Not All Tax Professionals are Created Equal

When you first consider hiring a tax professional for business or personal use, it can be confusing to sort through all of the different terms that exist.   

Three terms that you’ll probably hear a lot are “bookkeeper,” “accountant,” and “CPA.” It is important to note that, though it doesn’t always seem like it, each of these terms denotes a very different job, and it’s important that you hire the right one for your specific purposes.

Bookkeepers

Bookkeepers are typically hired for business purposes. Their job is literally to “keep” or maintain the books and financial records of their clients in order.

Modern day bookkeepers often use specialty software to make their jobs easier, and they are definitely tasked with a lot of jobs. These include recording transactions- both ingoing and outgoing, inventory management, and generating financial reports as required by the business structure.

Accountants

Accountants are different from bookkeepers in that they do a whole lot more. They sometimes do bookkeeping tasks and additional tasks, or they may do only the “additional” part.

Their main job is to prepare financial statements, prepare reports, and basically keep the business’s finances on track. It is important to understand, however, that accountants cannot sign tax returns or represent their clients in the event of an audit.

CPAs

The most prestigious job in this industry is that of a CPA. These professionals are accountants with additional qualifications who are certified by the state to perform their duties.

They do everything an accountant would do, but they also prepare tax returns and, unlike accountants, can represent their clients during an audit and sign tax returns.

As you can see, there are big differences between the different types of financial professionals, and only you can decide which option is the best fit for you and your business or for your own personal needs. With that said, though, most people will find that hiring a CPA, who can do absolutely everything they might need, is the best option. The choice, however, is yours.

Will Your Social Security Benefits Be Taxed

Modern Social Security card. (Photo credit: Wikipedia)

Receiving social security benefits is great, but be aware that, sometimes, you may have to pay taxes on as much as 85% of your social security benefits! You can find your total social security benefits on box 20a of the 1040 form, and, in the less popular box 20b, you’ll see the taxable amount of those benefits.     

The Role of Combined Income

Your combined income and its amount will play a role in determining whether or not your social security benefits will be taxable.

Just in case you are not familiar with this term, “combined income” refers to your adjusted gross income plus nontaxable interest plus half of your social security benefits. If you need help determining what things go in which category- which can get pretty tricky- remember that you can always ask a professional accountant for help!

Basically, though, if you’re a single filer with less than $25,000 in combined income or a married filer with less than $34,000 in combined income, then your social security benefits won’t be taxed (lucky you!).

If, however, you earn more than these so-called “threshold amounts,” it’s simply a matter of determining how much of your Social Security benefits will be taxed.

Typically, what you will be forced to pay will be the lowest of any of the following amounts that are applicable to you:

·         85% of your social security benefits

·         50% of your combined income over the first threshold amount, in addition to 35% of your combined income over the second threshold amount

·         50% of your social security benefits plus 85% of the combined income over the second threshold amount.

As you can probably already tell, figuring out how much you have to pay can be quite confusing! So, if you determine that you are going to be taxed, it’s a very good idea to have an accountant help you to navigate through the process and make the right choices.

Tips for Reporting Vested Benefits

If you have a job, then there’s a very good chance that you have or at least have heard of “vested benefits.” These are, quite simply, benefits that you are promised but that aren’t quite yours yet- benefits that will become yours after you fulfill a certain requirement, such as staying employed by your employer for a certain amount of time. These vested benefits, however, can be a source of great confusion and concern to employees who are unsure how to report them on their taxes or if they have to report them at all. Fortunately, though, it’s not all that difficult to figure out how vested benefits work.

Understanding Vested Benefits     

First things first, you need to understand what exactly counts as vested benefits. Generally, any benefit that you WILL get but don’t have yet is a vested benefit. Most commonly, these benefits include things like:

·         Shares of stocks

·         Pension benefits

·         Stock options

·         Employer 401k contributions

·         Employer contributions to a retirement account or plan

Benefits may be “cliff vested,” which means you will get them in their entirety at a certain future date, or “graded vested,” which means you will get them in small increments over a pre-determined period of time.

No matter what type of vested benefit you get, the key to remember is that you’ll only need to pay taxes on it if the benefit you receive is taxable, and many of the benefits on the above list are not.  However, for those that are, such as stock shares, you’ll have to pay taxes on them even BEFORE you actually receive them, i.e. before they are fully vested.  For taxable cliff-vested benefits, you’ll need to report the full amount of the benefit as income when you reach the vesting date. For graded-vested benefits, you only have to report the amount in taxable benefits you actually received that year.

