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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Monthly Financial Reporting and Why It Matters

Monthly financial reporting seems, to most businesses, like a major nuisance. After all, reporting this often takes time and money, at least if you pay someone to do it for you. Though monthly financial reporting can certainly be a bit of a pain, it’s definitely worth it.

 When you’re checking into your finances regularly, you can catch any minor problems before they have time to turn into major ones.  Plus, if you’re using online accounting software or have a good accountant, it doesn’t have to take up too much of your time.    

Even if you’re not quite ready to commit to a full-on, completely thorough monthly financial reporting schedule, the very least you can do is to pay attention to a few key matters on a monthly basis.

Accounts Receivables Aging

One thing you’ll definitely want to pay attention to on at least a monthly basis is accounts receivable aging. This will let you know how many of your customers have outstanding balances, or, in other words, owe you money!

With accounting software, you can easily generate a report on who owes you money and then separate it by date, project, and other factors. This makes it easy to step up collection efforts, send collection notices, and, most importantly of all, get the money you are owed.

The Budget-Spending Balance

Smart businesses don’t just spend and earn without thinking about it. No, smart businesses have a strict budget that they try their best to stick to. However, “trying your best” isn’t really enough; you need to be keeping careful track of your budget vs. your spending, and this is definitely one of those things you should be tracking on at least a monthly basis.

When you calculate budget vs. spending each month, you’ll be able to see any areas where you are spending too much and need to cut back, as well as any areas where you could afford to spend a bit more if needed. Staying on top of the “budget-spending balance” will help you to keep your business in good financial shape.

Outstanding Accounts Payable

Unfortunately, earning money isn’t the only part of running a business. You also have to spend money, and as such, you need to be keeping careful track of how many invoices you need to pay and when they’re due.

Since most bills only come due once a month, checking in to ensure you’re paying everything on or preferably before the due date is the smartest way to avoid late fees, fines, and other hassles. Plus, after you’ve been monitoring these amounts for a while, you’ll be able to tell where you’re spending the most money, how you can cut back, and other important details that can help your business to function more efficiently.

As you can see, when it comes to financial matters, some things just can’t wait. Get your financial priorities in order and make sure you’re tracking these and other important finances on at least a monthly basis.

The Secret Power of Tax Credits

If you own a small business that’s had good success, you may feel ready to take it to the next level and expand. However, feeling ready and actually being ready are two totally different things; if you don’t have the money to grow your business, it can feel impossible to make expansion happen or like it will take years and years.   

Thankfully, there are small business incentives, such as state credits, federal credits, grants, and more that can make your dream a reality. The trick is just to find the right one for your specific needs and circumstances.

Tax Credits

There are many tax credits that exist to help businesses. Typically, these credits are available to businesses that meet very specific requirements and/or have very specific needs. Thus, it can take a little searching to determine which credits you can apply for.

One great example is the federal Work Opportunity Tax Credit. You can receive this credit for hiring specific “high risk” employees or others who have a lower chance of getting hired elsewhere, such as former felons or those who fall below a certain level on the poverty line. Typically, you can claim as much as $9,600 for each qualifying employee you hire, though there is a limit on the number you can hire and receive the credit for.

There are many credits that, like the Work Opportunity Tax Credit, you can easily become eligible for if you just make a few small changes, and more often than not, these changes are very worth the pay-off.

State Hiring Incentives

Another good way to get extra cash for growing your business is to take advantage of state hiring incentives. Incentives are typically offered based on how many jobs your company can create in your community or other ways in which it can help the community; the more jobs and opportunities you can create, the better.

When you help out and help better your community, everybody wins, and your business is the one that gets the big “thank you” in the end.

Grants

State and federal grants are also a good way to generate money for your business. If you plan on training your employees to do something new, or on offering some kind of new product or service that would help the community, you can typically find a relevant grant that will reimburse you for some or all of your related expenses or at least for specific costs.

You can learn about available grants and determine which ones could apply to you by contacting the United States Department of Labor’s Business Relations Group, as well as other grant-offering resources.

As you can see, there are a great many ways to help your business earn more money, or, at the very least, to cover some of its costs so that you can designate those funds to expansion. Many of these resources can also help your business to make a positive difference in the community; so really, these types of incentives are a powerful win-win option for everyone involved.

Petty Cash Accounting: What You Need to Know

Chances are that your business has a petty cash fund. Even if you don’t call it that, petty cash is money that is used for small, often unexpected business purchases. This could be something like buying lunch for a meeting or picking up new office supplies.

