Important Tax Terms You Should Know

Perhaps one of the most confusing parts of filing taxes is all of the “tax jargon” that is used.

When you don’t know what any of those terms mean, it’s easy to end up feeling confused and frustrated. Fortunately, though, it is also fairly easy to educate yourself on some of the more commonly used (and commonly misunderstood) tax terms.  

Adjusted Gross Income

One term that you’ll definitely hear come tax-time is “adjusted gross income.” This term refers to the modified version of your total income that you receive from all different sources. However, you can, in many cases, subtract some deductions from your adjusted gross income. The amount that you ultimately come up with will determine your tax bracket, which is why it’s important to take advantage of all of the deductions you possibly can- something a good tax professional can assist you with.

Tax Credits

You may also hear a lot about “tax credits” during tax season. These are another great way in which you can lower your taxes. They are similar to deductions but, instead of being subtracted from your income, they are basically applied to the funds you owe. Some of the credits for which you may be eligible are even refundable, which means that if they equal more than you owe in taxes, you can get a nice refund. You can learn about different credits and find the ones you are eligible for by working with a tax professional.

Withholding

Finally, you might hear a bit about “withholding.” This is how you pay your taxes to the IRS while earning money. Your employer can set up withholding so that it happens without you having to worry about it. If that doesn’t happen, however, you could have to pay a penalty when you file. On the other hand, if you over-withhold, you can enjoy a tax refund. However, that is not always advisable, which is why it’s good to work with someone who knows and understands taxes inside and out.

In fact, while it is certainly smart to educate yourself on tax terms, remember that nothing beats the help of a true professional.

Simple Tips for Avoiding a Tax Audit

One of the most dreaded tax-related happenings is an audit. No one wants to go through the hassle and stress of being audited by the IRS. The good news, though, is that there are many things that you can do to greatly reduce your chances of an audit. And, while none of these strategies are completely foolproof, they can greatly reduce the possibility that you will face an audit.  

Consider Incorporating

While, in some cases, who gets audited is just “random” or “luck of the draw,” there definitely are some groups of people who are more likely to be audited than others. This includes the self-employed, especially if you choose to file a Schedule C. While there isn’t anything inherently wrong with a schedule C, you can greatly reduce the possibility of an audit by choosing to either incorporate or form a limited liability company. If you’re unsure how to do this, any tax professional can assist you; it is a surprisingly simple process that can end up saving you a lot of hassle.

Check and Double-Check Your Returns

One of the easiest ways to find yourself getting audited is if you make errors on your tax returns.

Even if you correct them later, having any errors at all makes the IRS wonder where else you may have made mistakes, thereby increasing your chances of an audit. Your best bet is to either check and double-check your returns, including and especially all of your math, or, better yet, to have a professional prepare your returns or at least go over them for you.

Be Honest

Finally, as simple as it may seem, make sure you’re being 100% honest on your returns.

The IRS is very good at sniffing out those people who aren’t telling the full truth. Besides the possibility of an audit, there is no real reason to risk being dishonest and the consequences that can come if you’re found out. There are far too many legitimate, legal ways to save money without resorting to dishonesty. You can learn about real ways to save by getting help from a tax professional.

Auto Related Costs and How to Reduce Them

People greatly enjoy owning cars, but no one really likes paying taxes on these vehicles.

Fortunately, however, there are some ways to reduce auto-related taxes and to reduce taxes in general that are related to driving and transportation, especially if you drive as part of your work.  

Mileage Deductions

To start off with, one of the easiest ways to save money is by deducting mileage.

When you drive from one work site to another, document the mileage. When you take a client somewhere, document the mileage. It might not seem like a few miles here and there would make a difference, but the related deductions can really add up.

This year, you can enjoy a deduction of 53.5 cents for each business-related mile that you drive.

Of course, there are variations based on how often you drive, if you own a car used exclusively for business, if you’re self-employed, and more.

To ensure you’re deducting appropriately, seek advice from a tax professional.

Property Ownership Deductions

Another surprising way to save money applies if you own a rental property.

Anytime you have to drive to and from the property for maintenance, showing the property, or other business-related purposes, you can claim and deduct the mileage.

Car Care

If you own a business car or a car used for business purposes, any care and/or maintenance you do to keep it looking and running great for business can be deducted.

This includes almost everything. From professional car-washing costs to inspection costs, most things can be deducted.

If you’re unsure about a potential deduction, though, it’s always best to check with a tax professional before applying it.