If you can keep these helpful tips in mind and always checkin with your accountant or other financial adviser on how benefits affect you and your taxes, you should have no problem enjoying your vested benefits…and making sure you pay on them as you’re supposed to!

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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Cloud Accounting: Is It Worth the Risk?

Cloud accounting has become extremely common, which is not surprising given the popularity of online banking and other cloud-based systems.  For those not familiar with this term, “cloud” programs are simply programs or software used on a remote server. That means that information isn’t stored on a computer but, instead, on a separate account which is accessed by logging into a program.

While many people like the idea of not having to store a lot of space-consuming data and programs on their own computers, there are some concerns with cloud accounting, and the biggest one is the issue of security.

Because business owners do not have direct control over their information, meaning that it is not stored on their own server, they have to rely on the cloud program to have good security measures in place. And, while most do, there is always the fear of hacking, security breaches, and other problems.

While the fear over security issues is real, though often unfounded, most feel that the benefits of cloud accounting outweigh the risks. Some of the benefits include:

·         -Software is regularly and automatically updated without creating problems or extra tasks for users

·        - Data is backed up often and automatically

·         -Bank transactions can be fused with accounting programs for easier bookkeeping

·        - Information can be accessed from anywhere, anytime as long as the user has his or her login available

·         -Cloud accounting is much more affordable than standard software programs

With so many benefits, it’s really not wise to let fear keep you from giving cloud accounting a try.

The key is just to find a cloud accounting program that you know you can trust completely. Look for a cloud program that is regularly audited by the American Institute of Certified Public Accountants; this will ensure that the program is meeting all security regulations. Also try and choose a program that is recommended by your accountant or other experts in the field. As long as you choose wisely, there is no reason you can’t end up with a great, very secure cloud accounting program that will make your life so much easier.

Understanding How Capital Gains Tax Affects Real Estate

Many items that you purchase start decreasing in value pretty much the moment you purchase them. Fortunately, however, that’s not the case with all purchases; your home, for example, can end up being a purchase that actually increases in value. This can happen if you complete renovations on your home to raise its value or if you purchase a home in an area that later becomes popular and high in demand. When people experience a rise in their home’s value, they will often decide to sell their homes and make a profit.  

If you’re considering taking this route, you should know that you may have to pay taxes on any profit you make from the sale of your home. This tax is called the “capital gains tax,” but, fortunately, there are ways around it.

The Taxpayer Relief Act of 1997, for example, is one “loophole” through which many people are able to hold onto the profits from selling their home, or at least most of the profits. There are other methods that can help you to hold onto profits as well, so before you sell your home, talk with an accountant or financial adviser to see what options you have. 

House Flipper or Homeowner?

One important thing to understand is that not all home sales are treated the same. If you, for example, are someone who purposefully buys homes, fixes them up, and then sells them at a premium- known as a “house flipper,” your situation is treated differently by the IRS than that of a standard homeowner.

A homeowner, for IRS purposes, is defined as someone who has used the home in question as his primary residence for at least two years out of five years of ownership. If this rule does not apply to you, you will more than likely have to pay the capital gains tax. If you’re a true homeowner, though, there are ways around paying the tax.

Furthermore, there is an exception to the rule if you’re a true “house flipper,” i.e. someone who regularly buys, fixes up, and sells houses. When you do this often enough, you can treat your homes as inventory and have your profits taxed as income.

The Impact of Profit

Something else you should know is that you are not taxed based on how much you sell your home for. Instead, you are taxed based on the amount of actual profit you make. There is going to be an “allowed exemption amount” on the sale of your home, and as long as you don’t go above that amount, you typically won’t have to pay taxes, providing, of course, that you meet the IRS’ definition of a true homeowner.

Partial exemptions are also available in many cases, even if you do go above the allowed exemption amount. The important thing is to work closely with a tax professional to ensure that, no matter what your situation, you retain as much profit as possible from the sale of your home.

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Terrific Tax Breaks You Shouldn't Miss Out On

There are a lot of tax breaks available in the world today, and obviously, you want to take advantage of all of the tax breaks for which you are eligible. A qualified accountant is your best resource for making sure you don’t miss out on any available tax breaks. However, to help give you an overview, we’ve provided some of the most common (and awesome!) tax breaks available- ones that you should definitely take advantage of if possible.     

Tax Break #1: Charitable Contributions

For once, being a “do-gooder” really can pay off. If you’ve made cash donations or even donations of goods to approved charities, you qualify for a deduction! Just make sure that you hang on to your donation slip or receipt so that you can prove how much you donated/the value of what you donated and that it was to a reputable charitable organization.