Even though petty cash spending is typically relatively small, it’s still important to keep track of it and to have some relevant guidelines in place. If you don’t, expenses can add up big time, and your business could end up losing more money than you bargained for or than you even realize. 

Regulating Petty Cash Spending

To begin with, you need to have some kind of rules and regulations in place as they relate to petty cash spending. First, determine if you want to have an actual physical petty cash account, a credit card to be used for petty spending, or a combination of the two. Having some kind of system in place, such as using the credit card for expenses over a certain amount, is smart. You can come to any agreement or system that works for you; the point is simply to have one and to make sure everybody knows and follows the related procedures.

It’s also wise to require all people to keep record of any petty cash money they spend and what it was spent on; have them provide receipts when possible. Furthermore, it’s a good idea to require employees to go through a formal cash requesting process for transactions over a certain amount; this way, higher dollar purchases can be approved ahead of time to avoid misappropriation of large amounts of company funds.

Basic Bookkeeping

In addition to having some kind of “spending system” in place, you should also have a way to keep track of petty cash spending and expenses. You can do this the old fashioned way- by recording the starting amount, transactions, and replenishment's in a notebook or on paper- or you can find a simple accounting software program to keep track of this data for you.

Require receipts for all expenses, and track down any receipts or purchases that are unaccounted for to keep everyone honest. When employees know that you are keeping careful track of petty cash spending, they’ll be a lot less likely to use funds in an unapproved-of manner.

Use Security Protocols

Another thing that’s smart to do is to have some security measures in place to keep dishonest or unauthorized employees from getting to the petty cash. If you use physical cash, keep it in a locked box or other secure space and only give the key to authorized employees. For credit cards, set up the card so that only certain people have permission to use it. This will severely reduce your business’s risk of being victimized by theft.

Learn from Your Spending

Finally, regularly go over your petty cash spending to see where you can cut costs. This is a great way to make your business more efficient and to save money in the long run. That, in fact, is one of the major benefits of good petty cash accounting, along with all these other great advantages!

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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.

Tips for Filing Business Taxes

When you’re new to the business world, the thought of filing your business taxes for the first time can be a bit overwhelming. There are a lot of new rules and requirements to be aware of, and filing business taxes is definitely a whole different ball game than filing personal taxes. For this reason, many first-time business filers will hire professionals to help them. In addition to hiring an accountant to assist you when you file your business taxes, there are some other things you can do to make the process go more smoothly and feel less stressful.   

When to File

To begin with, you should know that, when tax season rolls around, you will be required to file business taxes, as long as you have a taxpayer ID number. Many people make the mistake of thinking that, unless they have been in business for a year, they do not have to file taxes. In truth, though, when tax season comes, taxes must be filed, regardless of how long the business has been open.

Whether or not you have to file business taxes is also not based on profit. No matter how small the profit may be, businesses still need to file taxes at the correct time, end of story.

Gather Necessary Documentation

When filing business taxes, you will need to have a lot of documentation on hand. Gathering all of this information ahead of time and having it easily accessible will make the filing process go much more smoothly. When possible, sort the documents based on which tax line they apply to; this will make the process go even more quickly.Some documents you will likely need when filing include:

l  Receipts related to business purchases/expenses/write-off

l  Invoices

l  Financial reports

l  1099s

l  Bank statements

l  Other proof of income or verifying information

Know Classification-Specific Rules

While businesses have their own set of filing rules, there are also more specific tax rules related to each business’s classification. Make sure you know what category your business falls under, such as limited liability corporation or sole practitioner, and that you understand how your classification affects your taxes and the forms you must file.

Don’t Miss Deadlines

One of the most important parts of filing business taxes is ensuring that you do not miss any filing deadlines or other tax-related deadlines. There are specific dates by which W-2s must be sent out, specific dates by which certain information must be reported, and more. Check the IRS website or ask your accountant about important dates and deadlines so that you can file for an extension if necessary and avoid fines and fees.

Don’t Wait Until the Last Minute

Finally, the most important piece of tax filing advice for any business owner is to avoid waiting until the last minute! Don’t file at the last minute. Don’t get documents together at the last minute, and don’t wait until the last minute to hire a financial advisor or accountant. Preparing ahead of time, as well as following these basic tips, is really the key to a successful first tax season as a businessowner.

