If you find that you owe a large sum of money to the IRS when filing your latest tax return, you may also discover that you simply don't have enough money at the moment to pay the entire amount that's shown on the bill. If so, it's important that you take the right steps to mitigate the penalties that occur when you don't pay the full amount.
Make Sure That You Still File Your Tax Forms
A range of penalties may apply when you fail to file your return and fail the pay the amount that you owe. One of the easiest ways to reduce the amount that you owe is by at least filing your return on time, which should be done by the April 15 deadline. Separate fees can be collected for failing to file and failing to pay, which is why doing one of these things should reduce your overall fees.
Consider Paying in Installments or Refinancing Your Home
If you owe less than $50,000 in taxes but the sum is still substantial, you might want to consider an installment agreement. If you file federal form 9465, the IRS will let you know within a period of 30 days if your request has been granted. You could also think about refinancing your home as a means of paying off these debts. It's possible to convert usable assets into resources to pay the amount that you owe.
Make a Partial Payment for the Time Being
It's always recommended that you pay at least some of what you owe. Doing so will lessen the penalty fees that accrue following the typically April 15th deadline. If you have yet to file your tax return, make sure that you send the check, cashier's check, or money order with the return to the U.S. Treasury. Certain information like your name and social security number will also need to be included on the memo line of the check or money order. You should also think about speaking with a Las Vegas CPA to gain a better understanding of the options that are available to you.
In order to avoid a penalty at the end of the year, you will need to keep up with your tax liability during year. Here are some tips for paying estimated taxes.
Knowing When You Need to Pay Estimated Taxes
When you are either self-employed full-time or you have a side hustle, you cannot wait until the end of the year to pay taxes. If you do, then you may end up owing the IRS a penalty on those taxes if you end up having paid less than 90 percent of your tax liability by the end of the tax year. If you are making money progressively throughout the tax year, you must pay taxes on that money quarterly. If you have another job, you should have an idea of your tax situation so that you will
How to Pay Estimated Taxes
The good news is that paying estimated taxes is easier than filing a return at the end of the year. All you have to do is go online or fill out a form and write the check to the IRS. You do not need to take your deductions at this point or give the IRS any documentation of anything. Estimated tax payments do not even require a mini tax return. Of course, there is still a penalty that you must pay if you underestimate your taxes by too much over the course of the year. You will also still need to file a full-fledged tax return at the conclusion of the tax year like any other taxpayer.
How to Estimate Your Taxes
Of course, a tax return that you have previously filed is a reasonable guidepost for filing this year's return. This will give you an idea of how your deductions will impact the amount of money that you owe in taxes. In addition, you can also use tax preparation software to figure out your estimated taxes. The most effective means of coming up with a strategy to estimate your taxes throughout the year involves getting advice from a CPA in Las Vegas. They can give you guideposts and formulas to help you figure out what your quarterly payments should be before you pay them.
As long as the business tax laws remain complicated, having a tax accountant on your business team is a good idea. If you are a small business, you might hesitate, but if you plan to grow, your taxes will eventually become complicated, too. A tax accountant in Las Vegas can offer several benefits, including knowledge and experience in maximizing tax loopholes.
Here are three reasons to consider adding a tax accountant to your business team.
Maximize Tax Loopholes
Within the tax code, there are loopholes available to businesses. Some Las Vegas tax accountants refer to them as tax credits. No matter how you view them, they are there and you can maximize them in order to lower your tax rate. When you are able to keep more money in your company's pocket, it is money that you can reinvest in your employees, assets and company. The government purposefully leaves loopholes in the tax code because they want companies to continue adding jobs to the economy, and an accountant can help you do just that.
Since you are expected to report your financials to the government every year, it is important to keep the relevant information and documents organized as well as safely stored. A Las Vegas tax accountant develops their own system, but the goal is to ensure that if a document or financial figure is ever requested by a government official, it can be produced in a timely manner. These professionals are trained to be meticulous record-keepers so you can focus on growing your company.
When a Las Vegas tax accountant keeps your financial records organized and safely stored, it also means that you are ready for a tax audit in case it comes up. An audit can be a stressful process, but if you are ready, it can be smooth, too.
The research tax credit is a rewarding tax program that's designed to promote and encourage businesses to innovate. Here are some things that you should be thinking about to see if this credit can help you save money.
What Is the Research Tax Credit?
The research tax credit allows businesses to deduct a certain percentage of their expenses that come from qualified research. There are several different ways to calculate the credit, but up to 20% of a company's eligible costs may be applied to reduce the company's income tax burden. This is not a deduction, but it can be subtracted from the overall amount of tax that your business pays. Labor expenses and supplies that are devoted to research are among the expenses that can qualify for the research credit.
What Constitutes Research?
There is a four-part test for determining whether an activity is qualified research. First, there must be a permitted purpose, meaning it is creating or improving a functionality. Second, the information discovered must go to eliminate uncertainty. Third, there must be a process of experimentation in that the taxpayer must be using a process to evaluate one or more alternatives. Fourth, the process must be technological in nature, meaning that it relies on principles of science, engineering or computers. All of these elements must be met in order for the credit to be claimed.
Limitations on the Research Tax Credit
In order to claim the research tax credit, the taxpayer must maintain documentation in order to detail the amount of the expenditure. The IRS is well aware of this tax credit, and while it may most certainly be claimed, the IRS will be on the lookout for improper use of this tax credit. This tax credit is rewarding and you should not let IRS rules scare you away from using this tax credit if you qualify. For more help in claiming the research tax credit, contact CPA firms in Las Vegas to find out what you need to do to qualify.
If you buy the right type of car, an electric car or a plug-in hybrid can save you some money while you do your part to fight climate change.
What Determines the Size of the Credit?
For electric cars, the size of the tax credit is determined by the number of vehicles that each manufacturer has sold. As the number of cars sold increases, the size of the credit decreases. The size of the credit begins at $7,500 per car. This is a credit as opposed to a deduction so this will be money saved on your taxes. Once a manufacturer has sold over 200,000 electric cars, the size of the credit decreases by half. It further decreases once a higher sales total is eclipsed. This is why the tax credit for Tesla cars is lower than that for Ford electric cars.
Limitations on Electric Vehicle Tax Credit
The tax credit is only good for the primary owner of the car. Thus, if you are buying the car and resell it, the secondary owner may not receive the benefit of the tax credit. In addition, the tax credit is only applicable if you buy the car as opposed to leasing it, but you may still be able to get the benefit of the tax credit through a lower price on your leased car. Finally, the tax credit is only good for cars that are used primarily in the United States. This may be an area where the IRS may ask more questions so make sure to consult with accounting firms in Las Vegas before filing a tax return.
Do Other Vehicles Qualify?
Hybrids used to qualify for tax credits. However, this credit expired in 2010 and has not been renewed since. The other type of environmentally friendly vehicle that may qualify for a tax credit is a plug-in hybrid vehicle. The tax credit will have the same rules as the one for electric cars. Many states also have their own tax programs to encourage purchases of electric vehicles so make sure to check the applicable laws and factor that into your budget.
If there are mistakes on a tax return, it could lead to negative consequences for a taxpayer. In some cases, it could result in paying more money to the IRS in the form of back taxes owed, a fine or a late fee. Let's take a look at some common tax errors people make and how you can avoid making them.
Your Personal Information May Be Incorrect
The IRS will ask for a variety of personal information such as your full name, social security number and address. If any of this information is wrong, it could result in a return being rejected. Those who use an accountant in Las Vegas should have that person import such information from previous tax returns to ensure that it is correct when it is sent to the IRS.
Income Is Not Reported on a Return
Most taxpayers have a variety of income sources that they must report to the IRS each year. These income sources could include interest from a bank account or capital gains from stocks that were sold in the past year. Those who make a profit from gambling or make money as a freelancer will need to report that income as well.
Failure to do so could result in the IRS imposing a financial penalty. Remember, the IRS generally has up to three years to audit a return, and that deadline can be extended permanently if the government has reason to believe that the error was made willfully.
Tax Returns Can Be Amended After They Are Submitted
It is possible to amend a tax return after the original has been submitted to the IRS. In some cases, doing so can work in the taxpayer's favor as correcting a mistake could lead to a bigger refund. Typically, an amended return must be submitted to the IRS through the mail as opposed to electronically.
Small business owners may not have the financial resources to hire employees to help customers or to oversee operations. Therefore, they are responsible for customer service and other tasks that need to be done to keep the business functioning. However, it can be a good idea to delegate the task of keeping a company's financial records in order.
Always Know Your Numbers
Business owners need to know how much they make in a given day, week or year. They also need to know if the company's revenues are more than its expenses. Having a basic understanding of a company's financial health can help an owner maker decisions that can make it profitable now and in the future. With the assistance of an accountant, it may be easier to see how a business is doing financially without taking a lot of time or effort to do so.
Don't Spend Time Organizing Sales Data
Ideally, you will spend your days making new products, talking to customers or otherwise helping your business grow. Without an accountant, you may instead spend your days in an office making spreadsheets or trying to figure out how to use a software program. Even if you like working with numbers, the less time spent doing math means more time getting a new investor or corporate partnership.
CPAs Can Work With Companies of All Sizes
A Las Vegas CPA can perform as few or as many duties as necessary. Even if you just need someone to help with tax preparation for a couple of days each year, it is important to know where to go to get that assistance. This is true whether your company just made its first sale or makes millions annually.
Once you file your taxes, you probably know that you should keep your tax records for a few years after the filing date. Different tax records have different retention rates, though, according to CPAs in Las Vegas.
Tax Documents to Keep for One Year
Following one year after the filing date, there are certain tax records that you can confidently shred including customer and vendor correspondence, duplicate deposit slips and stockroom withdrawal forms. Receiving sheets, requisitions and stenographer's notebooks can also be shredded after one year according to Las Vegas CPAs.
Tax Documents to Keep at Least Three Years
You will find that more important tax-related business records must be retained for a longer period of time. Records that must be retained at least three years in case the Internal Revenue Service decides to audit your tax filings according to Las Vegas CPAs include employee personnel records, internal audit reports and petty cash vouchers. General correspondence, physical inventory tags and hourly employee time cards are others.
Additionally, business records like employee tax records, invoices to customers and sales records should be retained for at least 6 years. Hang onto plant cost ledgers, accident reports and expense distribution schedules for 6 years, too.
Tax Records to Keep Forever
Las Vegas CPAs recommend you retain certain business tax documents forever stored in a safe place for your information and in case the IRS audits you or your company. There are some business records that you should keep forever, and they include accountant audit reports, current contracts and depreciation records.
Now that you can digitize your personal and business records, it is easier to store them on a USB drive. This creates a great backup if something beyond your control ever destroys your hard copies. Once you create a digital backup, though, consider storing the hard copies somewhere safe, too, just in case.