Health-Related Driving Costs

No one wants to have poor health that causes them to regularly visit the doctor. However, this is a reality for some people.

If your medical expenses end up being over 7.5% of your adjusted gross income, you can deduct any travel expenses related to your health and health care.

 As you can see, there are lots of ways to save money on “car costs.” To learn about more and to get help finding deductions that apply to you, be sure to contact a tax professional.

Tax Tips for Retirement

If you’re like most people, then retirement is something that you greatly look forward to. With that said, however, retiring, especially if you’d like to retire early or to retire tax-free, is something that takes a great deal of planning.   

No matter what your retirement goals, having a financial adviser to assist you can be extremely helpful. There are also some simple tips you can follow, along with your financial adviser, to help you get to retirement sooner and with less of a financial burden to bear.

The Importance of Strategizing

First things first, if you want to retire comfortably, planning and strategizing as early on as possible are key.

Some great options for strategizing effectively include Roth IRAs, which, if used correctly, can make a tax-free retirement income possible. Another good option is selling one’s home, which can lead to a tax-free retirement gain of as much as $500,000 for couples filing jointly and $250,000 for single individuals.

Roth IRAs

As mentioned, Roth IRAs are a great way to plan and save for retirement.

With this option, you can f und your savings with after-tax funds, and any qualified distributions will not be taxed.

Furthermore, when you have a Roth account, you can withdraw income tax-free after you reach age 59 and a half or five years after your first contribution.

To learn more about the benefits of Roth IRAs or to get one set up, contact a tax professional to learn more.

Selling Your Home

It was also mentioned that selling your home can be an easy way to get some tax-free retirement income.

This is especially true if you have a high-value, large home. Odds are it’s going to be too big for you in retirement, so why not sell?

You can either sell your home ahead of time and invest the money, or you can wait and sell when you’re ready to retire.

Either way, you’ll have quick access to funds that can be well-used in retirement.

For help following these tips or for more great advice on planning for retirement, be sure to get in touch with a professional financial adviser.

Are You a Consultant?

If you have recently started a consulting business, you should know that there are lots of different deductions available, deductions which can save you money and help to offset some of the costs of associating your business.   

Capital Investments

Did you know, for example, that you can claim the cost of capital investments on your taxes? Capital investments include anything you bought to get your business off the ground, such as office furniture, computers, and more.

For capital investments, you can claim your expenses over a few years, or you can claim them all (up to $510,000) in one tax year.

A tax or financial adviser can help you to determine the best option for you and your needs and goals.

Operating Expenses

Typically, you can also deduct any operating expenses that you may encounter. As long as the expenses are related to things you need to effectively run your business, they can be claimed immediately.

Operating expenses that can be deducted include:

·        Rent on an office building, store, or other work-related space

·        Software subscriptions

·        Electric bills

·        Website-related costs

·        Internet service costs

·        Printing costs

·        Office supplies

·        Heating and cooling bills

·        Water bills

If there is something you wish to deduct as an operating expense but you’re unsure if it qualifies, a tax professional should be able to advise you on whether it does or not.

Advertising Expenses

In many cases, you can also deduct any costs related to marketing and advertising your business and/or to serving your clients.

Some examples of qualifying expenses include:

·        Web hosting costs

·        Web design costs

·        SEO marketing costs

·        Gifts/marketing materials for clients

·        Merchant fees related to marketing your business

·        Business travel costs

·        Costs related to feeding, hosting, and/or entertaining clients and potential clients

As you can see, there are lots of different ways in which you can save money and enjoy business tax deductions.

However, these are just a few of many possible deductions. Make sure you’ve got a good tax professional on your side who can help you find and qualify for all of the deductions for which you are eligible. 

Employee Stok Purchase Plan: The Basics

If you have recently been hired at a large company, you may be offered the option to purchase an Employee Stock Purchase Plan. If you are unfamiliar with this option, don’t worry; it’ s actually quite simple to understand.   

How it Works

Employee stock purchase plans allow you to buy company stock at a discount. This means that you can “share the wealth” if your company does well and even have a role in its overall performance.

You can contribute to this plan in a variety of ways, but the most common way is via payroll deductions. Your employer will simply buy stock for you via these deductions.

Each plan is set up somewhat differently in terms of when and how often stock is purchase, but it is always at a rate lower than market price, which is yet another nice incentive of investing in this way.

You can also sell the stock if you choose to do so, but be aware that selling stock does involve certain tax rules that you will need to know and follow.