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Financial and Accounting Transparency

Being transparent with your business’s financial dealings can be difficult and stressful. However, it is extremely important and helpful to your business, its operations, and its overall reputation, especially if you are just getting started. Transparency doesn’t, of course, mean that you are willing to share all of your financial details with anyone and everyone, but it does and should mean that you are willing to share it with others in the company, as well as with potential investors.   

Being open and honest about your current corporate financial status, as well as your future plans related to that status can prove helpful with all of the following:

l  Attracting investors

l  Hiring good, future-minded employees

l  Bringing in clients

When you share your financial information with investors, you are showing them that you have nothing to hide, that you are not trying to scam or mislead them in any way. You are allowing them to come into your business with full knowledge of what they are getting into, and even if there are some faults, many investors will admire your honesty enough to give you a shot.

Likewise, employees want to know if they’re coming into a failing company or a bustling, busy one, and they deserve to know that. Sharing general information before hiring and more information after hiring also shows your employees that you trust them, and, in the same token, shows you which employees you can trust.

Finally, clients will be more willing to work or do business with honest companies who have nothing to hide. Yes, showing your financial situation, flaws and all, can be difficult, but it’s beneficial too, which makes it worthwhile.

What to Share

While sharing, in general, is good, too much sharing is bad.You do not have to tell everybody everything; remember that. Choose to share details that give away enough information but not too much. Things that are worthwhile and okay to share include:

l  How many users/clients you have

l  Activity level of users/clients

l  Annual revenue

l  Current and future operations plans

l  Funding

l  Losses

That might seem like a lot of information to share, but remember, NOT sharing it, especially if you’re a startup, can lead to rumors, untruths, and fearfulness about dealing with your business, which is the last thing you want.

What NOT to Share

Remember, when it comes to sharing, there definitely is a such thing as “too much information.”

The basic rule is not to share anything extremely negative and/or unfixable at the current time. If you share something negative, make sure you also share a plan for how you intend to fix it. If you haven’t yet worked out a solution for a particular problem, it’s probably best not to share that issue until you do.

The Power of Feedback

One final positive of sharing information is that you will invite constructive criticism and feedback from others who have insight into what you may need to improve on. Sure, some of that criticism may be hard to take, but, just like financial transparency in general, it will benefit you and your business in the long run.

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Using IRS Form 8962

Recently, there’s been a lot of talk about IRS Form 8962. With this form, you can claim the Premium Tax Credit to help you get back some of the money you spent on Marketplace health insurance premiums. If you are one of those taxpayers who spent a lot on premiums, this form offers up a great way to get some money back. Unfortunately, though, for some taxpayers, the ones who got too much money in advance premium credits, this form could serve as notice that they owe money to the IRS. No matter which category you fall into, it’s important to understand this form, how it works, and what it could mean for you.   

Using Form 8962

To begin with, understand that you may not necessarily be eligible to file Form 8962 or to receive the Premium Tax Credit. In order to be eligible for this credit, you need to have health insurance through the Affordable Care Act Health Insurance Marketplace, Healthcare.gov, or your state’s health insurance exchange. If you don’t meet one of these qualifications, you do not qualify to use Form 8962, and, even if you do meet one of these requirements, that doesn’t necessarily mean you qualify.

What will determine if you qualify for the tax credit is your income and personal exemptions. If those are below a certain amount, then you may be eligible for a special subsidy or credit to help you cover insurance costs.

Bear in mind, though, that if your income and/or exemptions changed throughout the year, you may no longer be eligible for the subsidy that you received. You may even have to pay back any extra money you received in certain cases. On the flipside, though, if you ended up paying too much, you could get a nice refund.

Getting Help

Filing taxes can be tricky. As you can see, tax laws are complex, especially when you factor in the new insurance requirements. If you are unsure of whether or not you qualify to use Form 8962 or if you have questions about how to use it, your best bet is to get help from a tax professional.

These professionals will be able to tell you, for sure, if you need to fill out this and other forms. They can also help you to fill them out correctly and honestly, helping you to avoid an audit or other problems related to incorrect tax filings.

There are five different and involved parts to this form, so unless you’re 100% certain that you can (and should) fill it out on your own, ask for help from a professional; the process will be so much easier that way!

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How Not to Pay Taxes on Monetary Gifts

Who doesn’t like opening an envelope or a card to find a nice wad of cash stuffed inside? While it may not be the most personal gift in the world, pretty much everyone loves getting cold, hard cash! What people often don’t realize, however, is that that “free” money isn’t so free.  