Many people take a seasonal or holiday job in order to earn some extra money. It's a great way to help cover the cost of gifts and entertainment during the holidays. If you have holiday job earnings, you will need to let your tax accountant in Las Vegas know.
Increase Your Withholding
It is too late to adjust your withholding of taxes for 2018, but you can make plans to do it for this year. If you plan to have seasonal employment again this year, consider increasing your tax withholding at your primary job. You will have a smaller paycheck, but you will not have an unexpected surprise on the day that your tax preparer completes your tax returns. Your employer will have a short form for you to fill out for changing your withholding amount.
Cash Earnings and Tips
If you received cash earnings or tips, it is your obligation to report that income to your tax preparer and the IRS. This is the case if individuals gave you tips or if your employer gave you tips or a cash bonus. You need to treat all of this money as income for tax purposes.
Understand Your Employment Status
The implications of holiday job earnings at tax time will be affected by your employment status. If your seasonal job was a part-time, temporary retail clerk position at a national chain, you probably had taxes taken out of each paycheck. If your job was doing occasional catering or deliveries, you may have been treated as an independent contractor. Independent contractors typically have no taxes taken out. If you did not have taxes taken out of your pay, you might owe the IRS or have a smaller refund.
Automation can be incredibly beneficial when applied to a small business. Accounting software for small businesses can help when you bring taxes or other accounting jobs to CPA firms in Las Vegas because they can import your files into their systems, saving time and effort. However, there are some important factors about using accounting software that you should be aware of before you buy. Here is more information about automated accounting software for use in your small business.
The Potential for Error
Relying on a program can sometimes result in accounting errors if there are mistakes in data entry. These errors can make working on your files difficult for your CPA and your clients, not to mention you. Keep this in your mind, and be sure to make it a habit to thoroughly review the reports on a regular basis, keeping an eye out for errors.
Software Helps Increase Productivity
There are many benefits to using a software program to maintain your small business accounting. One thing you can expect is a spike in productivity because accounting software programs can free up significant time by automating accounting functions. Automation frees you up to focus on other tasks so you can get more done in your busy day.
Consider All the Options
As mentioned before, you need to remember there are pros and cons any time you decide to automate a task. Though there are plenty of benefits to using accounting software, you will want to keep an eye out for unintentional problems. It is important to remember that a program is limited to the quality of the data you input. Errors will no doubt happen every so often. But in general, using software to automate routine tasks helps businesses function more effectively. As they improve your productivity, they let you focus on the more important tasks in your small business.
Taxpayers have long used the solar tax credit in order to help fund the purchase and installation of this energy-saving system. This article will tell you how you can take the credit and about changes to this credit that are pending in the future.
Tax Credits Promote Solar Energy
United States tax policy aims to promote the use of alternative energy sources in order to further energy efficiency. If you have installed a solar energy system in your home, you can qualify for a large tax credit that will finance a significant portion of the cost of installation. If you have installed a solar energy system in the past year, you are eligible to receive this credit on your tax return. This is a tax credit as opposed to a tax deduction which will give you a set amount of savings on your taxes.
The Tax Credit Is Slowly Dropping
Although the solar tax credit has recently been extended, the amount of the credit is progressively being cut in future years. Currently, you can receive a tax credit for 30 percent of the purchase price of your solar energy system. However, in 2020, this credit is dropping to 26 percent of the price of the system. After 2022, only ten percent of the purchase price will be able to be credited so those considering using this tax deduction should do so now in order to take full advantage of it.
The Solar Tax Credit Can Be Rolled Over
Even if you do not have enough tax liability in one year to fully use the credit, it can be applied to future years' tax returns so long as you own the system. In other words, the solar tax credit does not expire in the year that you install the system so you should not let that stop you from taking advantage of this credit. Accounting firms in Las Vegas can help you figure out how you can take this tax credit and apply it to your taxes for this year and future years.
For many people, filing their federal income tax returns is not one of their favorite activities. Even when you have your accountant in Las Vegas do the preparation and filing for you, it may still be tempting to delay the process. The sooner you get all your documents together, the earlier the process will be complete. Waiting could mean delays with your accountant and the IRS.
Reduce Risk of Identity Theft
The longer you delay filing your income tax returns, the greater the risk of identity theft. Someone could use your Social Security number in order to file their taxes. It is also possible that someone could use the Social Security numbers of one or more of your dependents and claim them on their taxes. Filing early lessens your risk of these problems.
Get Your Refund Faster
If you are owed a refund from the IRS, filing your income tax returns on an earlier date allows you to get your money faster. The IRS processes income taxes in the order in which they are received. As tax returns pile up, the processing time increases. An early filing date allows you to get your refund before the IRS workload piles up and causes delays.
Avoid Penalties or Late Fees
If you file your taxes after the April 15 deadline imposed by the IRS, you may be subject to late fees, interest and penalties. Those expenses add up quickly. By getting your paperwork together and having your accountant file your federal taxes before the deadline, you can avoid those fees and penalties. In most cases, the accountant can also do your state or local income taxes if you are subject to them. This would help you avoid any additional late fees for filing after the deadlines.
Most people who are self-employed can file their taxes with a Las Vegas CPA by using their own Social Security numbers. However, if you employ anyone else, even as a contractor who does work for you once in a while, you will need to have an employer ID number from the Internal Revenue Service. This is necessary for tax purposes for your federal income tax returns and anyone that you pay who does work for you.
What an Employer ID Number Is
An employer ID number is your business's identification for tax purposes to the IRS. It is also called a Federal Tax Identification Number. The IRS issues employer ID numbers to any legally formed business, including sole proprietor and limited liability corporations. If you have incorporated as a self-employed person, you need to have one of these identification numbers. You will need to use it on all of your IRS paperwork. You may also need it for state or local taxes.
Who Needs an Employer ID Number
If you want to file for tax-exempt status, you must have an employer ID number. If you think you might have anyone else do work for you, you need to have one of these numbers. You will also need the number if you incorporate yourself for protection of your personal assets. This could be done to protect your personal assets from a business lawsuit.
How to Apply for an Employer ID Number
You can apply for an employer ID number online through the IRS website. It is best to do this before you file your income tax returns for your self-employment or business income. If you paid anyone last year to do work for you, you need to have this number on any tax paperwork such as a 1099 that you provide to your contractor.
For many years, small business owners have deducted expenses due to their home office. For example, if 20 percent of your home gets used as an office, you can deduct up to 20 percent of home maintenance expenses as an actual business expense.
But if you're getting a deduction on your home office and you decide to sell your home, does your home office qualify as income from your property sale? Can the sale of the office portion of your home still qualify for the home sale tax exclusion? Does it get treated separately?
You will need to ask yourself two questions to best determine how to handle this situation.
Where in Your Home Is Your Office Located?
If your home office sits within the four walls of your house, then the good news is that you don't have to split up the profit of your home sale between your personal and business taxes. 100 percent of your financial gain will qualify for the home sale tax exclusion. However, depending on the way you filed your particular deduction, you might still owe some taxes.
If your home office is located in a structure such as a garage or a shed, you will need to treat your office as a sale of two separate properties. You will also need to pay taxes on the portion of your home that represents your former office.
If you know that you're selling your home well before you file taxes, try moving your business operations indoors. If you don't use that separate office structure in the year before you sell your home, you won't have to pay taxes on it.
Depending on the deductions you take out, you might owe additional taxes. If you and your CPA Las Vegas plan to take deductions on your property's individual expenses, you probably took the deduction for depreciation. If you did this, you will need to pay taxes on the deductions for depreciation that you took out over the years.
Those who took out the simplified deduction that lets you calculate the deduction based on your office's square footage will find themselves in a different situation. Their depreciation expenses will get treated as zero. As a result, you won't owe any additional taxes.
A tax credit is designed to help you reduce the tax payments that you need to make. The primary difference between a tax deduction and tax credits is that deductions reduce your adjusted gross income, while tax credits are applied to your tax bill. For instance, if you owe $300 in taxes but qualify for a credit that's worth $500, you'll obtain a check for the $200 difference. When you're getting ready for tax season, knowing what tax credits you qualify for may assist you in paying less than you initially thought you would.
Child and Dependent Tax Credits
Most tax credits are available for individuals who have children or dependents to support. For instance, the child tax credit offers up to $2,000 for any child who qualifies, which is designed to offset some of the many expenses that occur when raising a child. A credit of up to $500 is also available for anyone you can list as a dependent on your taxes.
Tax Credits Applicable to Employees or Workers
The main tax credit for workers and employees is the earned income tax credit, which is available to people who earn low or moderate incomes. This credit is designed to provide relief to working individuals and families who don't earn a substantial amount of income. The foreign tax credit provides a reduction in the double tax problems that individuals facing when earning money outside of the U.S.
Education Tax Credits
Whether you're a new or continuing education student, there are two tax credits you might qualify for, which include the lifetime learning credit and the American opportunity credit. Both of these credits offer benefits to students for each year of college or continuing education. When you are experiencing difficulties in filing your taxes or are unsure about the types of credits that you qualify for, you should consider contacting a tax accountant in Las Vegas to help you resolve these issues.
For the past few years, the IRS has worked to implement the new regulations that have come from the Tax Cuts and Jobs Act. This article will tell you some of the top tax code changes that will change your business tax return in 2018.
Deductions for Hobbies
If you don't have hobby expenses that qualify as cost of sales, then they are not deductible. Before, you had to itemize all of your personal deductions to take the hobby deductions. You can no longer do this. If you have a money-losing hobby, you will need to turn it into a business. In order for the IRS to recognize your hobby as a business, you will need to make more than you spend for three out of the last five years. This is called having a "profit motive."
State Tax Deduction
On Schedule A, state tax deductions have now been capped at $10,000. Before, if you had enough deductions to exceed your standard deduction. you could report the itemized deductions through Schedule A. One deduction was for the state income taxes you paid, as well as state taxes and property taxes. You could have deducted everything you paid, with no cap at all.
Starting in 2018, this deduction gets capped at the amount of $10,000. This can disproportionately affect high-income earners and those business owners that live in states with really high property taxes.
Starting in 2019, alimony will become tax-free to the recipient. The payor can no longer get deductions from the alimony they pay. If you're about to go through a divorce and will likely receive alimony payments, you will be much better off doing it now than you would have been before the start of the year.
You'll first notice these and other changes when you file your 2018 taxes in 2019. A lot more regulations got passed with the recent tax reform bill. To get the best idea of how your business will be affected, you may want to contact one of the CPA firms in Las Vegas.
As a business owner, you can't take business deductions until you have legally started your business operations. So, the question is whether you can write off any of the costs of the preparation process. Or, can you write off equipment that you bought before you decided to start a business?