Tax Break #2: Energy Efficiency

Are you an environmentally conscious person? Well, that could end up paying off for you too! If you have recently made improvements or additions to your home in an effort to make it more energy efficient, you might qualify for a special tax break. Look into the specifics to see if your latest home project counts, and as always, keep those receipts handy!

Tax Break #3: Sustainable Vehicles

Thinking of the environment really does pay off! Not only can you enjoy a tax break for making your home more energy efficient, but you can also enjoy a break by purchasing a hybrid gas-electric vehicle or a vehicle that uses alternative fuel. The exact amount you’ll save will vary based on the specific vehicle you choose, but definitely look to see where your car falls!

These are just a few of a great many tax breaks that you can enjoy! To learn about others and how they can be used to your advantage, speak with your accountant or your financial advisor. Some of the breaks might seem small, but they can really add up if you take advantage of all that are offered to you!

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What You Need to Know about the American Tax Credit

If you’re thinking about heading to school or if you’re sending a child off to college, you need to know about the American opportunity tax credit. This credit is good for students who pay taxes and can help them to supplement the high cost of a college education. The credit reduces the taxes owed based on the amount of money spent So, the more one spends on college, the higher the credit.

Eligibility Requirements

As with most credits, there are strict eligibility requirements that must be met in order to receive this credit. They include:

l  The student must not have completed four years of schooling.

l  The student must be enrolled in college for at least one semester during the tax year.

l  The student must meet the college’s eligibility requirements for part-time enrollment.

l  The program in which the student is enrolled must end in a degree or certificate.

l  The student must not have ever been convicted of a drug related crime.

l  The person applying for the credit must be paying some or all of the educational tuition and fees.

l  The student must be enrolled in a qualifying college or post-secondary school.

The American Opportunity Credit and Financial Aid

Most students will receive some type of financial aid to help fund their education. This may include loans, scholarships, grants, and aid offered by the institution itself. The good news is that any borrowed funds can be counted toward the credit since they will eventually have to be repaid. However, aid that does not have to be repaid does not count toward the credit.

Dependents

Each eligible student is entitled to receive one tax credit and no more. For parents who are claiming the credit on behalf of dependent’s expenses, the same credit must be used for both dependents.

Obviously, there are a lot of rules and requirements for obtaining this tax credit. However, the credit is substantial and well worth the effort put in. While it is possible to fill out the tax credit forms on one’s own, most people find it a lot easier to do with the help of a qualified accountant. 

Accounting: A Profitable Career Choice

Accounting Today recently revealed that accounting and related careers are some of the most profitable jobs of today.

Accounting, along with tax preparation, payroll services,and bookkeeping reportedly had a net profit margin of around 19.80% last year, beating out the legal services industry, the oil and gas extraction industry, and the commercial and industrial machinery industry.  

That’s pretty impressive, but you may be wondering what it has to do with you. Well, when you really think about it, a lot. Truly skilled people tend to go into fields where they can make good money and be financially secure. And, when those people are financially secure, they tend to work harder and do better at their jobs.

Thus, you can look at the profitability of accounting as proof that there are many good accountants out there. In fact, you don’t have to look far to find a great accounting firm in Naperville and the surrounding areas.

With so many skilled accountants working in the industry today and many more looking to join the workforce, there’s absolutely no excuse not to have an accountant working for you.

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Tips for Hiring a CPA

So, you’re planning on hiring a CPA. Whether you just need someone to lend a little tax help, someone to set up your business payroll, or anything in between, it’s important that you are selective about whom you hire. Not only do you need someone you can trust, but you also need someone who knows the ins and outs of financial law and who will make your money work for you.

 One thing you should always ask any potential accountant is if he or she has a preparer tax identification number. This number is given to true CPAs by the federal government. It identifies the preparer as someone who has been trained and certified to prepare taxes professionally. Don’t trust any “accountant” who doesn’t have one of these numbers!

You should also quiz potential accountants on their working histories, their educational training, and other qualifications. Try to choose someone who has been working in the industry for at least a few years and who has been through rigorous training and schooling related to the field.

You deserve to know your money is safe, and the best way to get that peace of mind is to hire only the best CPA around.

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Businesses and Quickbooks

If you run a small business, you might think you’ve got your businesses finances perfectly organized and together. After all, when you’re armed with Quickbooks and a good financial advisor, what more could you need?

