Tax Tips for Business Owners

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Small businesses have the opportunity to save money by optimizing their credits and deductions during tax season. 

Keep Records

Saving receipts is one of the most underutilized ways of obtaining tax breaks. Keep every receipt sorted and organized from the start of each tax year to access them for deduction qualifications easily. Many small companies make cash transactions eligible for deductions that are sometimes ignored. Keep a logbook to record everything.

Explore Healthcare Credits

A sliding range of healthcare tax credits is available. The majority of the benefits go to businesses with at most ten full-time workers and average employee salaries under $25,000. Use the correct forms to determine your eligibility for any credit before claiming. You might be eligible to carry the credit forward if your company did not owe taxes in that particular year. 

Deduct Expenses

You may deduct business expenditures from any unclaimed portions of the tax premium. Small firms can deduct the entire cost of various assets as an expenditure in the year they were first put to use. The total amount allowed for the tax year 2022 is $1,080,000 of qualified company property. Any form of the facility utilized for business or research, structures used to keep livestock or horticultural goods, or off-the-shelf computer software are a few examples of what can be deducted. It’s important to note that land, investment properties, lodging structures, and buildings used to store heating or air conditioning systems are all excluded.

Explore Depreciations

For qualifying assets purchased before September 28, 2017, the previous 50% bonus depreciation standards still hold. These assets have to be bought brand-new, not second-hand. The new regulations provide a 100% bonus expensing of new and used assets. In 2023, the bonus depreciation rate will drop to 80%; in 2024, to 60%; in 2025, to 40%; and in 2026, to 20%. 

Additionally, from September 27, 2017, selected fruit or nuts grown or grafted, as well as approved film, television, and live staged performances, are 100% expensable. For the first tax year after 2017, a 50% bonus first-year depreciation may be chosen above 100% expensing.

Remember Charitable Contributions

Numerous small companies give to charities throughout the year and exclude the amount from their taxes. Donate meaningful stocks rather than cash to maximize these contributions. Instead of the price at which the stock was initially bought, your company may deduct the current value of the shares at the time the donation was made.

California and Tennessee to Receive Tax Relief Following Disasters

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California and Tennessee have been plagued by natural disasters in recent weeks. Californians have been affected by massive wildfires, while Tennesseeans have struggled with storm damage. In light of this, the federal government is offering affected citizens some tax relief options.

California wildfire victims residing in the counties of Lassen, Placer, Plumas, or Nevada, have until November 15th, 2021 to file individual and business returns or payments. This includes quarterly tax payments, excise tax returns, and quarterly payroll. November 15th will also serve as the new deadline for those who had received an extension on their 2020 returns.

Penalties on payments that were due between July 14th and July 29th of 2021 will also be forgiven if the payments were made by July 29.

Tennessee residents or business owners who were impacted by storm damage in Houston, Dickson, Humphreys, or Hickman county also qualify for tax relief. Those who had received an extension to their 2020 returns will now have until January 3rd, 2022 to file. That is also the new deadline for the quarterly tax payments that would’ve normally been due in September of 2021.

Penalties on payments that were due between August 21st and September 7th of 2021 will be dropped if the payments were made by September 7th of 2021.

If you’re a victim of the California fires or Tennessee storms and you receive a notice from the IRS that you’re being penalized for late filing or late payment but you believe you qualify for the tax extensions, you can contact the number on the notice. Explain your situation and they’ll be able to help you determine if you are eligible and if you are, they can remove the penalty from your file.

The IRS is making every attempt to automatically identify taxpayers who reside in the areas covered by the disaster extensions. When they identify these people, they apply the filing and payment relief options to their accounts. This means, that if you live in the affected areas mentioned, you shouldn’t need to contact the IRS to receive your tax extension.

If however, you are a victim of the fires or storm damage that lives outside of the mentioned counties, you will need to contact the IRS at (866) 562-5227 to request the tax relief.

Tax Breaks for Homeowners

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While there are many opportunities to create financial wealth and safety in America, few are as powerful as owning a home. Even with decades of mortgage payments, the relative size of those payments usually declines over time as wages rise but the payments stay flat. Also, home values tend to go up over time, representing another way to secure wealth in a home.

Once a mortgage is paid off, families own their own homes and just have to pay taxes and maintenance, seriously freeing their regular income from one of life’s biggest expenses. The advantages don’t stop there. Multiple law enforcement agencies and municipal governments have learned that crime goes way down in communities where at least a third of the residents own their homes as compared to renting.

Buying a home isn’t cheap. In fact, it’s often the biggest single expense most families will make in their lifetimes. Fortunately, there are many tax breaks homeowners can use to make things more affordable.