While accounting firms in Las Vegas will tell you that you can write off these costs, it may take a bit before you can pocket the results for yourself.
Writing Off the Costs of Items You Bought For Your Business
When starting your business, you'll encounter costs such as buying equipment, market research, advertising, and paying consultants and employees. The year you start your business, you can write off up to $5,000 of these expenses. Anything you spend upwards of that amount can get amortized in a period of 180 months.
Some of the things that you can't include in your startup costs include long term assets, creating inventory, organizational costs, or R&D costs. You can get your long term assets depreciated if they're an amount over $2,500. The legal costs of starting your business get treated separately by the IRS. However, the IRS will let deduct up to $5,000 for these costs.
How to Write Off Expenses Not Bought for Your Business
While expenses for items you use for your business but bought long before you actually started it can't get written off as startup costs on your taxes, you still can get some sort of financial break on them. These items don't get written off all at once. Instead, they get depreciated from the start date of your business. This depreciation gets based on either the market value of the item at the time you started using it for your business or the original price. The lower number of the two is the one that gets used for tax purposes.
Contact Your Local Accountant Today
If you need more information about which items and costs you can write off for your business, you will need to contact a Las Vegas accounting firm. A certified public accountant will be able to answer any and all of your questions regarding any costs you may have accrued in your quest to start a business. You and your accountant can discuss anything from R&D costs to long term assets to consultant payments.
Tips for Understanding Your Self-employment Federal Income Tax Obligations
Many people have some income from self-employment. It is your duty to report this income to the Internal Revenue Service (IRS). Figuring out your tax obligation to the IRS can be tricky because you need to calculate your net profit or loss and determine how much to pay in quarterly estimated taxes. Working with an accountant in Las Vegas may make this process easier for you.
When to File an Income Tax Return
If your only earnings for the year were from self-employment, add them up. If they amount to more than $400, you must file an income tax return with the IRS. If they are less than $400, then you need to determine if you must file an income tax return based on other factors, such as returns from investments, other unearned income, receipt of Social Security payments and other factors. An accountant can help you with these details.
Determining Net Profit Versus Net Loss
Some self-employed people lose money overall. This could be the case during your first year of self-employment, especially if you had to make an investment in equipment and supplies in order to start your business. You need to add up your expenses and your income. Subtract the expenses from your income. If the result is a positive number, you had a net profit. If the result is negative, you had a net loss. You can subtract a loss from your earnings for the year when calculating your total income for the IRS.
When you are self-employed, those taxes refer to the Medicare and Social Security deductions from income. If you work for an employer, the employer pays part and you pay part. When you are self-employed, you have to pay both parts of those taxes in addition to standard income tax.
While the tax code changes slightly with each passing year, substantial changes were made towards the end of 2017 that went into effect for the 2018 tax year. From tax bracket changes to alterations with standard deductions, there are many tax changes that you will need to be aware of when getting your tax return ready.
Tax Bracket Changes
Whether you're filing a joint return or a head of household return, the tax bill that was signed into law at the end of 2017 has altered the tax rate that you can expect to pay. While there are still seven separate tax brackets, these tax brackets have lowered somewhat. The previous brackets included separate tax rate percentages of 10, 15, 25, 28, 33, 35, and 39.6 percent. The 2018 changes have altered the tax rate percentages to 10, 12, 22, 24, 32, 35, and 37 percent, which are marginally lower. The amount that you can earn before falling into these brackets has also changed. For instance, the highest rate of 39.6 percent under the old tax laws applied to any individual earning more than $426,700. Under the current law, the highest rate of 37 percent applies to any individual earning more than $500,000
Standard Deduction Increases
For the 2018 tax year, the standard deduction has been nearly doubled. If your tax filing status is "single", the previous standard deduction of $6,500 is now $12,000. However, the personal exemption has been eliminated with these changes, which means that you won't necessarily be able to deduct twice as much as you have done in previous years.
Additional Tweaks and Eliminations of Deductions
The mortgage interest deduction can now only be used with mortgage debt that reaches $750,000 as opposed to $1 million. The medical expenses deduction has been reduced to 7.5 percent from 10 percent of your adjusted gross income. Some deductions that are being completely eliminated include tax preparation expenses and moving expenses. If you need help identifying which changes to the tax code are set to affect you, you might consider speaking to a Las Vegas CPA who can assist you in filling out your tax return without making mistakes.
Even if gambling isn't your full-time profession and your participation is limited to casual excursions, your winnings can still be counted as income by the IRS. Before consulting a Las Vegas CPA, you can take steps to account for and substantiate your gambling profits and losses before tax time. This will make it easier to file your taxes and prevent you from under-reporting your income.
Keep a Gambling Diary of Profits and Losses
Recording your gambling profits and losses in a personal diary can be useful for substantiating your gambling income when filing your taxes. Make sure that your diary contains the date and precise location of the amounts that you won or lost. In a separate file, keep the verifiable documentation that supports your diary entries, such as bank statements, wagering tickets and casino receipts.
Remember That Not All Gambling Profits Are Cash Earnings
Use the Fair Market Value (FMV) of your in-kind earnings. Sometimes you might win a paid vacation or a new car. The FMV is the price that your item would be worth if you'd bought it on the open market. If you have difficulty calculate the FMV of your non-cash gambling profits and recording them for tax purposes, you might want to contact an expert for CPA Las Vegas advice.
Deduct Professional Gambling Expenses
You can always deduct your gambling losses for tax purposes, whether you're a casual or a professional gambler. The only limit for gambling losses is that they not exceed your reported gambling income. However, if you're a professional gambler, you can calculate the total of your business expenses and deduct them from your income. These expenses might be casino entry fees, minimum bets, or travel expenses. If you're unsure as to whether amounts you've spent count as professional gambling expenses, you may want to seek counsel from a CPA.
If you're starting to get your tax forms ready and are taking a look at all of your options, one aspect of taxes for you to consider is what your filing status is going to be, which could be single, married filing jointly, or head of household, the latter of which is oftentimes misunderstood by individuals who are filling out their annual tax forms. The head of household filing status can bring with it a variety of benefits that could apply to you.
What Is a Head of Household Filing Status?
Head of household is a type of filing status that's used for unmarried or single taxpayers who maintain a house for a qualifying person, which is typically referred to as a dependent. Anyone who qualifies for this type of filing status will be able to receive a higher deduction and a lower overall tax rate than individuals who use the single filing status.
How Do You Qualify as Head of Household?
You need to meet three filing status requirements in order to properly qualify for the head of household filing status. First, you must not be married on the final day of the tax year. You must also pay for over 50 percent of the total costs pertaining to keeping up a home for the entire tax year, which includes costs such as mortgage payments, rent payments, utilities, and property taxes. The third and final requirement is that a qualifying person must live with you in your home for at least half of the year.
What Is a Qualifying Person?
When you're trying to determine whether you qualify for head of household filing status, a qualifying person refers to a child, parent, or relative who lives with you but pays less than half of what it takes to maintain a household. If you're having issues with understanding every facet of your tax forms, you may be able to avoid making a mistake by retaining the services of a tax accountant in Las Vegas.
Many people like to work with CPA firms in Las Vegas for the early filing of their federal income taxes. The December 2018 shutdown of the federal government extended into 2019, causing the IRS to shut down some of their operations. It is important to know how this government shutdown could affect your 2018 federal income tax filing and refund status.
Delays in Customer Service
If you have questions about your federal income tax returns, expect long delays for the IRS phone lines. Customer service representatives may not be available to answer your questions. You may be better off speaking directly with your CPA in order to get your questions answered in a reasonable amount of time.
Reduction in Website Maintenance
Website maintenance for the portions of the IRS website that allow for electronic filing of your tax returns may be decreased. Any site problems or glitches may not be taken care of as quickly as they typically would be when the government is operating at its full capacity. This delay in site maintenance could affect individuals as well as CPA firms who electronically file taxes on behalf of their customers.
Delays in Refund Processing
The tax changes that were passed in 2018 mean that more Americans should be getting a refund for their federal income tax returns. However, the shutdown of the federal government means that all tax return processing is delayed. The IRS will process income tax returns in the order in which they were received. People who file early in the calendar year will have their refunds processed earlier, but there will still be delays. Early income tax return filers tend to be people who are owed a refund, which means that they could be waiting for several extra weeks.
Natural disasters can be unexpected, and you should be prepared. It can be difficult to organize your financial affairs in the aftermath of a natural disaster. Here are some accounting tips to help you financially recover from a natural disaster.
Keep Digital Copies of Key Documents
If you have signed insurance policies, car rental agreements or property deeds, then make sure that you have digital versions of these documents available. Natural disasters can force you from your home before you have the opportunity to collect these valuable accounting documents. If these documents are destroyed, or inaccessible for long periods of time before a safe return to your property, it can hinder or prevent your timely financial recovery. Scan these documents and email them to yourself so you can print them from any location and submit them as evidence.
Contact Your Utility Companies
Don't expect your water or electricity provider to know that a natural disaster has forced you from your home, and you are unable to pay the utilities. If the aftermath of a natural disaster keeps you away from your address for months at a time, the resulting unpaid bills can severely damage your credit and impede your financial recovery. A simple and quick accounting strategy is to update your utility company with your new forwarding address and inform them that you are no longer on the premises, so they can be on the lookout for unnaturally high bills incurred by squatters in your absence.
Be on the Lookout for Scammers
When you have additional financial obligations in the aftermath of a natural disaster, you become vulnerable to fraudsters. If you coordinate with one of the reputable accounting firms in Las Vegas, experienced accountants may be able to assist you in assessing your losses, loan obligations, insurance payouts and financial recovery strategy. You will no longer be at the mercy of scammers.
The only thing worse than paying taxes is finding out that you have IRS penalties. You might end up paying hundreds or thousands of dollars in additional charges. But you could get out of paying these penalties completely or at least getting them reduced.
Don't write that tax check yet. You may want to check with your accountant Las Vegas to see what you can do to reduce your tax burden. Meanwhile, this blog post will tell you about three common IRS penalties and the loopholes you can use to pay less money.
Late Payment Penalty
Paying your taxes late is what is known as a late filing penalty. The fees added on top of the original debt can quickly add up if you're not careful. To avoid paying really high fees, ask for an extension if you know that you will need more time to pay your taxes. Note that when you file an extension, you will still need to pay your debt by the IRS deadline.
If you get a late payment penalty for the first time, the IRS will likely not throw the book at you. If you went three years without getting a tax penalty, you might get what is called a "first-time penalty abatement." This means that you will no longer have to pay the penalty fees. But you can only use this loophole one time.