When you receive a monetary gift, you are, by law, supposed to pay income taxes on that gift in most cases. In fact, even if you’re the giver, you’re supposed to pay income taxes on the money you’re giving away.

Don’t let that rule put a wrench in your plans for gifting money this year, however. By knowing a few simple tips, you can gift money to your loved ones without forcing them to pay outrageous taxes in the process.

Tip #1: Know The “Gift-Giving” Limit

Each year, the IRS puts a “gift” limit in place. Right now, it’s $14,000 per person. What that means is that you can give as much as $14,000 to one person without that person having to pay taxes on the gift.

So, as long as you give this amount or less, you don’t have to feel guilty about your loved one being stuck paying taxes on his present. And, of course, the same rules apply to you! If you’re lucky enough to get a cash gift, you don’t have to file taxes on it if it’s under this amount!

Tip #2: Give Gifts Through Roth IRA Contributions

If you want to give a gift larger than $14,000 or if you just prefer to gift in a different way than straight cash, consider contributing to someone’s Roth IRA. If you do that, that person won’t have to pay any taxes on the money received. Plus, that person’s funds can grow without him having to pay taxes on the growth right then.

This is also a smart way to give if you want to ensure that the person will use the gift wisely. In most cases, the money in the account can’t be taken out, without penalty, until the person has reached the age of 59 and a half, so if you want to give a younger person a gift that will come in handy in the future, this is a great choice!

Tip #3: Allocate Gifts

Speaking of using gift money responsibly, if you allocate financial gifts to an approved purpose, you and the recipient can often avoid paying taxes on that money.

For example, gift recipients are often exempt from monetary gifts that are allocated to mortgage payments, medical costs, and tuition costs. The giver can benefit too; if he or she pays these funds directly to the institution to which they’re owed, the giver won’t have to pay any taxes on those payments.

As you can see, there are legal ways around the IRS rules.  Hopefully, one of these methods will work for you so that you can give to your loved ones without further burdening them or yourself.

How to Cut Tax Costs with Home Improvements

When most people make improvements to their homes, they’re doing it because they want a nicer, more comfortable home. In some cases, though, their home improvements end up benefiting not just them, but others as well. When that’s the case, these homeowners often qualify for some awesome deductions that can help them to save money and offset the costs of some of those improvements. Read on to learn about some great home improvements that could just earn you a tax break.  

Improved Energy Efficiency

If you’ve recently done something or are considering doing something to increase the energy efficiency of your home, you should know that the government approves While making your home more energy efficient can help your wallet, it can also help the environment, and the government likes to reward those who try and reduce their carbon footprints.

While there are many different tax credits related to energy efficiency, one of the best is the Residential Energy Efficiency Property Credit, which will give you a discount for installing solar panels, wind technology, geothermal units, or fuel-cell technology.

Check to see if your home improvement plans qualify, and, if so, make sure you take advantage of this great deduction.

New Water Heaters

Another home improvement that could earn you a tax credit is installing a new water heater. If that water heater is considered more energy efficient than your last model and/or meets certain other standards, there’s a good chance you’ll qualify.

Check with an accountant or with the appliance manufacturer to be sure, but definitely make use of this credit if you’re eligible; it’s worth it!

A New Roof

Finally, if you put a new and improved roof over your head, you’ll probably qualify for the Nonbusiness Energy Property Credit. In general, if the roof you install is designed to reduce a home’s heat gain, it’s good to go in terms of the credit.

As is the case with all of these credits, however, make sure you double-check before you file for the credit to avoid potential trouble or disappointment. As long as you’re careful, though, you can get some great home improvements and some great tax credits; talk about a winning combination!

Real Estate Decisions that Affect Your Taxes

People are often surprised to find that buying a home greatly affects their taxes. Some of the effects of becoming a homeowner, such as suddenly qualifying for new tax write-offs, can be positive. Others, such as tax liabilities, can be negative. However,  if you’re smart about your purchasing decision, you can buy a home and benefit greatly, instead of buying a home and regretting your decision come tax-time.   

For best results, hire a financial adviser who can help you to make the right decision about when and how to buy a home and what to do (and what NOT to do) after you’ve purchased one. At the very least, though, do your research on how different choices will affect your taxes, and make decisions that will benefit you both now and in the long-run. To help you out, we’ve looked into some common real estate decisions and how they are likely to impact your taxes.

