense that, if simpler compliance is the goal, a simpler tax code is necessary. Experts are hoping for a scaling back of the current massive tax code, which contains more than 74,000 pages.

Financial experts have suggested many changes that could lead to an easier-to-understand, less threatening code, but some of the main proposed changes include:

l  Fewer industry categories

l  A reduction in overall tax rates, brought on by a scaling back of unique tax breaks

l  Fewer distinctions within categories

l  Rules that vary based on business type and size

As it stands, many feel that the current tax code favors large corporations and leaves small businesses in the dust; however, these changes, if enacted, could change all that for the better.

Proposed Solution #2: Allow Cash-Method Accounting for More Businesses

Many businesses regard cash-method accounting as much simpler and easier to understand than accrual method accounting. Unfortunately, though, businesses that make more than $5 million in yearly revenue are required to use the more complex method, which requires them to report expenses as they are incurred, not as they are paid for.

If a new proposal is approved, however, any business with $10 million in revenue or less would be able to use the easier cash method, which allows them to simply log and count earnings as they receive them.

This would open the door for many more businesses to enjoy easier compliance and easier, more accurate accounting in general.

Proposed Solution #3: Take the Section 179 Expensing Limit from Temporary to Permanent

Section 179 has been around for quite some time, and its basic purpose is that it allows businesses to write off all of some expenses, up to the yearly limit, instead of having to depreciate them as time goes by.

The current limit is $500,000, but that’s not yet permanent, though many want it to be. If these people have their way, the limit would stay at that nice $500,000, giving tax relief to business owners everywhere and also keeping them from having to play the “guessing game” about what the limit will be each year.

There is no guarantee that these proposed solutions will actually happen, but it’s nice to know that work and thought is being put in to make compliance easier for small businesses. Now, business owners just have to cross their fingers and hope that the people in charge listen to this great advice.

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Claiming Business Expenses the Right Way

When you own a business, no matter how big or how small, you are going to incur some expenses along the way. The IRS defines true business expenses as any costs that are “ordinary and necessary” in the operation of the business.   

It is important that you keep track of any and all business expenses you encounter throughout the year. Then, when tax time rolls around, you can look through your expenses, sort out the ones that can be claimed, and save yourself quite a bit of money.

Hiring a good, reliable accountant to sort through your business expense lists can be worthwhile and can make the process go a lot more quickly and easily. Either way, though, it is important that you understand the basics of claiming business expenses and that you know a few tips and shortcuts that can help you along the way.

Tip #1: Document Anything and Everything

First things first, you need to be documenting every single business expense that you incur throughout the year. Documenting doesn’t just mean writing down the expense either; no, it means maintaining some kind of proof of the expense, just in case you ever go through an audit or are asked to back up your claims.

The easiest way to properly document your expenses is by keeping receipts for purchases made. You can do this the old-fashioned way by actually keeping physical receipts and putting them in a filing cabinet or other storage space. Or, you can invest in a cloud-based system that allows you to scan in receipts and keep them on file virtually.

In addition to keeping receipts, don’t forget to maintain logs for business travel if applicable, and make sure your employees are doing the same.

Tip #2: Value Accuracy Above All Else

Another very important thing to keep in mind is to ensure that all of your calculations are completely accurate before you submit your deductions to the IRS. Not doing so can greatly increase the chances that you’ll be audited, which can be a real hassle. Plus, you could miss deadlines and face fines and fees due to inaccurate reporting.

Back deductions up with worksheets when applicable and make sure you are up to date on any changes that the IRS has made for the current tax year, such as being aware of the latest mileage rates.

Your best bet is always to have a professional accountant do the checking for you, but if you’re doing your taxes alone, check and double-check everything!

Tip #3: Don’t Forget to Differentiate

Finally, make sure that all of your business expenses are being categorized appropriately. Not doing so is basically asking for an audit!

Keep true business expenses, as defined and explained above, separate from other things like capital expenses and personal expenses. And, before you just assume something counts as a business expense, double check the tax law or ask your financial adviser.

Filing taxes is stressful, and filing business expenses, though it will pay off in the long run, is too. That’s why you should keep these helpful tips in mind as you go through this arduous but worthwhile process.