Not Paying Estimated Taxes
As a business owner, you have to pay taxes and fees throughout the year. If you miss these deadlines, you'll get assessed a penalty. To avoid this problem, pay your estimated taxes on time whenever you're required.
The only time you can escape paying this type of penalty is if you missed a payment due to circumstances such as a natural disaster or another unusual life event. To file an appeal, fill out Form 2210 and turn it in with your tax return. You'll also need to provide documentation that proves that you didn't have the ability to pay your estimated taxes by the deadline.
Health Insurance Tax Penalty
Changes in the tax code removed the penalty for not having health insurance. However, these changes won't take effect until 2020. The only way to avoid paying this penalty is to qualify for an extension. Some of the qualifications include financial hardship, living out of the country or not having a long gap in health coverage. You could also reduce the penalty fees you have to pay if you can prove that one of the exemptions applied to you at some part of the past year.
If you are many people who are working more than one job just to get by, it can have important tax implications. While no one is suggesting that you spend your precious free time reading the 70,000 pages of federal tax law, it is important to consider how much money that you need to have your employers withhold so that you do not get hit by a large penalty. Here are some helpful tips.
Filling Out Your W-4 Forms
If you work for other people, listing your dependents on your W-4 form correctly can leave you needing to pay a lot of money come tax season. The amount that you would need to pay depends on your tax bracket and other factors. Most people, however, will come out without having to pay a large tax bill if they take the right number of deductions on their highest-paying job and then enter 0 on the form at all their other jobs. It is always a good idea to meet with a tax accountant because some will need to enter an additional amount at the bottom of the form or they could still end up having to make a payment.
Social Security Withholding Tax
You also need to be very careful or you will overpay your social security taxes. The government sets a maximum amount each year. For the 2019 tax year, the maximum amount is $132,900. You will need to enter the amount of overpayment on your 1040 tax form to recoup this money.
If you work for someone else and run a business on your own, then you need to think ahead about the tax implications of running a business. When you work for yourself, then many different things are deductible. Unfortunately, you get hit with the total burden of paying your social security taxes that most employers pay 50 percent of normal. Therefore, you need to seek advice before the year begins, so you do not have to pay as much in April.
Each person's tax situation is truly unique. New laws are added each year. Therefore, make sure that you are working with a competent accounting firms in Las Vegas.
Regardless of when your divorce becomes official, you may be entitled to alimony from your former spouse. However, the tax treatment of those payments will change after the start of the 2019 calendar year. On Jan. 1, payments received are no longer treated as income, which can influence the size of each check you get and the benefits derived from that money.
You Can't Put Alimony Payments Into an IRA
Since alimony is no longer income, it no longer qualifies to be put into an IRA. In 2019, you can contribute up to $6,000 to such a fund, and those 50 and over qualify for another $1,000 in catch-up contributions. However, you will need to find a job with an employer or find freelance work if you are interested in contributing to your retirement in 2019 and beyond.
Your Spouse May Not Pay as Much
Your ex-spouse may not want to pay as much in alimony as he or she won't get to use it to reduce his or her taxable income. Under the current system, the spouse who earned more would pay as much as possible in alimony to get a large tax break. In some cases, it would be enough to push that person into a lower tax bracket, which meant that the tax savings would significantly offset any amount being paid to the spouse making less money.
Don't Rush Your Divorce Based on One Issue
It is generally not a good idea to sign a divorce in haste based on the tax treatment of alimony or other assets gained in a settlement. Ideally, you will work with a tax accountant in Las Vegas as part of an overall divorce team to help you determine the best way to structure a settlement.
When it comes to your life or health insurance policies, you might not know whether you're entitled to a tax deduction or whether you're going to owe the I.R.S. money. Below are a few examples of life and health policies, along with what you can generally expect.
Are Individual Health Insurance Premiums Tax Deductible?
An individual health insurance policy is one where you're responsible for all of the expenses of the policy. Instead of sharing any costs with your employer, you'd foot the bill for the down-payment of the policy, along with the ongoing premiums. You'd have complete ownership of the policy certificate too.
In this case, since you're handling all of the costs on your own, then according to the IRS, your premiums are tax deductible. But keep in mind that all of your medical expenses must be above 7.5% of your adjusted gross income or your AGI per tax year.
Are Individual Life Insurance Premiums Tax Deductible?
Unlike individual health insurance policy premiums, individual life insurance premiums are not tax deductible.
The I.R.S. says that these are personal expenses, and therefore, they should not receive favorable treatment from the government. The only exception is when the policyholder is paying premiums on a policy that's designated to satisfy an alimony agreement.
Are Employer-Sponsored Health Care Policy Premiums Tax Deductible?
If you are an employer, and if you're sponsoring most if not all of the cost of your employee healthcare premiums, then you'll receive a nice tax deduction. But if you're the employee, then you're not entitled to any tax deductions, since you're not the policyholder.
There are lots of complicated rules governing whether or not an insurance policy is tax deductible. And in fact, there are several types of life and health policies that require policyholders to pay a tax liability!
It's crucial for you to completely understand your tax benefits and responsibilities for each type of insurance product and policy you hold. CPA firms in Las Vegas become very busy at the top of every year, but if you set an appointment as soon as possible, then you can work with an accountant to figure out what the government expects from you if anything.
In most cases, failing to file a tax return on time is considered a more serious offense than not paying your taxes owed on time. Typically, you will face a penalty of 5 percent of the overall tax balance owed for each month or partial month the return is late up to 25 percent. The penalty may increase if you don't file a return 60 days after your applicable due date.
When Do Penalties Start to Take Effect?
Financial penalties are assessed from the moment a return is filed late. For instance, if a personal income tax return was due on April 15, the IRS could start assessing penalties starting on April 16. A CPA in Las Vegas may be able to keep you informed of when a personal tax return is due and if you owe money to the federal government.
What If a Tax Return Is Filed More Than 60 Days After the Due Date?
Let's say that your tax return was due on April 15, but you didn't file your return until July. Since that would be more than 60 days after the return was due, you would owe the lesser of $205 or 100 percent of the tax owed. It is important to note that the government will waive this and other penalties if you can show reasonable cause for not filing a tax return in a timely manner. Reasonable cause may involve being a victim of a scam or being a victim of a natural disaster.
You Can File an Extension
The IRS will generally allow you to request six extra months to file your tax return for a given year. This can be helpful if you are waiting on documents from a brokerage or other source to complete a return. Your accountant can file an extension on your behalf if necessary.
If you make a mistake on a tax return, the government is likely to let you hear about it. Therefore, it is better that you correct the error before that happens. While you may have to pay the balance owed and interest, it may be possible to avoid a large financial penalty. Depending on the scope of the error, amending a return could help you avoid criminal charges as well.
Check Your Records to Confirm the Error
Before you amend a return, it is important to be sure that an error actually occurred. Ideally, you will review the original return as well as any documents that you used as the basis filling out the return. In some cases, this may mean consulting with your Las Vegas CPA or contacting other sources for documentation. Once you have identified and confirmed the error, the next step is to fill out Form 1040X.
How to Fill Out and Submit Form 1040X
Filling out a 1040X is just like filling out the original 1040A or 1040EZ used when submitting your original tax return. if necessary, you can have your accountant complete the form for you. Computer software programs may also be able to assist in the process of amending a return. Once the form is completed, a paper copy must be mailed to the IRS. The new return will take as many as 16 weeks to process.
You Could Get a Refund
It is important to know that you could get a refund after filing your amended return. This could happen if you forget to claim a deduction or credit that you were entitled to because of a lack of paperwork or other issues. Such a scenario could also unfold if you accidentally claimed income twice or forgot to take a legitimate business expense.
While many Americans love the idea of universal healthcare, they hated the expensive tax penalty levied by the IRS for failure to carry an 'Obamacare' compliant policy.
The law that governs 'Obamacare' is formally known as the American Care Act. In short, it's meant to be an extremely comprehensive health care policy that allows as many citizens to obtain healthcare, due to its lack of restrictions on pre-existing conditions.
One of the problems with the Act rested with its I.R.S. penalty feature: If citizens failed to purchase a healthcare policy from designated healthcare exchanges, or if their existing healthcare policy wasn't compliant with ACA requirements, then citizens would face an annual tax penalty.
According to the AARP, for tax year 2018, the penalties came up to $649 for adults per year, and $347.50 for each child per year, up to a maximum of $2,085 per family, or 2.5 percent of the household income, whichever is greater.
What If You Had a Compliant Health Care Policy Through Part of Tax Year 2018?
Many citizens were able to obtain and carry an ACA-compliant policy through their employer's group plan. However, some found that after they left their employer, they no longer had access to their policy. And vice versa. Some became employed during the latter part of the year, preventing them from carrying a policy until later on.
The IRS allows citizens a three-month grace period for tax year 2018. This means that for three consecutive months, citizens won't be taxed for being non-compliant. But any period of noncompliance outside of the grace period will be taxed based upon a prorated amount.
What If You Had Health Care Outside the ACA Exchange Program?
Some will be shocked to learn that even if they carried a healthcare policy all through tax year 2018, they could still be charged an I.R.S penalty if their policy wasn't purchased from the ACA exchange program.
This is because several of the major insurance carriers pulled out of the exchanges, leaving their policyholders without ACA-compliant healthcare policies.
Will You Receive the ACA Tax Penalty for 2018?
While you might be liable for the penalty in tax year 2018, the good news is, thanks to federal legislation, this isn't an issue that you'll need to worry about, moving forward in 2019.
Your accountant in Las Vegas will help you to accurately sort through this complicated issue.
Cybercriminals are becoming more sophisticated than ever in their attempts to take your identity and make it their own. Tax season is one of the most profitable times of year for these unscrupulous folks, so right now phishing scams are running rampant. To keep your identity safe, you’ll want to stay one step ahead of the game, and that means informing yourself as to what kind of ruses are trending with these thieves.
IRS Website Fishing
It’s very common these days to see counterfeit copies of the official IRS site being hosted to steal users’ personal information. What might look exactly like the IRS front page could easily be a duplicate on a hacker’s server. In some cases, once you’ve given away your personal information, you’ll be rerouted to the IRS’s real e-policy page so the hackers can avoid suspicion.
To counter this phishing attempt, make sure that the URL in your address bar is www.irs.gov. Even one character’s variation can be the difference between complete security and a financial migraine.
TurboTax Website Phishing
Similar to IRS website phishing scams, the Intuit TurboTax website is often duplicated to fool careless users into giving their personal information away to third parties. TurboTax is an incredibly popular software suite that is used all over the country, so scammers cast their nets around it just as often as the IRS website. Your defense against TurboTax scammers should be the same as for false IRS sites: check the URL to the letter.