The Reality of Refinancing

Many  people think that refinancing will help to solve all of their financial problems. They believe that if they can just pay a lower mortgage each month, they’ll get back on track or maybe even be able to pay off their home loan more quickly. And, while these things are sometimes true, there definitely can be some major drawbacks to refinancing.

To begin with, when you refinance your mortgage and pay less interest, you’ll lose that sizable mortgage interest deduction you’re probably getting…or that you SHOULD be taking advantage of.  If you’re not taking advantage of this option, doing so and seeing the results could cause you to think twice about refinancing.

The bottom line is that refinancing DOES work for some people, but it can have disadvantages, so make sure that you are considering all other options, as well as ALL the effects of refinancing, especially as they relate to your taxes, before you make this decision.

The Effects of Remodeling

You might not think that remodeling your home has anything to do with your taxes, but, in truth, it actually does! That’s because remodeling your home can increase your home’s value, which, if you sell your home, could mean that you actually make a profit on the sale.

If you don’t want to risk getting charged a capital gains tax, make sure you have proof of all the remodeling that you paid for. That way, you can include the amount spent on remodeling in the “purchase price” of your home and avoid getting taxed for the full amount for which you sell your newly improved home.

Also bear in mind that, depending on where you live, some remodeling projects, especially those that make a home more energy efficient, can qualify you for tax credits or other incentives, so definitely don’t miss out on these “bonuses” if they’re available to you.

As you can see, your home and the things you do with it can affect your taxes in many ways, some good and some bad. For best results, work with a tax professional to make real estate decisions so that you can get more of the “good” and less (or none!) of the bad.

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Tips to Remember as You Pay Off Student Loans

Student loans are something that most people will have to deal with at some point in their life. Unless you were lucky enough to get lots of scholarships or to pay for college out of pocket, there’s a good chance you’ve got some student loan debt following you around.   

And, while it can be tempting to just ignore those pesky loan payments, doing so could cause serious problems for you, such as wage garnishment. As such, it’s best to get a repayment plan put together for your loans and then to repay them a little at a time.

Your loans can and will affect your taxes in some ways too, so there are a few tax laws, as they relate to student loans, that you should familiarize yourself with.

Tip #1: Don’t Forget to Deduct Student Loan Interest

You might think that there’s nothing good about having to pay off your loans, but there is at least ONE good thing. You can deduct student loan interest from your taxes. In fact, for 2015, you can write off as much as $2,500 in paid interest. That should provide a pretty nice incentive to keep making those payments!

Tip #2: There are Relief Options…but They’re Often Taxable

If you’re truly swimming in student loan debt, you may want to look into relief options. There are some good ones out there. Teach for America, for example, offers awards that can be used to pay off student loan debt, as do many other programs. Just be aware that some programs offering relief options do not offer tax-free relief options! So, always make sure you know what responsibilities and taxes come with any aid or student loan relief than you receive.

Tip #3: Your Filing Status Matters

As mentioned, most people can deduct student loan interest from their taxes up to a certain amount. However, your filing status may determine whether or not you qualify for this money-saving option. Typically, if spouses are submitting their returns separately, they will not receive this write-off. For that reason, it’s better for married couples to file jointly; that way, they can still receive the deduction or at least part of it if their modified adjusted gross income is not $160,000 or above.

Tip #4: Forgiven Debt May Count as Income

Some people are fortunate enough to find and qualify for programs that forgive some or all of their debt. However, if you’re one of these lucky people, you need to understand that, in most cases, forgiven debt is still taxable; in fact, the IRS tends to treat it like income. However, this is not ALWAYS true; some loan programs are exempt from this taxation. Just make sure you know whether or not you’re required to treat forgiven debt as income under the conditions of your forgiveness program. That way, you won’t find yourself in trouble for monies not paid!

As you can see, student loan debt and taxes are more intertwined than you might think. Consider hiring an accountant or financial adviser to help you develop a plan to pay off your loans and keep your taxes low at the same time!

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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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How to Protect Your Tax Refund from Identity Theft

Getting a refund come tax time is always a good feeling. What’s NOT a good feeling, however, is finding out that your refund has been snatched up by a greedy thief. Sadly,  this happens to many people each year. These people are the victims of a type of identity theft in which fraudsters use their information to pocket their tax returns. Though you might think this could never happen to you, it most certainly could if you’re not careful! Fortunately, though, there are a great many things you can do to protect your tax return from being taken by these criminals.   

