bythenumberzcpa

Overlooked Business Deductions

Thu, 20 Feb 2020 15:58:57 GMT

Missing Out on Deductions

Are you a business owner missing out of qualifying deductions because you are not aware of what can be deducted? I have compiled a listing of business deductions, a few that go overlooked year after year to assist business owners in maximizing the taxes, and reducing tax liabilities. Many of the deductions apply to independent contractors, freelancers, limited liability companies, corporations, and partnerships.

Click here for you free download of business deductions.

For more information contact me nkirkland@bythenumberzcpa.com

The New W-4 Form

Mon, 10 Feb 2020 16:17:32 GMT

And What It Means to You

Beginning January 1, 2020, the IRS has issued a new W-4 form. This is significant as the recent Tax Reform eliminated personal exemptions and doubled the standard deduction when filing your personal taxes.

It is recommended that a new W4 be filed with your employer to ensure the proper withholding is deducted under the new code. It is highly recommended the new form be filed with your employer if you:

Work for more than one job
If you spouse also works and you file jointly
If you claim the child tax credit or other tax credit
If you have high income and a more complex return

Completing the Form

I have received a lot of calls asking “what to do with this new form”, so I have included some instructions to assist people.

You must complete steps 1 and 5. Steps 2, 3, and 4 are optional but can be helpful in ensuring your tax withholding more closely matches your tax obligation.

When you fill out Step 1 only, your withholding will be computed based on your filing status’s standard deduction and tax rates, with no other adjustments

There are certain situations that increasing the withholding should be considered:

You hold more than one job at a time or you and your spouse both have jobs (Step 2)
You have income from sources other than jobs or self- employment
There are certain situations that decreasing the withholding should be considered:
You are eligible for income tax credits, child tax credit or credit for dependents (Step 3)
You are eligible for deductions, such as itemized deductions, IRA contributions or student loan interest deductions

It is also a great idea to use the Tax Withholding Estimator to help ensure maximum accuracy. The link is below. Note you will need your latest paystub (to enter the federal tax withheld from last check, and the YTD federal tax withheld).

For more information contact me at nkirkland@bythenumberz.com.

Setting Up A Business

Mon, 16 Dec 2019 15:56:57 GMT

Setting Up A Business – More than just checklists!

There are tons of how to’s lists out there on the world wide web.. but really it takes more than a list to grasp the understanding of setting up a business and the start of the business ownership journey! It can be overwhelming looking at the lists and the questions that rattle our brains can cause a lot of discouragement. I work with entrepreneurs and business owners on a weekly basis in tackling this hurdle and getting their businesses going and operating successfully.

The first step is “creating what you want the business to do” are you providing a product and/or service and what will set you apart from the other 20 businesses doing the same thing?

The first step is “creating what you

want the business to do.”

The second step, (I should say question) is are you willing to sacrifice the time to commit to working your business, rising early before the family to put in the time, or going to bed late to put in the time. If you’re like most business owners you have a job, a family or some type of obligation that will require you to MAKE time to run your business until you can do it full time. If you’re able to work the business Full time, Yippy Yayy you are ahead of the game!

Third, do you have a catchy marketable name for the business, check the availability on your states business site before filing business formation forms, this will save you time should the name be used already. Understanding marketing and social media are essential to growing your business. Word of mouth is always the best, but the social times require a social media presence and website access to your business. There are free website and marketing tools available, research is the key! (i.e. google it)

Fourth, consider your business structure. You will have to consider what is important to you, is it tax write-offs, is it liability protection of your business and personal assets, is it ownership of the business or is it all of the above. The list below is a link from the SBA.Gov site providing information on business structures with brief descriptions (please note the brief descriptions are not to be used to make a final decision but provide insight, you will want to review these options with a CPA or Attorney before making a final informed decision)

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

Fifth, after you decide the business structure take the leap and file the business with your State, and obtain an EIN from the IRS. The EIN will give the entity its own Employer ID Number for tax purposes, to be used for vendors, creditors, banks and other lenders. This is a step to differentiate your business from your personal assets.

After you receive the Articles of Organization or Incorporation from the State and the EIN letter (which can be obtained online at www.irs.gov/EIN ) You can take the two forms to the bank and open your business account. I business account is essential to separating your business from your personal assets. I tell clients to run everything through the bank statements, meaning post all deposits to the bank whole before you deduct funds, and expenses can be purchased with a debit card or checks, and bill payments can be made by ACH (direct from a bank account), or debit card. The bank statements will summarize all your activity making it easier for an Accountant or bookkeeper to reconcile your statements and provide the important financial statements needed for you as owner to make good business decisions.

Sixth, since we’ve opened the door to the accounting aspect of your business. It is imperative that you gain an understanding of Accounting and how important it is for your business. If you don’t know your Numberz (pun intended) you will not know if you are making a profit or sinking in debt, if you can meet payroll at the end of the week, or meet business obligations at the end of the month. Accounting also tells you if your prices are enough, should you be charging more to make a profit. Seek out an accountant to review and answer questions early in the game, it will save you a lot of headache!