In truth, however, small businesses often make small mistakes that can affect them big financially. One such mistake, for example, is not fully separating business funds and personal funds. A business credit card should never be used to pay for personal expenses and vice versa. If you’re guilty of that offense, stop it now and talk to an accountant to find ways to fully separate your finances.  

Also, make sure you’re staying on top of invoicing. You need to know how many accounts are unpaid and how much you’re owed, as well as how many accounts are paid and how much you’ve made. Improper record keeping, often a result of putting off record keeping until later, can cause major problems and discrepancies when tax time rolls around.

You really shouldn’t be running a business without a professional accountant. And, if you’re running into these or similar problems, it’s probably because you don’t have the right accountant (or any accountant!) on your side. Remedy that problem, and you should save yourself a world of trouble.

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What to Look for in Accounting Services

These days, there are a lot of accounting services available. With so many options to choose from, it can be difficult to know which one is right for you. However, choosing wisely could make a world of difference in terms of how you fare financially.

So, what should you be looking for in an accounting firm? You definitely want to go through a firm that hires only the most well-trained accountants. Don’t be afraid to ask the accounting office what educational and/or training requirements it sets for its employees. The higher the training required, the better.  

Also keep in mind that education shouldn’t just stop because a person officially becomes an accountant. Tax laws are constantly changing, and new investments crop up often as well. In order to stay on top of the financial world, you need an accountant who knows “what’s going on” in that world. Continuing education classes are a must for any worthwhile accountant.

Aside from education, you also want to look for an accounting service that hires people with lots of real-world, proven experience in the industry and who are trustworthy and upstanding. Ask questions and do your research to to ensure you get the best service money can buy.

You Might Need an Accountant If.....

Considering The Tax Shelter (Photo credit: JD Hancock)

All kinds of people can benefit from working with qualified, professional accountants. With that said, however, working with an accountant is especially important for those who find themselves in certain situations or positions. For example, you are strongly advised to hire an accountant if:

·        - You bring in more money than the average person

·         -You have property that you rent out for a profit

·         -You own your own business

Obviously, there are many other reasons to hire an accountant and many other scenarios in which accountants can be useful. With that said, however, the people in the above list really can’t function, at least not to the fullest, or thrive without an accountant.

Wealthy people need to know how to manage their money and to make it work for them so that they can not only keep, but also multiply, their wealth. Landlords need to make sure they’re getting all the deductions for which they qualify, and the same is also true for business owners. Business owners also have to make sure they’re filling out the right forms and keeping the right kind of records.

While there’s never a “wrong” reason or a “bad time” to hire an accountant, you’ll want to make absolutely sure that you have one if you find yourself in one of the above categories. For the best accountants in Naperville, ones who can help you in any situation, contact Susan S. Lewis, Ltd.

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Identity Theft and Tax Fraud on the Rise

Identity theft has long been a problem affecting people throughout the United States, and unfortunately, it’s becoming even more prevalent. To make matters worse, many scammers are now using identity theft as a gateway to a new kind of tax fraud.

This new tax fraud involves individuals who steal a person’s identity and then, using that identity, file several fraudulent tax returns electronically. As a result of the filings, the scammers can often receive several undue refunds in a matter of days, long before anyone catches onto the scam.  

Obviously, trends such as this one are frightening, and what’s even worse is that absolutely anyone can be a victim of this kind of fraud. Fortunately, there are things you can do to protect yourself and/or your business from this type of fraud and from all other types of fraud. For assistance protecting yourself and/or your organization, secure the services of a trustworthy accountant. The right accountant can advise you on how to best protect yourself and your assets, and you can find that accountant at Susan S. Lewis, Ltd. of Naperville.

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Why You Need an Accountant

Moser Tower along the Riverwalk park complex in Naperville, Illinois, USA. Moser Tower contains the city's Millennium Carillon. (Photo credit: Wikipedia)

Many people make the mistake of thinking that accountants are only for the rich or for those who have very complex financial needs. In truth, though, absolutely anyone can benefit from having a personal accountant whom he or she can trust.

 Accountants are especially beneficial around tax time, which is going on right now, because they can help their clients to file their tax returns in such a way so that the returns will have the most beneficial outcome possible for the filer. Some people end up getting back much more in income taxes than they would have otherwise thanks to the help of an accountant, and even if you don’t get a lot of money back, you can still reduce the amount of taxes you’ll have to pay by filing correctly and in a timely manner, something that’s a whole lot easier to do with a knowledgeable accountant by your side.

For help with your own taxes and/or with other financial matters, find your accountant today at Susan S. Lewis, Ltd. of Naperville.

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