Selling Stock

As mentioned above, it is not until you sell the stock that taxes come into play. That’s when things can get a bit tricky.

For example, the discount you enjoyed is considered “compensation” so you have to pay taxes on that discount.

Furthermore, if you fail to keep the stock for at least a year before selling, you will be taxed on any gains. Keeping the stock for more than a year still involves taxes but at a lower rate.

As you can imagine, knowing when and how to sell your stock can be difficult, especially if you are new to investing.

The good news, though, is that you can always seek help from a professional investment adviser. In fact, doing so is smart for anyone doing any kind of investing so that they can enjoy the maximum benefit possible from their investments.

Things You Need to Know About Tax Cuts

If you’re like most people, then you’ve probably heard the term “tax cuts” a time or two. And, also if you’re like most people, you may not be entirely clear on what this term means.  

Most of the time, though, when people refer to “tax cuts,” they are simply referring to situations in which you can pay a lower amount of taxes legally.

Income Tax

One type of tax cut that you may have heard talk about lately is the cut in the income tax rate instituted by Congress.

For this year, the lowest possible tax rate is 10%.

Tax Brackets

Sometimes, tax cuts are experienced through tax brackets that expand, which may end up working in your favor.

If the IRS chooses, for example, to expand the range of the 10% tax rate to $12,000 of taxable income (the current rate is applied to $9,325 of taxable income), this cut could save you money since you’d have less funds tied up in higher and, thus, higher-taxed income brackets.

As you can see, tax cuts are not as complex as many people think.

With that said, however, it can be very difficult to stay on top of the ever-changing tax laws and to understand which tax cuts affect you and when.

If you need help sorting it all out and making sure that you pay the lowest possible amount in taxes, be sure to seek help and expert advice from a tax professional.

In fact, seeking professional tax help is a wise step for anyone and almost always results in legally paying less in taxes, so why not give it a try?

Have a Dependent Elderly Parent?

For a large chunk of your life, your parents probably counted you as a “dependent” for tax purposes. Now that you’re an adult, however, you may find that the time has come for you to count your parent as a dependent.   

However, knowing when and how to do this isn’t always as simple as you might think, which is why the help of a tax professional can often be beneficial.

The Importance of Income

First things first, you will want to keep in mind that your parents’ income counts a great deal in determining whether or not you can count one or both of them as dependents.

Your parents cannot have earned or received more than the allowed exemption amount for the appropriate tax year if you are going to claim them.

To determine what counts as income, to see this year’s allowed exemption amounts, and for help determining whether or not you and one or both of your parents qualify, talk with a financial professional.

If you do ultimately qualify, there are many great benefits to be had. And, if not, you can typically find other “workarounds” and exemptions to still end up saving money if you serve as a caregiver for one or both of your parents.

Why Support Matters

Something else you should know if you are seeking to claim one or more of your parents as a dependent is that you need to be able to prove that you have provided more than half of your parents’ income throughout the tax year.

You’ll need to factor in the cost of lodging your parent or parents, feeding them, paying utilities, and more.

Obviously, all of this can be a bit tricky, especially if your parents are living with you. This is why having a tax professional assisting you is recommended.

Education Tax Breaks

If you are planning on going back to school or if you have a child who is about to enter school for the first time, then you have probably heard that there are some “education tax breaks” out there that can help you out financially.  

The good news is that this is entirely true! What you should be aware of, however, is the fact that there have been some changes to these tax breaks in recent years and, thus, it is important for you to be aware of the changes, as well as the general truths surrounding these breaks.

The American Opportunity Tax Credit

To begin with, one credit that you will definitely want to be aware of is the American Opportunity Credit. This credit was once called the “Hope Credit.”

In the new tax year, a deduction of $2,500 can be applied per student. The relevant funds can be used for any required course materials and any tuition an/or fees associated with obtaining a four-year degree.

However, be aware that there are adjusted gross income limitations associated with achieving the credit, so you’ll want to speak with an accountant or other tax professional to determine if you qualify.

Deductions on Student Loan Interest

Whether you choose to itemize your deductions or not, you can easily save money by deducting up to $2,500 worth of interest on student loans.

 This tax break applies whether you’re a student or a parent as long as you have an adjusted gross income of under $80,000 if you’re single and under $160,000 if you’re married.

Non-Taxable Income

If you’re using certain plans to save for college, such as the Coverdell Savings Account and the 529 Education Savings Plan,, you’ll be glad to know that, as long as you use the money to pay for education-related costs, the money is non-taxable.