The listed six steps are the “first steps” in setting up your business.. the next is building and sustaining your business… if you would like a consultation with us, please contact nkirkland@bythenumberzcpa.com or give me a call at 586.296.0771.

Tax Changes for 2019

Mon, 09 Dec 2019 15:54:56 GMT

Tax Changes for 2019 (Filed in 2020)

If you experienced filing for the 2018 tax year last year, you know its been an interesting ride mapping through the Tax Reform changes. 2019 will prove to be the same, for some it will mean an increase in refund, but for the majority it may mean a decrease in refund or balance due. A list of changes has been compiled for readers to get a better understanding on the changes and how it may affect the filing of tax returns.

Tax Rates

The tax rates were increased for 2019 to include adjustments for inflation. Above is the tax bracket and income level for each filing status.

Standard Deductions

The standard deduction amounts were increased from 2018 to 2019:

Status 2018 Deduction 2019 Deduction

Single/MFS $12,000 $12,200

MFJ $24,000 $24,400

HOH $18,000 $18,350

It is estimated that 95% of individual returns will now utilize the standard deduction, while 5% will still benefit from Itemizing deductions.

It can be mistakenly believed that a higher standard deduction means a higher tax break, however this is not always the case. While the standard deduction is increased, the valuable personal exemptions have been removed which causes a difference in how taxes are calculated. Congress in its efforts to simplify the tax code, decided instead of giving taxpayers the standard deduction and a number of personal exemptions, the two should be combined into a higher standard of deduction. The personal exemptions was for a certain amount and allowed the taxpayer to exclude the total amount from their taxable income. Taxpayers could claim one exemption for themselves, their spouse and one for each dependent. In 2017 the personal exemption was $4,100, for a family of 6 that meant $24,600 could be deduction from their gross taxable income and then also apply the standard deduction/or itemize deductions. When you look at that fact, and the situation now we can see that the higher standard deduction is not equally matched.

Child Tax Credit

Child tax credit has been increased to $2,000 per qualifying child under the age of 17. The refundable amount has increased to $1,400 and the income limitations are less restrictive, allowing you to make more income and still qualify for the credit.

Education Tax Breaks

The two education credits are still available for 2019 (filed in 2020) the American Opportunity Credit and Life Time Learning Credit have the following requirements:

AOC : Deduction for qualified tuition and some expenses paid toward a degree and/or certificate for the first four years of college only.

LTC: Deduction for qualified tuition for tuition and fees not limited to the first four years of college.

Tuition and fees

The deduction for tuition and fees up to $4,000 was expired in 2017, unless Congress votes to bring it back for this tax year it will remain expired and non-deductible for taxpayers.

529 Plans

529 Plans are tax advantaged plans for parents, and other family members to save and invest money for the future educational expenses including tuition, fee, books and supplies. There is no deduction for the contributions on the federal return (some states allow for deductions), however the principal and income earned on the investments can be withdrawn for qualified expenses tax free. In prior years the qualified expenses were college related only, under the tax reform act, the qualifying expenses expand to educational expenses at any level of education, not just college. (i.e. private high schools)

Mortgage Interest

While still deductible the deduction requirements had two modifications affecting higher income level taxpayers. The first modification is the limit on the total deduction allowed has been reduced to the interest on up to $750,000 of qualified residence debt or mortgage principal on a primary or secondary home. This is a reduction from the prior years $1 million limit. This does not affect mortgages obtained before 12/15/17. These mortgages have been grandfathered at the $1 mill limit.

Also modified is the deduction for home equity debt up to $100,000. This deduction has been eliminated UNLESS the loan was substantially used to improve the qualifying home, if so the debt will qualify and count towards the $750,000 limitation.

Charitable Deductions

The deduction limit has increased from 50% to 60% of the Adjusted Gross Income of the taxpayer. One modification is the donations to colleges and universities in exchange for sports tickets are no longer deductible. The requirement to deduct the contributions is a letter from the donee stating the amount and date of contribution, and/or receipts to various charitable organizations

Medical Expenses

The medical expense threshold for deductions was reduced to 7.5% of adjusted gross income to be deductible for 2017 and 2018, however for 2019 the threshold percentage will increase back to 10% of adjusted gross income.

ACA – Individual Mandates

The penalty under the Affordable Care Act for not having health insurance coverage has been repealed for 2019 and future tax years.

What tax breaks are no longer allowed:

Moving expenses - only allowed for some military services

Casualty and Losses – only allowed for business related losses

Miscellaneous expenses – tax preparation fees, unreimbursed employee related expenses are no longer allowed

This listing is not exhaustive of all the tax form changes that may affect your 2019 tax filing, it is a listing of those that most taxpayers are affected.

For more information, please contact us at nkirkland@bythenumberzcpa.com or 586. 296.0771.