Stay safe this tax season. HTTP scams are the most common out there. Be very wary of any unsolicited emails you might get from the IRS or from TurboTax, as they might actually be the accounts of phishers. Vet all such messages, and if you do follow any links, first ensure that their domain is letter-for-letter exactly as you have seen it on the official site. Better yet, just hire an accountant. If you live in the area, a Las Vegas CPA should not be hard to find.
For large corporations, an audit is an annoying but routine part of doing business. But, for small business owners and sole practitioners, audits are enough to cause a panic. They may not have a full-time CPA in Las Vegas at their disposal to oversee accounts. There may also be some question about whether their deductions will come into question.
Most audits are routine, and you probably have nothing to worry about. But, there are s few things you can do to lessen the odds of being scrutinized by the IRS.
Resist the Temptation to Pocket Cash
Small businesses and independent contractors often do business on a cash basis. It's tempting to pocket some of that cash and under report your income. The thing is, the IRS keeps a close eye on businesses like landscapers, construction companies and salons, and independent professionals like DJs and entertainers. Agents have an idea what the average income should be in your area for businesses and professions whose main revenue stream is cash.
File Paper Returns
Electronic filing is more convenient, and the IRS encourages paperless returns. However, filing the old-fashioned way reduces your chances of being one of the random audit picks. Just make sure that your returns don't raise red flags and are filed on time, and don't file early.
Don't Take Risky Deductions
The IRS allows some leeway in what independent contractors and small, home-based businesses can deduct as a business expense. However, there are guidelines as to what's permissible. For example, you can deduct a portion of your wardrobe, but only clothes that you wear solely when conducting business. Utilities, rent, and other operating expenses are deductible for home offices, but they have to be located in a separate part of the home than your living quarters, and use a separate phone line and internet connection than that used by your family. Consulting with an accountant before you file will help you avoid mistake.
Audits of small businesses are up as more people are leaving traditional employment and striking out on their own. These tips can help you avoid triggering a visit form an IRS auditor, but turning your bookkeeping duties over to a professional CPA will allow you to get rid of worry and focus on your work.
Since the Tax and Jobs Act was passed earlier in 2017, big changes are in the works for both individuals and businesses in their tax preparation methods. New limits to deductions have been introduced, withholding has been reformed, and even your income taxes will see changes in 2019. What do you need to know in order to prepare for this upcoming tax season?
Tax withholding has changed
Be sure to check out the tax withholding tables from the IRS, as they have been completely overhauled. If you’ve chosen a low withholding because, for example, you decided to itemize deductions this year, you could be in for a nasty surprise. The new standard deduction has practically doubled to $12,000 if you’re single. For married couples filing jointly, the standard deduction is now $24,000.
Itemized deduction overhaul
Many itemized deduction possibilities have been eliminated this year. Although the standard deduction is almost twice what it used to be, certain businesses and individuals can expect to take a loss if they planned to itemize deductions. You’ll want to talk to your accountant to see how you can offset this loss, for example by reviewing your property assessments and challenging them wherever possible. If you live in the area, look for a tax accountant in Las Vegas.
A final word of advice
If you are barely below the standard deduction, and if you’re inclined to help your community already, charity is the way to go. Bump yourself up just above that $12,000 line with a contribution to your favorite cause. If you are over the age of 70, you can get ready for your required minimum distributions from your IRA to kick in. If you don’t desperately need that money, give it to those in need and save up for yourself next year.
If you’re a small business owner, you might think that your taxes are simple enough to handle yourself. In most cases, you can get away with doing your own business taxes without getting into trouble, but there are a number of reasons that it’s best to hire a CPA anyway. If you are the head of a business that’s growing, or if you find your financial situation changing abruptly, you’ll want to have a professional look over your books to make sure that you get the beast deal possible this tax season.
What kind of questions should you ask a prospective accountant?
This really depends on your business. Basically, think of any changes your company might go through in upcoming years. Bring them all to your prospective accountant, and if they have answers that suit you, they might end up being a good fit. Think about whether or not you’re interested in loans in the near future, cash flow opportunities, and estate planning can be a significant consideration as well.
Ask for referrals
Ask your fellow business owners if they have any recommendations. Some of them will have connections to reliable CPA’s already. Of course, you’ll still want to make sure that they can handle your business’s needs uniquely, but references are a great way to start your search. Don’t neglect to vet them in person as well though. Be ready with your interview questions mentioned in the previous section.
There happen to be a number of reliable CPA firms in Las Vegas if you live in that area. Don’t waste time and money trying to do your taxes yourself. You will almost certainly benefit more by having a professional go over them with you. An added benefit to this route is that a CPA worth its salt will give you advice and guidance moving forward with your business account. You won’t be kicked out the door with a bill in your hand; you’ll take valuable knowledge home with you.
For a certain kind of person, it's tempting to do everything yourself. It seems like there are so many good reasons to do so. You can save a money, you can learn new skills, and you can take pride in a job well done. But as it turns out, there are some things that really are better left to the professionals. Tax preparation is probably one of them. In case you need proof, read on.
You won't actually save that much money
This might seem counter-intuitive. If you don't hire someone, you obviously won't spend as much money, right? Not necessarily. First of all, you will have the expense of your time to look forward to, and this can add up when life continues at its usual pace around you. You'll be stuck at your desk trying to figure out whether such-and-such a deduction applies to you when you could be enjoying time with your family and friends - or working to cover the expense of an accounting firm, which will save you money for the following reasons.
Accountants know how taxes work
This might seem like a truism, but it's easy to look past when you realize how complicated tax policy can be. If you don't have the inside view on the machinery of the tax system, you'll miss a lot of deductions that you could potentially qualify for. Also, errors in your calculations could end up costing you.
DIY accounting software probably won't cut it
There is the alternative of having tax software automatically calculate your taxes for you. Unless your financial situation has remained unchanged and simple all year long, you will probably miss out on a few key deductions if you don't get the opinion of a specialist. There are accounting firms in Las Vegas known for their good work if you decide that the task might be over your head after all.
When you are cleaning house and have a lot of books that you need to get rid of, you might not be sure of their fair market value. Some books are more valuable than others. Factors that go into their value include rarity, condition, age and binding type. If you plan to work with an accountant in Las Vegas for itemizing your taxes, you can use some of these strategies for determining the value of books that you donate to a school, library or another organization.
Type of Book
The type of book plays a role in its value. Mass-market romance novels and mysteries will have a low resale value. In many thrift stores and garage sales, these books are priced around $1 each. Old books with obsolete information may also have a low value unless the book is considered to be rare.
Hardcover books have a higher initial sales price compared to soft cover books. The donation value should be adjusted accordingly. If the binding is made of leather, this is worth more than a cloth binding. An exception to this would be a book made in the 1800s or earlier, which could have a high value if it is in good condition.
For rare or historically significant books, appraisers use a guide that consists of very fine, fine, near fine, very good, good and fair to poor ratings. Those ratings are given based on the conditions of the cover, binding and pages. Books with missing or torn pages would get a lower rating than books that are intact. Stained pages in books would also elicit lower ratings. It is never a good idea to donate books that have been exposed to water or pest damage because pests and mold can spread.
If you suspect that an employee is stealing, you need to have proof. One way to get that proof is to work with a Las Vegas CPA. The CPA can take a look at your accounting and ensure that every dollar has been properly accounted for. You can also take these actions to safeguard your company's financial information.
It is important to limit access to your company's electronic financial records. Your accountant and you should have access. You may not want to share access beyond that. If there are co-owners of your company, they should have access. If your company has a bookkeeper for payroll purposes, limit that employee's access to payroll only and nothing else.
Create Procedures and Follow Them
If you have a bookkeeper to handle the payroll, that person should do everything but the final action. You should be the final one to review and click to make the payments happen. Keep track of all financial documents and track who uses them. Make sure that you maintain records of who bills you, how much the bill is, how much you paid and who paid the bill. These practices also help increase the efficiency of your organization.
Set Up a Two-Factor Authentication System
Just like a two-factor authentication system keeps your personal digital records safer, this practice can also keep your business records and inventory safer. If you have a bookkeeper handling payroll, that person should not also handle accounts receivable. Your accountant should do that activity. If one person is responsible for recording inventory deliveries, another person should be in charge of deciding whether a damaged item is salvaged or sold. It is a good idea to keep as close of an eye on your inventory as you do on your bill payments for accounts receivable.
When you start a business, you will need to choose between accrual and cash accounting. Even if you have a CPA in Las Vegas do the accounting for you, it is still your choice to make. The choice affects how you handle income taxes, deductions and other aspects of your company's finances. Understanding the differences between these accounting practices will help you make an informed decision.
What Cash Accounting Is
Cash accounting is the practice of recording money when it changes hands. Income is recorded when you receive the money, and expenses are recorded when you pay the amount due. For example, if you perform a service for a client on October 1, and the client pays on October 30, you count the income on October 30. For an expense, you count a bill on the date that you pay it.
What Accrual Accounting Is
Accrual accounting is the practice of accounting for the money as soon as the transaction is established. For example, if you perform a service on July 1 and send the bill on July 2, you count the income on July 2. This is the case even if the customer does not pay you until August 1. For an expense, you count the deduction of money on the date you receive the bill rather than the date that you pay it.
Making a Choice
Many small businesses choose cash accounting because it is simpler and easier to follow. However, the Internal Revenue Service requires that you use an accrual method of accounting if your business has an annual income of more than $5 million. You must also use the accrual method of accounting if you have a stock of inventory valued at $1 million that you sell to the public.
A gift of a small value that is irregularly given is considered a "de minimis" gift by the Internal Revenue Service (IRS). Accounting for these gifts could be an unreasonable burden on an employer. If your business offers de minimis gifts to employees, it is a good idea to work with a tax accountant in Las Vegas in order to understand their full federal income tax implications.
What a De Minimis Gift to Employees or Clients Is
The IRS has definitions of what constitutes a de minimis gift. Several parts of the tax code state what most other gifts are and how they affect federal income taxes for businesses. The IRS explains that a de minimis gift could include controlled and occasional use of a business copier, rare personal use of an employer-provided cell phone for work or a group life insurance policy valued under $2,000. Other de minimis gifts include coffee or doughnuts occasionally provided by the employer, tee shirts with the company's logo or pens with the company's logo for personal use.
Frequency of the Gift
A de minimis gift must be infrequent and irregular. Employees should not come to expect it, and it should not be provided on a routine basis. For example, providing coffee and doughnuts once every couple of weeks or months would be a de minimis gift. Having them available every day would not qualify as de minimis.
Value of the Gift
The value of the de minimis should be low, and it should not be traded for cash benefits. For example, the value of a cup of coffee and doughnut provided by the employer to the employee is low. It could not be traded for a cash benefit to the employee. The IRS states that any gift, no matter how infrequently it is given, cannot be considered de minimis if it has a value of $100 or higher.