You can even claim a credit if you pay more than you receive from your Coverdell or 529 Education Savings Plan fund.

As you can see, there are a lot of great and perfectly legitimate ways to “catch a break” when paying for education.

In fact, the options provided here are just a few of many. To learn about more and to take full advantage of everything that you qualify for, get in touch with financial professionals for even more great help and advice.

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.

Domestic Workers and Taxes

If you hire someone to work in your home, such as a nanny to watch your children, a gardener, or anything in between, you immediately become what is known as a “household employer.” As such, you have to follow the laws that govern how employees should be treated and taxed.  

FICA Taxes

To start off with, you should be aware that, in some situations, you will need to pay FICA taxes for your domestic workers.

The rule is that if you pay your household worker more than $1700 per year, you have to pay FICA taxes on that worker. Not doing so can get you in serious trouble, so find out if you’re required to pay FICA taxes and, if so, talk with a tax adviser to learn how to determine and pay your FICA tax amount.

Paperwork

In addition to paying all the right taxes, you also need to complete all the right paperwork when you make the decision to hire a domestic worker or workers.

A few of the things you’ll need to take care of, paperwork-wise, include getting a federal employer identification number, verifying that your employee is eligible to work in the United States via Form I-9, and registering with your state as an employee.

All of that may seem like a lot to handle, but it’s all necessary if you want to have people working in your home, and the good news is that a tax professional can easily walk you through all of the paperwork and even do some of it for you.

As you can see, there’s a lot of work that goes into hiring and having domestic help. However, it’s well worth it in the end! Just find a qualified financial professional to help you legally hire and pay your household employees, and everything should go smoothly!

Artificial Intelligence and Accounting

Artificial intelligence (AI) is an important concept in today’s world. Through AI, many jobs have been eliminated or at least made more streamlined. And, now, many speculate that accounting will be the next industry to find itself impacted by AI.   

Part of the reason for this speculation is the fact that a German software firm recently acquired $3.5 million in financing for an AI program known as Smacc, which is designed to help businesses automate their accounting.

The software has a lot of features that are getting people excited, such as its ability to review receipts, its math-checking features, and its ability to “learn” and apply what it has learned to future projects and tasks.

Another nice feature of this program is that information can be checked into at any time, allowing businesses to really stay on top of their financial situations.

Of course, despite all of these benefits, AI programs like this one definitely aren’t perfect. And, since such programs are relatively new, it makes sense that it would take some time to work out the “bugs.”

For this reason, businesses and individuals are cautioned not to give up on traditional accountants just yet. In fact, even for those who do decide to give Smacc a try, it’s worthwhile to have an accountant who can check up on the program and make sure all tax matters are being handled correctly.

While it seems some people are ready to take the plunge into the world of AI, it’s smart to tread cautiously and to not give up on real human help just yet.

The Ugly Side of Tax Deferred Accounts

I Want Your Money (Photo credit: Wikipedia)

People often think that tax-deferred accounts, such as 401(k)s and 457 plans, are the best thing to hit the investment world. And, while there certainly are good things about tax-deferred plans, there’s such a thing as too much of a good thing!   

If you have all of your financial assets in tax-deferred accounts, for example, this can lead to trouble later on down the road, which is why you should avoid putting all your money into these types of accounts.

Potential Problems

One of the problems that could come up when you have too much money in tax-deferred accounts is that a withdrawal could end up bumping you into a higher tax bracket. This could mean that you find yourself paying a whole lot more than expected on the money you withdraw.

Another issue that can come up is that, in some cases, each time you make a withdrawal, it could potentially cause a larger chunk of your social security income to be taxed. Basically, if your withdrawals too greatly increase your “other income,” this could lead to more taxation of your Social Security income.

Something else to keep in mind is that you want to be diverse in your investments, which means not socking all your money away into tax-deferred accounts.

Avoiding Issues

Obviously, you will want to avoid the problems that can pop up with having too much money in tax-deferred accounts and with relying on them too heavily.

To help you avoid these issues and to ensure your investments are healthy and diverse, consider working with a qualified accountant and/or investment adviser.

By doing so, you can make your investments a true asset to your life and to your finances, instead of yet another thing that you have to worry about.

Pre-Tax Investments vs. After Tax Investments

People often get confused about the terms “pre-tax” and “after-tax,” what they mean, and all that they entail.   

Fortunately, however, these terms really aren’t all that hard to understand, at least not if you can keep a few basic things in mind.

After-Tax Investments

The term “after-tax” really means just what it sounds like. This is money that you have paid income tax on before depositing it into an account or using it to purchase some other investment.