Protection Tip #1: File Your Return ASAP

As mentioned, the most common form of tax identity theft occurs when criminals use your social security number and other identifying information to file a return in your name. If someone is going to target you for one of these scams, you can rest assured that the scammer will act early. After all, he wants to get to your tax return before you do!

Thus, the longer you put off filing your return, the greater your risk of having a fraudster do it for you! To keep yourself safe and to reap the benefits of your tax returns sooner, just go ahead and file at the earliest possible date.

Protection Tip #2: Don’t Respond to Suspicious Emails

The internet has made our lives easier in so many ways. In fact, these days, you can file your tax return online in a matter of minutes. Unfortunately, though, the internet has also brought some not-so-great things into our lives too, including “phishing scams.”

These scams occur when scammers send you trick emails, asking you to input personal information. Often times, they will pose as your bank, the IRS, or someone else with authority. More often than not, they will even go so far as to have very “official” sounding email addresses. Typically, these emails will ask you to click on a link and/or provide personal and should-be-secure information or face consequences.

Instead, the fraudsters use your personal information to scam you, or, even worse, to install dangerous malware on your computer that will allow them to access your credit card number and other sensitive information.

If you get a suspicious email or really ANY email that asks for personal information, send it to spam right away! If you are concerned it could actually be from your bank or the IRS- though that’s highly unlikely- contact the real source to be sure. Typically, though, most serious organizations know better than to ask you for personal information through email!

Protection Tip #3: Use Caution When Filing Online

Finally, as mentioned, the internet provides a multitude of ways for you to file your taxes online. Unfortunately, though, not every filing website can be trusted. Before you start putting personal information into an online tax form, make sure it’s legitimate! Read up on the website you are using, check the site’s security certification, and always take a look at your address bar to ensure you’ve typed in the site’ s name correctly. Some fraudsters buy domain names that are close to the domain names of legitimate tax filing sites and use them to try and steal your information.

It’s a scary world out there, but you don’t have to let it get to you! By following these tips and being smart with your private information, you can avoid tax fraud and other forms of identity theft.

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What You Need to Know About Itemized Deductions

Itemized deductions can be quite helpful when it comes to saving money come tax time. However, these deductions can also be a bit tricky, and if you don’t handle them correctly, you could find yourself in hot water or even getting audited. To help you avoid any problems with the IRS and to still enjoy your itemized deductions, follow a few simple tips.   

Remember, Nothing Stays the Same

To begin with, understand that nothing about itemized deductions stays the same. Just because you received a particular deduction last year is no guarantee that you’ll get it again this year.

The IRS has been known to change the rules on who can get certain deductions or even to get rid of deductions entirely. So, never file for any deduction, even if you’ve enjoyed it in the past, without double-checking the current year’s tax rules, or, even better yet, having your accountant do it for you.

Retain Proof of Charitable Donations

One of the most commonly utilized itemized deductions is the one set aside for those who donate to charity. Whether you’re donating goods or money, however, keep in mind that you’ll need to get and hang onto some kind of proof of your donation.

This could be a canceled check, a receipt, a bank record, or some other kind of proof. Without proof, though, you cannot rightfully claim your deduction, and you could get in trouble if the IRS checks up on your claims.

Be Smart About Medical Expenses

A lot of people don’t realize that they can deduct certain medical expenses, and, if you’re one of those people, then you’re missing out! Don’t cheat yourself out of available deductions, such as deducting premiums for Medicare Part D prescription drug insurance or other premiums.

Keep in mind, too, that you can deduct mileage related expenses for travel you did for medical reasons. There are also other, surprising medical expenses you can deduct, up to a certain amount; you can learn about many of these by reading the IRS Publication 502, termed “Medical and Dental Expenses.

In truth, though, knowing what medical expenses you can deduct and how much you can deduct can be tricky, so it’s always in your best interest to get a professional accountant to help you handle and file your deductions. In fact, that brings us to our next and most important tip.

Work with a Pro!

No matter how much reading and researching you do, the fact remains that tax laws, even and perhaps especially those laws that relate to tax deductions, are tricky. And, if you do something wrong, even on accident, it’s all too easy to look like you’re trying to cheat the system.

Don’t land yourself in this kind of hot water or, on the flip side, miss out on perfectly legitimate deductions. Get a tax professional to help you so that you never lose out on or make a mistake on another deduction again!

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