No matter what type of business you operate, there will always be a customer who does not pay. Even if you send out multiple statements, call or even threaten to take the customer to small claims court, you might be left with no payment for the products or services you provided. You may be able to reduce your business income for the amount of the bad debt by working with experienced CPA firms in Las Vegas.
What a Customer Bad Debt Is
A bad debt is an amount that you have been unable to collect from a customer, client or patient. This also applies to your business if you are a creditor. At the end of the year, you may be able to write off the bad debt as a deduction from your yearly earnings. According to the Internal Revenue Service (IRS), bad debts include loans you provided to customers or suppliers, credit sales to customers and business loan guarantees.
How Writing Off the Bad Debt Works
In order to write off the bad debt, your business must follow the accrual practice of accounting. This means that you show income when you bill it and not when you collect the money. If your company does cash accounting, then you cannot write off the bad debt because it was never counted as income.
Writing Off the Bad Debts
To write off the bad debts, you have to wait until the end of the calendar year. This gives the client a chance to pay the debt. You will need to prepare or have your accountant prepare an accounts receivable aging report. This shows who owes you, how much they owe and since when they have owed. Total all of the bad debts you are owed. On your federal income taxes, you will need to file a Schedule C.
When your company has had a good year financially, it may behoove you to reward your employees with a bonus. You might also choose to reward high-performing employees with a year-end bonus for their efforts. With the help of accounting firms in Las Vegas, you can gain a clear understanding of how paying employee bonuses will affect your corporate or small business federal income tax returns.
What Constitutes a Bonus
The Internal Revenue Service (IRS) has a slim description of what qualifies as a bonus from employers to employees. The bonus must be a special one-time or annual payment from the employer to the employee for a special event or circumstance. The bonus is an additional payment beyond the employee's hourly or annual salary. Employees receiving a bonus could be part-time, full-time, contractual or freelance.
Deduction of Employee Bonuses on Federal Income Taxes
Bonus payments to employees are considered to be payments to employees. This makes them tax-deductible per IRS rules. If you do not plan to make bonuses an annual event year after year, it may be a good idea to qualify the bonus with the reason why you are paying it. If not all employees will receive a bonus, it is important to delineate why with a clear explanation. For example, you might state that employees who increased their sales by 5 percent over the previous calendar year got the bonus.
Bonus Payment Tax Implications to Employees
Bonuses paid to employees are taxable income. The taxes on the bonus are eligible for federal and state income taxes and FICA taxes. Any bonus amounts paid to your employees must also be factored into unemployment compensation rates, the Social Security maximum taxes and the additional Medicare taxes. You must pay your part of the FICA tax on the bonus as the employer. The bonus should be paid out as a regular paycheck to the employee.
Holding an end-of-the-year or holiday party at your office brings everyone together for a festive celebration. You might be surprised to learn that some of those expenses may be tax deductible on your business's federal tax returns. If you have questions about what is and what is not tax-deductible contact an accountant in Las Vegas for additional details.
If your company gives out employee gifts, it is important to note that the allowable deduction on federal tax returns is $25 per employee per year. If you give your employees a $200 gift card, you can only deduct $25 of that on your federal income tax returns. The cost of the card, envelope, wrapping or shipping of a gift cannot be added to the value of the gift for tax deduction purposes.
Many parties include entertainment, such as a comedian, piano player or disc jockey. The IRS allows organizations to deduct 50 percent of the cost of reasonable and ordinary entertainment on federal tax returns. The entertainment must not be lavish, and it must be for employees or associates and not for people with no vested interest in the company or for the general public. In order to take that tax deduction, the company's owner must be in attendance at the event.
Meals served to your employees at a holiday party may also be tax-deductible at a rate of 50 percent. In order to take that deduction, the company owner must also be at the event and partake in the meal. There are no limits on the quantities or types of food served at workplace holiday parties that can be deducted on federal income tax returns. However, the meals should not be what the IRS could subjectively consider as lavish or extravagant. For example, a taco bar is not lavish, but plates of caviar are.
If your company makes more than $1 million per year, it may be necessary to use the accrual method. The same is true if your business has inventory or is run as a traditional corporation. In the event that you need to make the switch from cash to accrual accounting, there are two important steps that you need to take.
File Form 3115
Form 3115 is the IRS form that asks permission to switch from cash to accrual accounting. Typically, the IRS will grant this request if it feels that your company will more accurately report income or expenses this way. It will also generally approve the request if your company meets income requirements or other criteria that dictates the need to make the switch. In most cases, you will send a copy of this form to the IRS as well as attach a copy to your tax return.
Don't Forget About Section 481 Adjustments
When making a change in accounting methods, it is possible that your company could owe more in taxes. This is because it may now be accounting for income that would otherwise have been pushed out to the following year. The IRS understands that a change in accounting tactics may result in a change of your company's tax bill, and it expects that taxes will be paid in full and in a timely manner. You account for any changes by filling out Section 481 on Form 3115. If you owe additional tax, it can usually be paid out over four years.
Financial Professionals Have More Information
Working with your Las Vegas CPA or other financial professional may make it easier to learn about your responsibilities when it comes to organizing your company's books. It may also be possible to contact the IRS directly if you have any questions about accepted accounting methods or any other tax question.
Many people are required to wear specific clothes such as a uniform for work. If you have to pay for this uniform yourself or pay to have the pieces cleaned and maintained, you may qualify for a tax deduction on your federal income taxes. Working with a CPA in Las Vegas could help you determine if you qualify for this Internal Revenue Service benefit.
Determine Which Clothing Is Only Used and Required for Work
Take a look at what you wear to work. Certain gear such as steel-toed work boots, a hard hat or a theatrical costume might qualify if you only use that item for your paid work. Clothing items that could possibly be used in other ordinary situations do not qualify. For example, overalls do not qualify, even if you have to wear them to work.
Document Your Workplace Requirements
Keep a copy of your workplace requirements for uniforms and gear. You might need to have this information in case you get audited by the IRS. If your employer makes a change to the required dress code, keep a copy of those changes or any supporting documentation. For example, an email from your employer that you are now required to wear an orange safety vest on the job and that you must maintain it yourself is something that you should save.
Save all receipts for the purchase and maintenance of work-related clothing and gear. When you claim the deduction, the expenses must total at least 2 percent of your adjusted gross income. The work clothing and gear is itemized under miscellaneous. You might have other deductions there, too. For example, tools that you are required to provide for yourself in order to do your job might fall into that category.
The accrual method of accounting is used by most corporations, companies that make over $5 million in revenue per year, and those with physical inventory. It can also be ideal for businesses that sell items on credit, when payment doesn’t arrive until after the sale is made. If your company uses this method, it will acknowledge payment when a product is purchased even if no money changes hands. A tax accountant in Las Vegas can help you understand the concepts behind this accounting method.
Businesses May Pay Taxes Before Receiving Revenue
Since the money from a sale is recorded when the sale is made as opposed to when the money is received, it may be necessary to pay taxes on money before getting paid. If your company chooses this accounting method, an accountant may be able to help you find ways to reduce your taxable income or obtain short-term financing to pay the government.
Expenses Are Also Recorded As They Occur
Companies that use the accrual method must record the expense when it occurs. This can mean that a company cannot accelerate future costs to the current tax year to obtain a tax advantage. On the other hand, your company may be allowed to buy on credit or pay employees days or weeks after performing services, so it may be possible to deduct an expense before the bill is actually paid.
You Must Generally Stick to One Accounting Method
Once your company has determined its accounting method, it must generally stick to it. However, it is possible to ask the IRS for a change from accrual to the cash method or another accounting strategy using Form 3115. In some cases, the government will use a different method if it believes that your current tactics don't accurately reflect your company's income and expenses.
When you are in college or one of your dependents is in college, you may have educational expenses that qualify you for federal income tax deductions or credits. These credits and deductions have a lot of rules, and working with CPA firms in Las Vegas can help you to know if you qualify or not. These programs could help you reduce your tax burden for the year or years of enrollment.
American Opportunity Tax Credit
The American Opportunity Tax Credit is a program that reduces the amount of taxes that you owe. It could lower your owed amount to zero or even yield a refund. You must be a legal resident of the United States, the person attending the college must be claimed on your tax return and the education must take place at a qualifying educational institution.
Lifetime Learning Credit
The Lifetime Learning Credit is another tax credit that could lower your tax owed. You must be a legal United States resident with a Social Security number. You can claim this for yourself or a dependent. It counts even if you are not working toward a degree. You cannot claim the American Opportunity Tax Credit and the Lifetime Learning Credit during the same tax filing year.
Income Tax Deductions
Income tax deductions lower your taxable income when filing your federal taxes. The Tuition and Fees Deduction is a program offered by the IRS. It reduces your taxable income by up to $4,000. You or your dependent must attend a listed college and be legally residing in the USA. The student loan interest deduction allows you to deduct what you paid in student loan interest from your taxable income. Not all loan interest qualifies for the deduction. You or your dependents may claim this deduction for the year's taxes.
Businesses generally have leeway when it comes to how they account for their income and expenses. As long as the method is generally accepted or specifically approved by the IRS, it can be used provided it is applied consistently. Remember that accounting firms in Las Vegas can help ensure you stay in compliance with federal regulations. Let's take a closer look at the cash method of accounting and why it can be useful for a company.
What Is the Cash Method of Accounting?
This accounting philosophy states that a company should record income when it is received, and expenses are recorded when they are paid. It is important to point out that traditional corporations are prohibited from using the cash method under the Tax Reform Act of 1986, as are companies with one or more partners structured as traditional corporations.
Why a Small Business Should Use Cash Accounting
The cash method of accounting can be helpful when it comes to both short and long-term income tax planning. For instance, an organization could choose to pay future business expenses before the end of a calendar year to maximize deductions on those expenses. This also can allow delaying receipt of payment for goods sold or services rendered until the next year, effectively lowering taxable income. If the company is a pass-through entity, this method can also reduce the personal income taxes paid by owners or shareholders.
Could This Method Benefit Your Company?
It is important to think carefully about your business and how it is structured prior to choosing an accounting method. Most accountants have experience helping companies manage their books using the cash method. Additionally, a professional can help you learn more about the pros and cons of using this strategy.
It's not easy to run your own small business as everything is on your head. Getting everything right at the same time is a virtual impossibility. However, the good news that Las Vegas business owners can take to heart is that every person has their own weak and strong points. That's why you need the help of an accountant in Las Vegas.
Misconception #1: Only Business Owners With Limited Funds Need a Budget
All business owners need a budget. When you have a budget, your funds have a plan and purpose. Not having one can cause you to overspend easily if you're not careful. Start by setting a yearly budget and then break it down by month. Go over your budget with your CPA every month to see if it needs any readjustments.