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Tax Changes You Should Know About

Tax laws are known for changing quite frequently. In fact, there are changes almost every tax year, and 2016 is definitely no different. While there were many changes this year, some are definitely bigger and more likely to affect average people than others. Here, we’ve outlined some of the more major changes that you should be aware of.  

  

A Permanent Business Break: Section 179

As of 2016, under section 179, businesses can get a break on up to $500,000 worth of equipment that they’ve purchased for their businesses- pretty impressive, right?

Up until now, Congress has had to approve this break and its limit, but, as of this year, it’s permanent, so if you own a business, you can bet on this break for good!

                                     

Big Penalties for Not Offering Affordable Health Insurance

While, as of this year, businesses can benefit under Section 179, they may also end up suffering some serious consequences if they don’t offer affordable health insurance to their employees. Health insurance is now a required offering from businesses with fifty or more full-time employees.

Businesses that don’t obey the law could end up paying tens of thousands of dollars in fines! Penalties can be assessed when one of your employees get a tax credit for health insurance marketplace coverage or ends up spending a large chunk of his household income on health insurance because your business doesn’t offer it.

Don’t take these kinds of chances. Brush up on the new laws taking effect this year and then make sure you’re abiding by them fully.

Business Mileage Rates Plummet

If you drive a vehicle for work, then you probably already know that you can deduct mileage costs using the standard mileage rate set in place by the IRS. This is a great way to end up saving a surprising amount of money over time.

This year, however, business drivers and travelers won’t save quite as much. Unfortunately, the new tax laws have reduced the standard business mileage rate to fifty-four cents per mile, instead of last year’s 57.5 cents per mile.

The R&D Tax Credit: Now Permanent

The IRS-offered tax credit for research and development isn’t temporary anymore! It’s now a permanent offering, and it’s available to more businesses as well. From this year forward, companies that have been in business for fewer than five years and that bring in less than $5 million in revenue can use up to $250,000 worth of the credit. That’s good news for a great many businesses that have taken advantage of the credit in the past and for new ones that are just getting started and could use an extra boost of help!

Tax laws will probably never stay 100% the same from one year to the next, but as long as you stay on top of the changes, like these presented here, you should always come out on top!

Small Business Accounting Struggles

Nobody ever said that running a small business is easy. Not only do you have to ensure that you’re earning a profit and deal with troublesome clients, but you also have to handle all of your business accounting matters. And, unless you’re an accounting expert or you’ve got one on staff- which, by the way, you should really think about doing- chances are that managing money isn’t exactly your forte.    

Fortunately, though, some accounting struggles are more common than others, and, because they’re so common, there are some easy, proven, virtually foolproof ways to remedy them.

Remembering Who Owes What

When you imagined running your business, you probably imagined sending invoices, having people pay them, and then rolling in dough. Unfortunately, as you probably now know all too well, it’s rarely that simple. There are people who don’t pay, people who pay late, or people who don’t pay in full. Thus, if you’re not keeping careful track of who has paid (or hasn’t paid) what, you’ll end up very confused and unsure of who owes you money and how much, which could lead to lost or forgotten funds, the last thing any business needs!

Having and relying on a simple Accounts Receivables ledger can really help with this. Use this ledger to separate customers by name and account number (if applicable), and to keep track of who has been invoiced, any payments made, and any balance owed. You can do this with nothing more than a basic spreadsheet, but it will really make all the difference in keeping track of everyone’s accounts and of what you’re owed.

Keeping Track of Receipts

Another thing you’ll need to keep careful track of is receipts. The IRS requires you to keep many receipts, sometimes for up to two years or more depending on circumstances. Make sure you are aware of what receipts the IRS may request from you and that you are properly storing them and classifying them.

You can do this the old fashioned way by keeping receipts in a filing cabinet that you’ve segregated by date and/or category , or you can simply scan receipts and file them away online if you want to avoid clutter. Either way, developing a simple system for easily accessing the receipts you need is definitely the way to go.

Making Revenues and Expenses Match

Finally, know that there is a major difference between just recording financial data and actually being able to understand it!

When you mark down an expense, for example, indicate clearly what the expense was for and what, if any, revenue that expense was related to. This will help you to understand what spending is truly necessary and what spending needs to or should be cut down on.

Having clear, written policies about how different revenues and expenses relate can make this information even easier to understand and more comprehensive for you and others whom you employee.

If you can follow these simple tips, you’ll be able to easily overcome a lot of common accounting woes.

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