Preparing for Tax Season

Mon, 02 Dec 2019 15:49:39 GMT

Are You Ready?

Tax season is fast approaching, the IRS will begin accepting electronic returns on January 20 ,

2020. Most people go into a panic, while some welcome the season because they expect nice

tax refunds. Whatever your case, you can make the process easier for yourself and your tax

accountant by preparing yourself early. Below is a tax season checklist (from Nerdwallet.com)

to assist you, and lastly some tips from your accountant to assist them in preparing a complete

and accurate return!

Personal information ( if a new client to your tax accountant)

Let’s start with the obvious items on any tax prep checklist.

Last year’s taxes, both your federal and — if applicable — state return. These aren’t strictly necessary, but they’re good refreshers of what you filed last year and the documents you used.
Social Security numbers for yourself, your spouse and all dependents. Remember, in addition to children, dependents can include elderly parents and others.

Income

Gather all the documents that confirm the money you received during the previous year.

W-2 forms. Employers must issue these by Jan. 31, so keep an eye on your mailboxes, both physical and electronic.
1099 forms. Each of these ends with a different suffix, depending on the type of payment you received. For example, form 1099-MISC is for contract work. If you’re paid via a third party such as PayPal or Amazon, you’ll likely get a 1099-K. Investment earnings show up on 1099-INT for interest, 1099-DIV for dividends and 1099-B for broker-handled transactions.

Deductions

Deductions help reduce your taxable income, which generally means a lower tax bill. The key to

claiming deductions is documentation — not only can it protect you if you’re ever audited, it

can cut your tax bill by helping you remember what to claim.

Retirement account contributions. You can deduct contributions to a traditional IRA or self- employed retirement account. Just be sure to stay within the contribution limits.
Educational expenses. Students can claim a deduction for tuition and fees they paid, as well as for interest paid on a student loan. The IRS won’t accept your deduction claim without Form 1098-T, which shows your education transactions. Form 1098-E has details on your student loan.
Medical bills. Medical costs could provide tax savings, but only if they total more than 10% of adjusted gross income for most taxpayers.
Property taxes and mortgage interest. If your mortgage payment includes an amount escrowed for property taxes, that will be included on the Form 1098 your lender sends you. That document will also show how much home loan interest you can claim on Schedule A .
Charitable donations. To ensure your generosity pays off at tax time, keep your receipts for charitable donations. The IRS could disallow your claim if you don’t have verification.
Classroom expenses. If you’re a school teacher or other eligible educator, you can deduct up to $250 spent on classroom supplies.
State and local taxes. You can deduct various other taxes, including either state and local income or sales taxes (up to $10,000, including property taxes ). You don’t need receipts for the sales tax; the IRS provides tables with average amounts you can claim. The tax on a major purchase, however, can be added to the table amount, so keep those receipts.

Credits

Next on the tax prep checklist are credits, which are deductions’ more valuable cousins: They

provide dollar-for-dollar cuts in any tax you owe. But as with deductions, you need

documentation to claim them. Here are some popular tax credits:

American Opportunity and Lifetime Learning credits. These education-related credits can save you quite a bit of money. As with the tuition and fees deduction, Form 1098-T is required to claim either.
Child Tax Credit. The standard Child Tax Credit is worth up to $2,000 per child dependent. If you added to your family through adoption, you might be eligible for additional tax credits.
Retirement savings contributions credit (also known as the Saver’s Credit). Contributions to a 401(k), similar employer-sponsored plan or an IRA might allow you to claim this credit.

» MORE: See 20 popular tax deductions and credits that could save you money this year

Payments

Most of us have income taxes withheld from our paychecks to cover our tax liabilities; that

amount is on our W-2 forms. But if you made federal estimated tax payments during the year,

have this amount handy, too.

This tax prep checklist covers preparation issues common to most filers, but taxes are different

for each of us. Be prepared to tailor the tax prep checklist to your situation.

Tips when working with a Tax Accountant

If your tax situation is little more complex, schedule your appointment early in the tax season to allow the accountant time to address issues, collect needed documentation and contact IRS if required
Gather all your relevant tax information (i.e. income statements) if any information is missing contact the payer of the income (i.e. social security, W2, 1099) and have them send a duplicate copy before your appointment
If unsure about any documentation contact the tax accountant before the appointment and get clarity on the relevancy of the document for income and/or expenses
Always ask questions regarding your tax return, review and make sure you understand what is being reported before the return is electronically filed or mailed. A good Tax accountant will want you to fully understand and be comfortable with what is being filed.
If you own a business, compile your income and expenses (if possible) providing a Profit and Loss statement to the accountant, unless accounting services are needed to prepare the statement, and if that is the case schedule your appointment early in the tax season to allow time for accurate preparation.

Follow these steps and your accountant will love you and make you a VIP client!

If you would like more information or schedule a consultation with us, please contact

nkirkland@bythenumberzcpa.com, book online or call 586.296.0771.