The amount that you invest is known as the “cost basis,” and once you cash in on your investment, you will only be required to pay tax on the money you’ve gained over your original investment amount. This is because you’re already paid taxes on the money you initially invested.

Pre-Tax Investments

Pre-tax investments involve investments of money, often from you or your employer, that have not yet been taxed. Pre-tax investments typically go into IRAs, retirement plans, 457 plans, or other similar plans.

Usually, there are limits put in place by the IRS on how much tax-free money you can put into such accounts each year. The money you are allowed to put in, however, will grow tax-deferred. And, best of all, you only have to pay taxes when you make a withdrawal from your account.

Of course, pre-tax investments aren’t perfect. With these accounts, you won’t enjoy lower tax rates like you would with qualified dividends and long-term capital gains. However, there are still a lot of positives to these investments, making them well worth considering.

As you can see, the concept of pre-tax and after-tax investments isn’t all that hard to understand. Understanding the difference, however, is critical when it comes to selecting the best possible investments to match your financial needs and goals.

Qualities to Look for in a CPA

It’s hard to believe, but it’s tax time! This means that it’s also time to start hunting for a quality CPA to help you through the tax process.

Even though it may seem a bit early to start searching, it’s really not. Giving yourself enough time to do your research and find a true professional is definitely a smart move.

And, as you search, it can be helpful to know exactly what to look for.

 

Look For…A CPA Who Understands Your Needs

One of the first things you should understand is that not all CPAs are created equally. As such, you need to find one that’s right for you, one who understands your specific business or personal tax needs and who has experience handling tax accounts like yours.

In addition to checking up on your CPA’s experience, make sure the CPA offers all of the services you will need, not just at tax time but throughout your life. That way, when it comes time to plan for retirement or to start a new savings fund, you won’t have to hunt around for yet another CPA.

Look For…A CPA Who Charges Fair Prices

One of the main reasons to hire a CPA is to save money on your taxes. As such, you don’t want to hire someone who is going to charge you an arm and a leg for tax help. Take the time to compare pricing to that of other CPAs in your area to ensure you get a fair deal.

Also, be careful of CPAs who charge you a percentage of the refund you receive. While such a practice isn’t always unethical, it is a strategy often used by CPAs who care only about money, and not about truly helping you to thrive financially.

Look For…A CPA With a Long History

Sometimes, problems with tax returns can pop up later on down t

he road. If that happens, you’ll definitely want to still be able to reach your CPA and to get help and advice.

For this reason, you’ll want to try and find a CPA with a long history in the industry and not someone who will just disappear once tax season ends.

This isn’t to say that all new CPAs are bad, but you can definitely protect yourself more fully by choosing someone with a long history in the industry and a good reputation.

As you can see, there are a lot of things to consider when hiring a CPA. If you can keep these qualities in mind as you search, you have a much better chance of hiring a CPA that you will be satisfied with.

Seasonal Work in the Tax Industry

IRS Form W-9 (Photo credit: Wikipedia)

If you’re one of those in need of seasonal work, you might want to look into working for a tax preparation company. These companies typically need good temp work between January and April, when they get very busy preparing income tax returns.  

Getting hired to help in this industry is a great way to earn some extra money, but it’s also a good way to learn more about the tax industry, to gain some experience, and to potentially have a stepping-stone into the tax industry.

Just be aware that some of the seasonal jobs in the industry do require special certifications, so always check carefully to ensure you’re qualified before you apply for a particular job.

Types of Work Available

When tax season does come, you’ll find that all kinds of seasonal tax work pops up.

You can check out both smaller and larger tax firms, online tax companies, and even the IRS itself to find temporary positions in the industry during the peak season.

No matter where you go, you’ll also find that there are lots of different types of jobs available. You could end up being anything from a tax preparer (with the right qualifications) to a general clerk to a data transcriber or anything in between. Just keep an open mind, and look for jobs that match your experience and your skills.

Get Started Today

It might seem a little early to start applying for seasonal work, but it’s definitely not.

After all, tax season is here, so if you think this is the right industry for you, start looking into your options and applying for seasonal work right away!

Professional Tax Expertise is a Must for Small Business Owners

If you own a small business, you might feel like you can handle your taxes on your own. However, doing so is really not advisable. That’s because tax professionals can help in so many ways that you might miss out on otherwise.   

For example, the right tax professional can help you to save money, save time, and just get better set-up, financially speaking, for years to come.