  1. Capital Gains: If you sell your home and profit from it, then capital gains taxes might apply. However, if it was your primary residence, you might be able to keep capital gains without them getting taxed.
  2. Discount Points: When you get a mortgage, you might get to buy discount points that lower the interest rate applied to the loan. Points you buy to lower the interest rate are tax-deductible.
  3. Home Equity Loan Interest: This is just like having a second mortgage. You can deduct the interest you pay on a home equity loan if you took the funds for home improvements.
  4. Home Office Costs: The actual details are up to the IRS on this one, but home office space might get you tax breaks.
  5. Mortgage Insurance: Also known as PMI or private mortgage insurance, it’s there to give your lender protection if you can’t keep up with mortgage payments. You can itemize the cost of this insurance.
  6. Mortgage Interest: The mortgage interest deduction lets you lower taxable income if you do an itemized deduction.
  7. Necessary Improvements: The scope of what is ‘necessary’ is up to the IRS, unfortunately, but certain improvements can qualify as tax deductions.
  8. Property Taxes: These are often applied at the state and municipal levels. Depending on how you file, you can deduct $5,000 to $10,000 from your federal taxes.

How to Plan Your Income for Retirement

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Planning for retirement is important if you want to cope with life after your days in the office. According to the Employee Benefit Research Institute, 4 out of 10 American workers are saving money for their retirement. Do you want to be part of these smart employees or the lost majority? Here are some of the things you need to know about preparing for retirement.

Setting Financial Goals
Saving is a process that demands commitment. Since retirement is definitely not your only saving goal, you should try striking a balance or prioritizing what is necessary and weighty. For instance, you could comfortably do away with lingering debts and saving for vacations, cars, homes, and lattes.

Saving for Retirement
Retirement involves more than just assessing the amount of saving you need. When planning for retirement, it’s is also important that you pay attention to where you save your money. Find the best investment or saving account. Take time to calculate how much you need to save for retirement as well.

Investing
While saving is simply amassing wealth, investing is the process of multiplying the wealth. Cash is not a great way to store your wealth, and there are thousands of reasons why. Before investing your money in any project, assess the reward-to-risk ratio and the return on investment. Which investments are more diversified, and when do you get in for maximum gains.

What Do You Invest In?
Are you ready to have your retirement saving work for you? Well, if that’s the case, setting up an investment portfolio should not be complicated. Acquaint yourself with principal retirement investment rules. Are you a DIY person, or will you need to hire the services of a financial adviser? If you want to manage your retirement saving yourself, it is recommended that you gather sufficient knowledge on investment strategies. If you will choose to work with a professional, get to know about the related costs.

Building Wealth
Retirement investing is not a phenomenon that occurs in one sitting. It is a process that will change with the dynamics of your employment as you move from one job to another or up the promotion ladder. You will also have to endure changes in the stock markets and meet family obligations. However, that does not necessarily mean that you will have to babysit your retirement investment. There are numerous ways to protect and manage your wealth and savings in the long haul.

Post-PPP Taxes to Understand

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The Paycheck Protection Program loans were a top priority for most struggling businesses due to the COVID 19 pandemic. Although these loans were beneficial to small businesses, most business owners find it hard to understand the tax implications. Below is a comprehensive description of the Post-PPP tax obligations.

Paycheck Protection Program Loans

PPP loans were awarded to small business owners to prevent them from going out of business and to retain their employees. Under the PPP program, small and medium business owners received a loan of up to two-and-a-half times the average monthly payroll. This loan had a cup of about $10 million.

The PPP loan intent was to cover the payroll and other business expenses during the COVID 19 pandemic. If properly appropriated on the approved expenditure, these loans are forgivable. However, if not, repayment of the funds will attract low interest and extended repayment periods. Although these funds have been beneficial to most small businesses and their employees, confusion about the tax implications has arisen.

Tax Implications of The PPP loans

Will the businesses that received the Paycheck Protection Program loan have a different tax situation than the previous years? This question was the concern of most business owners. The possibility that the loans would get considered as the taxable expense was another confusing aspect of these funds.

Although the Paycheck Protection Program (PPP) was seen by many as a lifeline, experts warned that the legislation could become a tax-laden time bomb. In May 2020, the IRS issued Notice 2020-32. This notice declared that if PPP loans were not taxable. However, the expenses usually not considered as tax-deductible wouldn’t be deductible. These expenses include utilities and rent.

This declaration threatened to kneecap the most attractive part of the PPP loans. However, Congress came to the rescue when they passed the recent PPP funding through the (C.R.R.S.A.A) Coronavirus Response and Relief Supplemental Appropriation Act. This act reversed the decision of the IRS made on the Notice 2020-32.

The Congress act declared that any forgiven PPP loan would be tax-exempted income. Thanks to this clarification, business owners can now take a Paycheck Protection Program loan and still get the (ERTC) employee retention tax.

Tools Every Accountant Needs

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This blog was originally published to JBowmanAccountant.org.