Misconception #2: Having a Tax Bill Is Always a Bad Thing
Owing money at tax time merely means that you made more money than the amount that you spent on expenses. Some business owners want to spend their profits by the end of the year so that they don't owe anything when the tax bill comes. To avoid a nasty surprise at the end of the year, put some money aside to pay your quarterly tax bill.
Misconception #3: Sales Tax and Income Tax Are One and the Same
To tell the difference between income tax and sales tax, you will need to know about a few distinctions. Sales tax acts as a tax that Nevada looks over and gets assessed to your clients on services and products. All you do as the business owner is collect the tax. You don't have to return this money until your sales tax return is due to the state.
Income tax operates as a tax at both the local and federal level for the states that collect one. Nevada acts as one of the few states that don't collect income tax from its residents.
Many people have a home-based business at some time in their lives. Whether you sell clothing, candles or cosmetics from your home, you may need collect and remit sales tax to local or state governments. If you are new to this, working with a Las Vegas CPA could help ensure that you do everything that is required by the state law.
Identifying What Products or Services to Collect Sales Tax On
Different places have different requirements on which items or services you need to collect sales tax. For example, some places require sales tax to be collected on prepared food, but other jurisdictions may not tax prepared food. Some places have different tax rates. Local taxes might apply in some cities or townships. The state department of taxation has guidance on tax rates and which items are taxable. If you sell in different locations, such as different farmer's markets, you need to charge the correct sales tax rate for each location.
Get Registered to Collect Sales Tax
In order to collect sales tax, you have to be registered with the state. You can do this online or with paper forms. You will get an identification number for collecting and remitting taxes. You will also need this for filing your quarterly and annual taxes.
Sales Tax on Internet Versus In-person Transactions
A 2018 Supreme Court ruling stated that under certain circumstances, internet transactions are subject to sales tax in all states. This issue is still under some level of confusion, particularly around how interstate sales tax should be calculated and remitted. While you definitely need to collect sales tax in the state where your business is located, you will have to check with other states to see if they have a physical presence requirement.
Street performers, also known as buskers, find many creatives to earn a daily income. For those who are able to work on the Las Vegas Strip, the prospect of earning a decent living is realistic, but it also involves a lot of hard work, along with a lot of long hours.
Las Vegas Strip performers are often busy hustling for dollars, and they forget to tend to their taxes. What's more, they don't realize that as self-employed performers, not only are they responsible for paying their own taxes, they're also entitled to a host of tax deductions at the end of the when they file annual taxes.
Costume Expenses Are Often Tax Deductible
Tourists who walk along the Las Vegas Strip will find a handful of performers dressed in costumes. The performers engage tourists by making them laugh, dancing, and taking fun photos. The activities are funny, and the performers commonly ask for a few dollars from each group that they entertain, especially if photos are involved.
Since costume street entertainers generate attention by dancing and performing in costume, the costume is an important business expense. A CPA Las Vegas professional would most likely advise their creative client to keep records of any expenses involved with the purchase and the care of the costume, since they'll claim these as tax deductions.
Dance Crews Can Claim Deductions, Too
Another common sight that tourists can find on the Las Vegas Strip are various dance performances. Sometimes the performances are conducted by individuals, but often, the performances are orchestrated by local dance crews who are promoting themselves for attention while earning money.
Street dancers are under the same tax codes as any other performer in the U.S. They'll need to claim any earnings that they generate over $600 in a tax year, but the good news is, they can work with an accountant to claim as many tax deductible expenses as possible.
Don't Pay More Than You Have To
Working as an independent creative performer is exciting, but it entails lots of hard work. Although it might be tempting to ignore your taxes, you may want to make an appointment with a CPA. At the very least, you might not owe as much tax money as you'd think!
A tax nexus is a network. It refers to your presence in the state or doing business there. If you have an online business, then you have a nexus. For tax purposes, a nexus refers to how much and how often you do business in a state. If you have a nexus in a state, you have to collect and remit sales tax and pay income taxes based on those sales. Working with a tax accountant in Las Vegas can help you understand your responsibilities related to tax payments.
Nexus for Income Tax Purposes
Each state has its own nexus rules. When it comes to income taxes, you may be responsible for paying income and property taxes if you have a nexus in the state. Property taxes apply if your business owns property in the state. Income taxes apply to your nexus if you have employees or capital assets in a state or you derive any business income there.
Nexus for Sales Tax Purposes
Sales tax nexus rules are more confusing. You might have a sales tax nexus if you have property in a state. This includes intangible property. If you have remote employees working in a state, you may have a sales tax nexus there. Owning or leasing property in a state also means that you have a sales tax nexus. When you have sales people soliciting consumers in a state, their activity constitutes a sales tax nexus.
Online Sales Nexuses
There are two types of online sales nexuses that could apply to your business. The first type is a click-through. This refers to direct contact between the buyer and seller. The second type is an affiliate nexus. This means that there is an affiliate between the buyer and seller.
It's time to do your annual taxes and you have to write off all of your deductions. These help you save money, but the problem is that there are so many deductions that you may not know what you qualify for. Here are three overlooked deductions that may help you save a little money this year.
Traditional IRA Contribution
Have you placed money into an IRA account this year? As long as it was a traditional IRA and not a Roth RIA, then you are able to write off your contributions. You are able to contribute up to $5,500 per year towards a traditional IRA unless you are over 50, in which case you can contribute $6,500. You can deduct the whole contribution and save a good amount of money on your taxes. Speak with local CPA firms in Las Vegas for more information.
No one wants to lose money on their investments, but even those losses can be useful. If you gained more overall, then you can use the losses to offset your capital gains tax. If you just lost money without any gains, then you can actually write off those losses. You can write off up to $3,000 for your capital losses for each year. If your losses exceed this limit, then you can actually carry them over into the next year.
Student Loan Interest Paid by Parents
This tax deduction only applies if you are the student and your parents are helping pay the interest on the bill. If your parents are helping you with your student loan, then according to tax law it's the same as if they gave you the money directly to pay for the bill. In this case, you are able to write off up to $2,500 per year for the interest. Just remember that your parents won't be able to write off the expense since you are technically the only one liable for the bill.
Your business or non-profit organization may be able to save money by getting a tax exemption certificate. This certificate entitles you to buy certain supplies and not have to pay any sales tax on them. Working with one of the experienced accounting firms in Las Vegas could help you identify whether or not your company could qualify for a reseller's or tax exemption certificate.
What the Tax Exemption Certificate Is for
The tax exemption certificate is designed for the supplies and products you buy and resell at your business. For example, if you operate a food truck, the single-serving sizes of packaged potato chips, bottles of soda and bottles of water could be purchased on a tax-exempt basis. The certificate also applies to supplies that you put together for items that you sell at your business. If you sell costume jewelry, you may not have to pay sales tax on the beads, clasps and cords you purchase.
What a Tax Exemption Certificate Does Not Cover
The tax exemption certificate does not exempt you from collecting sales tax on the things that you sell for your business. It also does not exempt you from paying income taxes on the profits or income you earn at your business. Items that you buy and use for your business are not covered by the tax exemption certificate. For example, the receipt paper you buy and use for printing receipts is not tax-exempt.
Who Qualifies for a Tax Exemption Certificate
You need to apply for a tax exemption certificate with the state department of taxation. Some places separate a reseller's certificate for people who buy at wholesale prices and sell at retail prices from the tax exemption certificates for supplies that you use for putting items together. You must provide the details of your business in your application.
Many people overlook taxes when planning their mutual fund investments. But you’ve got to handle these valuable assets with care. Here are some tips to consider.
Avoid year-end investments
Typically, mutual funds distribute accumulated dividends and capital gains toward the end of the year. But don’t fall for the common misconception that investing in a fund just before a distribution date is like getting “free money.”
True, you’ll receive a year’s worth of income right after you invest. But the value of your shares will immediately drop by the same amount, so you won’t be any better off. Plus, you’ll be liable for taxes on the distribution as if you had owned your shares all year.
You can get a general idea of when a particular fund anticipates making a distribution by checking its website periodically. Also make a note of the “record date” — investors who own fund shares on that date will participate in the distribution.
Invest in tax-efficient funds
Actively managed funds tend to be less tax efficient. They buy and sell securities more frequently, generating a greater amount of capital gain, much of it short-term gain taxable at ordinary income rates rather than the lower, long-term capital gains rates.
Consider investing in tax-efficient funds instead. For example, index funds generally have lower turnover rates. And “passively managed” funds (sometimes described as “tax managed” funds) are designed to minimize taxable distributions.
Another option is exchange-traded funds (ETFs). Unlike mutual funds, which generally redeem shares by selling securities, ETFs are often able to redeem securities “in kind” — that is, to swap them for other securities. This limits an ETF’s recognition of capital gains, making it more tax efficient.
This isn’t to say that tax-inefficient funds don’t have a place in your portfolio. In some cases, actively managed funds may offer benefits, such as above-market returns, that outweigh their tax costs.
Watch out for reinvested distributions
Many investors elect to have their distributions automatically reinvested in their funds. Be aware that those distributions are taxable regardless of whether they’re reinvested or paid out in cash.
Reinvested distributions increase your tax basis in a fund, so track your basis carefully. If you fail to account for these distributions, you’ll end up paying tax on them twice — once when they’re paid and again when you sell your shares in the fund.
Fortunately, under current rules, mutual fund companies are required to track your basis for you. But you still may need to track your basis in funds you owned before 2012 when this requirement took effect, or if you purchased units in the fund outside of the current broker holding your units.
Do your due
Tax considerations should never be the primary driver of your investment decisions. Yet it’s important to do your due diligence on the potential tax consequences of funds you’re considering — particularly for your taxable accounts.
Sidebar: Directing tax-inefficient funds into nontaxable accounts
If you invest in actively managed or other tax-inefficient funds, ideally you should put these holdings in nontaxable accounts, such as a traditional IRA or 401(k). Because earnings in these accounts are tax-deferred, distributions from funds they hold won’t have any tax consequences until you withdraw them. And if the funds are held in a Roth account, those distributions will escape taxation altogether.
If you recently redeemed frequent flyer miles to treat the family to a fun summer vacation or to take your spouse on a romantic getaway, you might assume that there are no tax implications involved. And you’re probably right — but there is a chance your miles could be taxable.
Generally, miles awarded by airlines for flying with them are considered nontaxable rebates, as are miles awarded for using a credit or debit card. The IRS even addressed the issue in Announcement 2002-18, where it said:
Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.
There are, however, some types of miles awards the IRS might view as taxable. Examples include miles awarded as a prize in a sweepstakes and miles awarded as a promotion.