What to Look for in Your Tax Pro

Of course, in order to receive the maximum benefit of a tax professional, you have to hire the right one.

Look for someone who is very familiar with tax laws, including the modern and currently-changing ones. A tax professional without the right knowledge is not going to be of any real use to you!

In addition to looking for someone who knows his or her stuff, look for someone with the right title and the right credentials to go along with it. Good tax professionals for help with small business taxes include tax attorneys, certified public accountants, and enrolled agents.

In addition to having a good title, look for a tax professional who is experienced at working with small businesses like yours. To protect yourself, you also want someone who has registered as a tax preparer with the IRS and who has a paid taxpayer ID.

Benefits You’ll Enjoy

Once you’ve hired a good tax professional, you’ll enjoy many benefits.

To start off with, you’ll have someone to help you with tax planning each year and at key points throughout the year.

You’ll also have someone to prepare your taxes for you if desired, and you’ll also have someone who will have your back and help you prepare in the off-chance that you get audited by the IRS.

As you can see, having a tax professional on your side is definitely worthwhile; you just have to get out there and find the right one!

Trump on Taxes

There’s been a lot of talk lately about the tax changes President Trump is attempting to make. 

There are some changes that can be expected as a result of these plans. For example, the Senate intends to reduce the corporate tax rate to 20% in 2019 with the House doing so in 2018. The plans also call for reduced income tax rates, doubled standard deductions, and no personal exemptions.

As you can imagine, people have strong feelings about these changes, but, no matter how you feel, it’s important to educate yourself on the new plans and to be aware of how they might affect you.

Changes Galore

One of the biggest changes under the Senate plan is a lowering of tax rates, though it does keep the same general income brackets. The House Plan, however, makes it so that only four income tax brackets exist, and it does lower a few tax rates in the process.

Also, as mentioned above, the two plans eliminate itemized deductions, something that many people find upsetting. There are some exceptions to this new rule, such as charitable contributions and retirement savings, but the truth is that many of the deductions people rely on will be taken away.

These are actually just a few of a great many changes, so if you feel that you may be affected by Trump’s tax plan, it’s definitely a good idea to “dive deeper” and learn more.

And, for help surviving and preparing for the transition to Trump’s type of taxation, be sure you have a qualified CPA working on your side. It could make all the difference in how well you (and your finances) hold up once these changes go into effect.

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Is Bitcoin Taxable?

Bitcoin and other forms of “cryptocurrency” are rapidly gaining popularity and becoming more widely used. Despite this fact, however, this form of money is still new,  leaving many people with questions about how it all works.   

One of the most commonly-asked questions people have is if Bitcoin is taxable, and the answer is a definite yes.

Back in 2014, when the IRS caught wind of cryptocurrency, it declared it as property that could be taxed. So, just like with anything else, you will pay taxes on Bitcoin gains, and you can write off those Bitcoin losses. Just keep in mind, however, that Bitcoin is truly taxed as property, not money, so property rules apply to Bitcoin and other cryptocurrency transactions.

And speaking of transactions, to make sure you do everything correctly come tax-time, keep careful records of all of your Bitcoin/cryptocurrency transactions. Also, make sure that you hire an accountant who is familiar with Bitcoin and other forms of cryptocurrency. You don’t want to work with someone who doesn’t understand this new form of currency and the tax laws surrounding it.

In the coming years, Bitcoin is expected to become even more common and widely used. But, until then, it may take some digging to find accountants who can help you with Bitcoin-related taxes. Once you find a good accountant, however, you should have no problem continuing to enjoy cryptocurrency and handling your taxes related to it.

Payroll Services

Do you have a payroll department or a “payroll services” branch at your business? If so, you will be glad to know that these departments don’t just exist to pound out the paychecks. While that is certainly an important part of their job, most are willing to provide help with other jobs and needs as well.   

1099s

To start off with, did you know that most payroll departments will help you when it comes to collecting information for 1099s?

1099-MISC is the form filed for paid non-employees, such as contract workers. Hunting down all those workers and sending out all those forms can be a pain…unless you let payroll take care of it for you. 

These aren’t the only forms payroll services can help with either. Most of them will also help with W-2s.

Backup Withholding

Something else payroll will typically help with is backup withholding deductions.

If the IRS requires you to withhold federal income taxes, pass the information onto the payroll department and let them process it and handle the withholding for you.

As you can see, payroll services can be quite useful. If you don’t currently have a payroll department at your place of work, then maybe it’s time to invest in one! There are plenty of payroll services and accountants who will handle these needs for you, as well as many more.