You may not have thought about it, but accountants all need certain tools to do their jobs right. Many of the tools used by accountants are to make the job easier and provide ways of offering better services. Below is a list of a few of the most important things every accountant should have.

Reliable Computer

Invest in a quality computer because it is the one that takes on most of your work for you! Having a fast, reliable computer will allow you to run multiple programs at once. It also gives you the peace of mind that you will be able to do your job effectively.

Tax Software

Tax software eliminates the need to file taxes by hand and saves you a ton of time and headache. Investing in a great tax software will help you serve more clients at a more efficient rate. Plus, tax software will catch any mistakes you may make and gives you the option to correct them. Doing so can save your client a lot of money.

File Encryption

Adding a layer of security to the confidential and sensitive information found on most of the files you have will ensure clients that their information is safe. By having file encryption in place you will be able to email sensitive materials without the risk of the wrong person getting a hold of that information.

Scanner

In order to convert paper files into easily accessible electronic files, you will need a scanner. You can get a traditional scanner/printer combo or even a file scanner specifically for scanning documents and sorting them. These special document scanners often can scan both sides of a double sided documents at the same. They also turn your bulky paper documents into easily accessible PDFs.

Gear Up

You can have the best computer all the software in the world, but nothing beats old school gear. Have a great calculator handy for crunching numbers. Also have plenty of writing utensils and notepads around for note taking. Being able to do the thing the “old fashioned” way never hurts. You may not always be able to rely on technology and having the tools to complete the job are important.

4 Things You Should Know About The R and D Tax Credit

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This blog was originally published to JBowmanAccountant.org.

The Research and Development Tax Credit benefits almost any business, no matter the size, age, or industry. Since 1981, this incentive has offered reimbursement for innovative and highly-technical businesses. Here are four things you should know about the R&D Tax Credit.

It is available for many industries

From aerospace organizations to wineries and vineyards, several industries can reap the benefits of an R&D Tax Credit. Organizations within these industries must pass a four-part test to affirm that their research activities qualify for an R&D Tax Credit. The four parts of the test are:

  1. Technological in Nature – “Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.”
  2. Permitted Purpose – “Activities must be performed in an attempt to improve performance, reliability, or quality of a new or existing business component.”
  3. Eliminate Uncertainty – “Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.”
  4. Experimentation – “All of the activities must include a process of experimentation including testing, modeling, simulating, systematic trial and error.”

It covers a variety of expenses

With all of the activity that goes on in a given business, it can be difficult to track your direct and indirect R&D expenses. However, taking note of those expenses is essential for receiving the appropriate tax benefits. As a rule, the major expenses that qualify are salaries and supplies and materials. For salaries, employees who work in R&D or directly manage those in R&D are covered. Supplies and materials covers anything from nails to computers.

It offers unique benefits to smaller companies

If your small company has gross receipts for five years or less that average less than $5 million, your company may be eligible for an R&D Tax Credit. This is the case even if your company does not owe any taxes, and the covered amount can reach up to $250,000 of a payroll offset. If your small business does not have credit for offsetting payroll taxes in a given quarter, you can carry that credit into a different quarter. However, to do this, you must not exceed the $250,000 limit.

It undergoes regular updates

The R&D Tax Credit does not behave exactly as it did over a quarter of a century ago. As industries and economies evolve, the R&D Tax Credit does, too. In particular, the removal of the Discovery Rule in 2003 redefined research activities as those that would be “new to the taxpayer” rather than “new to the world.” More recently, the Protecting American from Tax Hikes (PATH) Act ensured that small, mid-size, and startup businesses could benefit from R&D Tax Credits.

John J. Bowman, Jr. is an accountant and tax professional based out of Pittsburgh, Pennsylvania. Follow him on Twitter for more blog updates!

The 3 Best Personal Finance Software Options for 2017

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Personal finance software can assist you in managing your finances. The software tracks your transactions and warns you about potential problems. Personal finance software organizes your finances daily, which allows you to relax and avoid stress. Here are the best available personal finance software programs

YNAB

The acronym YNAB stands for You Need A Budget, and the software is designed to help people who are budgeting. YNAB wants users to take every dollar that they earn and give that dollar a job. Users can find out exactly what every spent dollar went towards. YNAB can help you manage your immediate expenses; such as mortgage or rent, as well as your discretionary expenses; such as dining out. YNAB is a good choice for people who have constant expenses.

YNAB only allows you to budget money that you have actually earned, which forces you to plan around the money you presently have and not the money that you’ll receive in the future. YNAB will stop you from overspending by taking money out of another category to cover costs. YNAB encourages people to think of any extra money as finances that can help future expenses. By helping users put money aside for future expenses, YNAB believes that it is enhancing the financial security of its users. YNAB offers free webinars to help people understand how the software works.