Paying to get Your Taxes Done?

When it comes to taxes, many people attempt to file and prepare their taxes on their own. And sometimes, they’re actually successful at it. Other times, though, they end up making costly errors that cause them problems or cost them money.   

If you don’t want to find yourself in that second situation (and who does?), it’s in your best interest to hire someone to file your taxes for you, especially if you have special tax circumstances or more complex tax needs. Look for an accountant with a good reputation who you can trust to save you as much money as possible.

And, if you’re still set on filing your taxes yourself, why not have a professional accountant to show you how? After all, what better way is there to learn than from an expert?

Many accountants will gladly walk you through the process of filing your taxes, educating you so that, in the future, you can do it yourself. And, if you happen to get stuck or run into a problem, you’ll have a great resource- your accountant- that you can call on to help you out.

Obviously, there are some really great benefits to hiring a professional to do your taxes…or to at least show you the ropes. So, the next time you find yourself wondering “is it worth it to pay someone to prepare my taxes?” remember that the answer is yes!

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The Pro's and Con's of Incorporation

When you own a business, you get to “call the shots.” And, while there are definitely some perks to being in charge, it also means making tough decisions.

One of the toughest business decisions you’ll ever to make is whether or not to incorporate your business. And, unfortunately, there aren’t any easy answers about what you should do. It’s simply a matter of what works best for you.

What you can do, however, is educate yourself on the various pros and cons of incorporating your business. Doing this will help you to make an informed decision.

Also, remember that this decision is not set in stone. Though it takes some work, you can always reverse incorporation if need be.

Pro: You’ll Enjoy Limited Liability

One of the best things about choosing to incorporate your business is that you’ll enjoy limited liability.

This is definitely not the case in a sole proprietorship. In that business model, you, as the business owner, will assume full responsibility and liability for the company.

With an incorporated business, however, shareholders share the liability based on the amount they’ve invested. This can really take the burden and fear off of your shoulders!

Con: Too Many Taxes

Heading on over to the negative side, many people gripe about the fact that incorporating their businesses mean yet another tax form to fill out. Most people truly hate filing taxes, and adding more to the mix is the last thing they want to do.

Unfortunately, though, when you incorporate your business, you’ll need to file both a corporate tax return and a personal one.  Of course, if you have a skilled accountant to handle this for you, it won’t be too much of a burden.   

Pro: Continuance

Something you’ll like about incorporating is that your business will not have an “end” to its lifespan. It can keep on existing even if you switch shareholders or sell the business to a new owner. Continuance of this sort doesn’t happen with a sole proprietorship, so this is a very nice advantage of incorporating.

Con: You’ll Have to Pass on Personal Tax Credits

People are often very disappointed to learn that corporations are not eligible for personal tax credits. In fact, corporations tend to be taxed pretty heavily. That, plus the lack of tax credits, can be bothersome (and expensive) for a lot of business owners.

However, with the right accountant, you can find other ways to save money, so you won’t feel the loss of personal credits too much.

As you can see, there are definite pros and cons to incorporating your business. If you’re still on the fence, talk over your options with a professional to determine what the best course of action is for you and your business.

Self Employed as a Senior?

These days, it’s more common than ever for senior citizens to go into business for themselves. Whether they open up official businesses or just start doing extra work, like nannying or pet-sitting, on the side, the fact remains that today’s seniors are putting off retirement in favor of earning more money.   

And, while earning more money is always a good thing, self-employed seniors, meaning those over the age of 65, should be aware of some rules that typically apply to them. They, for example, are usually required to file both business tax returns using Schedule C and personal tax returns.

Furthermore, self-employed seniors will have to pay the self-employment tax rate, which can be steep. With a little know-how, though, they can typically qualify for deductions that can help them to save. For example, half of your social security tax, in most cases, can be deducted on Form 1040, which will bring down your adjusted gross income and, thus, your overall taxes.

Another thing to keep in mind is that, in most cases, you can continue collecting Social Security benefits as well. You just have to remember that if you go over the maximum taxable earnings amount, your benefits may be reduced. Social security benefits are reduced $1 for every $2 you go over the income maximum.

To learn more about how your social security benefits might be affected by being self-employed as a senior or for general questions about self-employment and what it means for you tax-wise, don’t hesitate to seek help from a qualified accountant.

The friendly tax experts at Lewis CPA are always happy to assist you with all of your tax questions and needs, no matter what your age or your employment status, so don’t hesitate to contact them!

Understanding the 1099

Often times, people will get 1099-MISC forms in the mail…and then feel unsure about what those forms mean or what they’re supposed to do with them. If this happens to you, don’t worry. Appropriately handling your 1099-MISC form is not difficult.  

When you get one of these forms, the first thing that you should know is that you’ll need to report the related income on your tax return. You will also be required to pay income tax and self-employment tax on these funds.

And, if you’re wondering why you’re getting one of these forms in the first place, it’s simply because you did work for someone as an independent contractor. Since you’re not a full-time employee of this person or organization, you get a different form than the standard W-2 that regular employees get.

1099-MISC Forms for Businesses

If you own a business and are receiving the form as a business owner, how you will need to report the income is a bit different and will vary depending on the type of business you own. For sole proprietors or single-member LLCs, you can report the income on Schedule C- Profit or Loss from Business.

Partnerships, multiple-member LLCs, and corporations, on the other hand, will include 1099 income as part of their business income tax returns.

If your situation or business doesn’t fit neatly into one of the above categories, then it may be smart to speak with an experienced accountant about your situation.

At the end of the day, it is imperative to correctly report income earned from contract work, whether you’re an individual, a self-employed person, or a business. Make sure you do it the right way and thus avoid penalties and fees by seeking help from a professional.

The Basics of Payroll Taxes

If you own a business or are thinking about starting a business, you have probably heard the term “payroll taxes” getting tossed around a lot.

This term refers to the taxes that you, as an employer, will be legally obligated to withhold from your employees for income taxes and FICA taxes.

Your job, as an employer, is to collect all of these required taxes and, then, to pay them to the IRS and report on them by filing the appropriate reports.

All of this can seem a bit harrowing, especially when you’re just starting out, but, don’t worry! It gets easier to understand, especially if you have a qualified accountant on your side.

Getting Started

If you are truly “new to the game” when it comes to having and taxing employees, then you should know that your first step is to register with the IRS in order to get a legal employer identification number. You also have to register with your state.

Once you have done these important things, it’s just a matter of knowing and understanding what is required from you in terms of payroll taxes and then following the rules perfectly.  

Your Job

As an employer who withholds taxes, you will have several responsibilities on your plate. These include, to name a few:

l  Making sure all of your employees turn in the right tax documents when they are hired and at other times throughout the year

l  Filing payroll tax reports by the appropriate deadlines

l  Withholding payroll taxes from employee checks

l  Paying those same payroll taxes to the IRS

l  Calculating payroll tax deductions and reporting them appropriately

If all of that seems like too much to manage on top of running a successful business, know that you are not alone.

A great many businesses turn to tax professionals for these matters. If you think you should be one of them or even if you just have questions or concerns about filing payroll taxes, don’t hesitate to contact the friendly professionals at Lewis CPA for help and guidance.

Understanding Personal Exemptions

Many people are aware that tax exemptions exist but, unfortunately, don’t really know how to take advantage of them fully or even which ones apply to them.   

This is truly disappointing since knowing which exemptions to file and then filing them can greatly reduce a person’s taxable income, thereby reducing his or her income taxes.

Exemption Examples

There are all kinds of personal exemptions available…many of which are widely underused by the average tax filer.

For example, you can qualify for an exemption if you have at least one person whom you can claim  as a dependent.

Similarly, you can claim two personal exemptions if you are a married person filing jointly, plus exemptions for each of your dependents.

And, even when spouses file their taxes separately, one can often claim the other so long as circumstances allow.

Of course, personal exemption amounts vary based on a variety of factors, but, right now, the current personal exemption allowance is a whopping $4,050, which could be helpful for a lot of people.

Filing Personal Exemptions

Given the vast amount of people who don’t take advantage of the personal exemptions for which they are eligible, you might think that filing for such exemptions is incredibly difficult. In truth, though, it’s really not. It’s just that many people are not aware of their exemption options and/or how to get them.

Typically, you’ll want to use Line 6 of Form 1040 to claim personal exemptions for yourself, your spouse, or for dependents. You’ll also need to include your deductible amount on Form 1040 Line 42 or Form 1040A Line 26. Or, if you’re simply filing Form 1040EZ, you’ll only need to record your exemptions on Line 5.

If that is confusing to you, as it is to many people, don’t just give up and lose out on these exemptions.

Instead, seek the help and advice of a qualified, professional accountant who can make sure that you take full advantage of all of the personal exemptions available to you and that you do so in the best and most beneficial possible way.

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