Mint

One of Mint’s most popular features is its easy setup. The dashboard makes everything clear, so users can easily transition from one column to the next one. Mint recognizes that most people have flexible budgets, so users can set up a budget that makes sense with their expenses. Mint’s budgeting system allows users to make different categories for every expense that you have. Once you have paid for all of your expenses, the rest of your income goes into a category known as Everything Else.

Mint’s budgeting system lets users clarify when the expense will be due, so you can budget every month until the expense is due. You can set aside money every month to help plan for any long-term financial goals. That money will be taken out of your available budget.

Personal Capital

Personal Capital looks at the total net worth of its users through calculating all of their current assets and then subtracting any liabilities. Personal Capital lets users compare their spending during the current month to spending in previous months. Personal Capital shows users how their investments are doing by giving them a breakdown of their individual stocks, as well as an index of any money that has been accumulated or lost. You can seek a breakdown of your finances in both real dollars and percentages.

5 of the Best Accounting Books

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If you are an accounting student or even if you are a veteran professional accountant, it’s important to keep learning about the industry. The easiest way to learn outside of the classroom is to pick up a book. Yet with so many accounting books out there, where should you begin? Below are some of the tops accounting books that you should read.

Accounting Made Simple: Accounting Explained in 100 Pages or Less – Mike Piper

Accounting Made Simple prides itself on explaining some of the most important accounting concepts in simple-to-read language. The book is currently the best selling accounting book on Amazon—a testament to its popularity with readers. In its pages, you’ll find information about things like the accounting equation and financial statements.

Accounting All-in-One For Dummies – Kenneth Boyd

The Dummies series of books are great for people who need a brief, yet in-depth, overview of a subject. Accounting All-in-One is a great resource for people who have to learn accounting basics in a short period of time, like small businesses or one person startups. When you’re finished with this book, it’s a great resource to keep on the shelf. This book is written in a similar easy-to-read style like Accounting Made Simple.

Barron’s Accounting Handbook – Joel G. Siegel Ph.D.

Barron’s Accounting Handbook is written by two finance professors. The book covers just about every accounting topic that is worth studying. One of the best features of the book is its A-Z dictionary of important terms to know. The dictionary alone makes the book worth the price.

The Tax and Legal Playbook: Game-Changing Solutions to Your Small-Business Questions – Mark J. Kohler

Even if you are not a small business owner, this is an important book to own—especially since you will most likely help small business owners at some point during your career. The chapters that discuss tax are particularly useful to business owners. Many readers note that the book is not only informative but entertaining as well due to the examples it presents from the real world.

A Random Walk Down Wall Street – Burton Gordon Malkiel

Burton Gordon Malkiel is a Princeton economist. While his book doesn’t specifically focus on accounting, accountants will find its advice on investing very useful. Although it’s written by an academic, it’s easy to read. The book’s main point is that it’s incredibly difficult to “beat the market” unless you have a stroke of luck to assist you. Here is an interview with the author that highlights the main ideas of the book.

Tax Filing Tips for Married Couples

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If you got married on or before December 31 of last year, then you and your spouse will have to do your taxes a little bit differently this year. Keep reading to learn some of the top ways that getting married affects your taxes.

Filing Status

Now that you’re married you can no longer file with a single status. You either have to choose Married Filing Jointly or Married Filing Separately. For the majority of married couples, Married Filing Jointly is more beneficial than Married Filing Separately. The latter status usually gives you access to more beneficial deductions and credits.

Tax Bracket

Your tax bracket determines the tax rate that you will be responsible for. It’s likely that your tax bracket will change now that you’re no longer filing as single. Couples who file jointly often face a higher tax bracket since their incomes are combined.

Exemptions and Standard Deduction

Married couples get to claim two exemptions instead of the one that single individuals get to claim. The standard deduction is highest for married couples who file jointly. This year the standard deduction is $12,600 for joint filers and $6,300 for married couples who file separately.  The standard deduction is subtracted from your income that you are taxed on. Therefore, the higher the standard deduction the better.

W-4

After getting married it’s usually a good idea to change your W-4. Whenever you start a new job you are required to fill out Form W-4. The form tells your employer who how tax to withhold. Changing your status to married might lessen the amount of taxes you have to pay. The IRS provides a helpful withholding calculator that you can use to determine whether you should fill out a new W-4.

First Home

A number of married couples buy their first home as a result of their combined incomes. The mortgage interest that you pay can be deducted from your taxes if it is itemized. If the two of you already own a home, lived in it for two years, and sell it while married, you can exclude up to $500,000 of the money you made on the sale. Read this article to learn more.

Standard Deduction or Itemizing?

Depending on your financial situation it might be better to itemize rather than claim the standard deduction. Most married couples who own a home find it more beneficial to itemize since itemization allows deductions for mortgage interest. Every married couple’s situation is different, so it might be a good idea to speak with a tax professional when deciding on which option you should choose. To learn more take a look at this article.