For instance, in the 2014 case of Shankar v. Commissioner, the U.S. Tax Court sided with the IRS in finding that airline miles awarded in conjunction with opening a bank account were indeed taxable. Part of the evidence of taxability was the fact that the bank had issued Forms 1099 MISC to customers who’d redeemed rewards points to buy airline tickets.
The value of the miles for tax purposes generally is their estimated retail value. If you’re concerned you’ve received miles awards that could be taxable, please contact us.
If you're looking for a CPA in Las Vegas, Boehme & Boehme has the answers. A good CPA firm in Las Vegas is hard to find. You can trust that Boehme & Boehme is committed to providing our clients with reliable, professional, personalized services and guidance in a wide range of financial and business needs. We provide high quality tax, accounting, and consulting services to a variety of clients worldwide. Give us a call today (702) 871-9393.
Well-crafted, up-to-date estate planning documents are an imperative for everyone. They also can help ease the burdens on your family during a difficult time. Two important examples: wills and living trusts.
A will is a legal document that arranges for the distribution of your property after you die and allows you to designate a guardian for minor children or other dependents. It should name the executor or personal representative who’ll be responsible for overseeing your estate as it goes through probate. (Probate is the court-supervised process of paying any debts and taxes and distributing your property after you die.) To be valid, a will must meet the legal requirements in your state.
If you die without a will (that is, “intestate”), the state will appoint an administrator to determine how to distribute your property based on state law. The administrator also will decide who will assume guardianship of any minor children or other dependents. Bottom line? Your assets may be distributed — and your dependents provided for — in ways that differ from what you would have wanted.
The living trust
Because probate can be time-consuming, expensive and public, you may prefer to avoid it. A living trust can help. It’s a legal entity to which you, as the grantor, transfer title to your property. During your life, you can act as the trustee, maintaining control over the property in the trust. On your death, the person (such as a family member or advisor) or institution (such as a bank or trust company) you’ve named as the successor trustee distributes the trust assets to the beneficiaries you’ve named.
Assets held in a living trust avoid probate — with very limited exceptions. Another benefit is that the successor trustee can take over management of the trust assets should you become incapacitated.
Having a living trust doesn’t eliminate the need for a will. For example, you can’t name a guardian for minor children or other dependents in a trust. However, a “pour over” will can direct that assets you own outside the living trust be transferred to it on your death.
There are other documents that can complement a will and living trust. A “letter of instruction,” for example, provides information that your family will need after your death. In it, you can express your desires for the memorial service, as well as the contact information for your employer, accountant and any other important advisors. (Note: It’s not a legal document.)
Also consider powers of attorney. A durable power of attorney for property allows you to appoint someone to act on your behalf on financial matters should you become incapacitated. A power of attorney for health care covers medical decisions and also takes effect if you become incapacitated. The person to whom you’ve transferred this power — your health care agent — can make medical decisions on your behalf.
These are just a few of the foundational elements of a strong estate plan. We can work with you and your attorney to address the tax issues involved.
In today’s economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, you might be at risk of penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:
1. Know the minimum payment rules. For you to avoid penalties, your estimated payments and withholding must equal at least:
2. Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income — especially if it’s skewed toward year end. Annualizing calculates the tax due based on income, gains, losses and deductions through each “quarterly” estimated tax period.
3. Estimate your tax liability and increase withholding. If, as year end approaches, you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters.
Finally, beware that you also could incur interest and penalties if you’re subject to the additional 0.9% Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments. Please contact us for help with this tricky tax task.
If you're looking for a CPA in Las Vegas, Boehme & Boehme has the answers. A good CPA firm in Las Vegas is hard to find. You can trust that Boehme & Boehme is committed to providing our clients with reliable, professional, personalized services and guidance in a wide range of financial and business needs. We provide high quality tax, accounting, and consulting services to a variety of clients worldwide. Give us a call today (702) 871-9393.
Health care costs continue to be in the news and on everyone’s mind. As a result, tax-friendly ways to pay for these expenses are very much in play for many people. The three primary players, so to speak, are Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (HRAs).
All provide opportunities for tax-advantaged funding of health care expenses. But what’s the difference between these three types of accounts? Here’s an overview of each one:
HSAs. If you’re covered by a qualified high-deductible health plan (HDHP), you can contribute pretax income to an employer-sponsored HSA — or make deductible contributions to an HSA you set up yourself — up to $3,400 for self-only coverage and $6,750 for family coverage for 2017. Plus, if you’re age 55 or older, you may contribute an additional $1,000.
You own the account, which can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.
FSAs. Regardless of whether you have an HDHP, you can redirect pretax income to an employer-sponsored FSA up to an employer-determined limit — not to exceed $2,600 in 2017. The plan pays or reimburses you for qualified medical expenses.
What you don’t use by the plan year’s end, you generally lose — though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2½-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.
HRAs. An HRA is an employer-sponsored arrangement that reimburses you for medical expenses. Unlike an HSA, no HDHP is required. Unlike an FSA, any unused portion typically can be carried forward to the next year. And there’s no government-set limit on HRA contributions. But only your employer can contribute to an HRA; employees aren’t allowed to contribute.
Please bear in mind that these plans could be affected by health care or tax legislation. Contact our firm for the latest information, as well as to discuss these and other ways to save taxes in relation to your health care expenses.
Disaster planning is usually associated with businesses. But individuals need to prepare for worst-case scenarios, as well. Unfortunately, the topic can seem a little overwhelming. To help simplify matters, here are five keys to disaster planning that everyone should consider:
1. Insurance. Start with your homeowners’ coverage. Make sure your policy covers flood, wind and other damage possible in your region and that its dollar amount is adequate to cover replacement costs. Also review your life and disability insurance.
2. Asset documentation. Create a list of your bank accounts, titles, deeds, mortgages, home equity loans, investments and tax records. Inventory physical assets not only in writing (including brand names and model and serial numbers), but also by photographing or videoing them.
3. Document storage. Keep copies of financial and personal documents somewhere other than your home, such as a safe deposit box or the distant home of a trusted friend or relative. Also consider “cloud computing” — storing digital files with a secure Web-based provider.
4. Cash. You may not receive insurance money right away. A good rule of thumb is to set aside three to six months’ worth of living expenses in a savings or money market account. Also maintain a cash reserve in your home in a durable, fireproof safe.
5. An emergency plan. Establish a family emergency plan that includes evacuation routes, methods of getting in touch and a safe place to meet. Because a disaster might require you to stay in your home, stock a supply kit with water, nonperishable food, batteries and a first aid kit.
If you're looking for a CPA in Las Vegas, Boehme & Boehme has the answers. A good CPA firm in Las Vegas is hard to find. You can trust that Boehme & Boehme is committed to providing our clients with reliable, professional, personalized services and guidance in a wide range of financial and business needs. We provide high quality tax, accounting, and consulting services to a variety of clients worldwide. Give us a call today (702) 871-9393.
Few purchases during your lifetime will be as expensive as buying a home. Whether it’s your primary residence, a vacation home or an investment property, how you choose to pay for it can have a significant impact on your financial situation over time. If you’re considering a mortgage loan, understanding the main categories of mortgages — fixed-rate and adjustable-rate — and the situations they’re best designed for will help you match the right type for your needs.
Fixed-rate loans offer stability
A fixed-rate mortgage, as its name suggests, is a loan whose interest rate remains constant for the life of the loan — typically 15 or 30 years. One of the primary benefits of a fixed-rate loan is that it provides a measure of certainty about one of the biggest expenses in your monthly budget. With interest rates likely to rise after an extended period of historically low rates, you won’t have to worry about potentially higher payments in the future if you select a fixed-rate loan.
That said, if interest rates were to fall again, your fixed-rate loan would leave you unable to take advantage of the shift unless you refinance, which might involve fees. You’re also paying a premium for the stability offered by a fixed-rate mortgage. You could consider a 15-year fixed-rate loan, which would charge a lower rate than a 30-year loan, but the tradeoff will be higher monthly payments.
ARMs provide flexibility
Adjustable-rate mortgages (ARMs) typically offer a fixed interest rate for an initial period of years. This rate, which is usually lower than that of a comparable fixed-rate mortgage, resets periodically based on a benchmark interest rate. For example, a 5/1 ARM means that your interest rate is fixed for the first five years and then will adjust every year after that.
Paying less interest in the beginning frees your cash for other investments. You might also take advantage of an ARM if you’re confident that you’ll have more money in the future than you do today, or if you plan on selling your house before or soon after the initial fixed-rate period expires. When considering an ARM, you’ll need to assess your ability to keep up with potentially higher payments — say, if the initial period expires, your rate goes up and you’re unable to sell the home, or if your income changes.
The best for you
The right loan type depends, naturally, on your financial position. But whether you’re buying a primary residence, vacation home or investment property also plays a role. Regardless of which type of home you’re purchasing, having a basic knowledge of the loan types can help ease the buying process. Let our firm assist you in evaluating the best mortgage for your needs.
A royal flush can be quite a rush. But the IRS casts a wide net when defining gambling income. It includes winnings from casinos, horse races, lotteries and raffles, as well as any cash or prizes (appraised at fair market value) from contests. If you participate in any of these activities, you must report such winnings as income on your federal return.
If you’re a casual gambler, report your winnings as “Other income” on Form 1040. You may also take an itemized deduction for gambling losses, but the deduction is limited to the amount of winnings.
In some cases, casinos and other payers provide IRS Form W-2G, “Certain Gambling Winnings” — particularly if the entity in question withholds federal income tax from winnings. The information from these forms needs to be included on your tax return.
If you gamble often and actively, you might qualify as a professional gambler, which comes with tax benefits: It allows you to deduct not only losses, but also wagering-related business expenses — such as transportation, meals and entertainment, tournament and casino admissions, and applicable website and magazine subscriptions.
To qualify as a professional, you must be able to demonstrate to the IRS that a “profit motive” exists. The agency looks at a list of nonexclusive factors when making this determination, including:
But don’t “go pro” for the tax benefits, since doing so is a major financial risk. If you enjoy the occasional game of chance, or particularly if you’re considering gambling as a profession, please contact our firm. We can help you manage the tax impact.
Once a relatively obscure concept, income in respect of a decedent (IRD) can create a surprisingly high tax bill for those who inherit certain types of property, such as IRAs or other retirement plans. Fortunately, there are ways to minimize or even eliminate the IRD tax bite.
How it works
Most inherited property is free from income taxes, but IRD assets are an exception. IRD is income a person was entitled to but hadn’t yet received at the time of his or her death. It includes:
IRD isn’t reported on the deceased’s final income tax return, but it’s included in his or her taxable estate, which may generate estate tax liability if the deceased’s estate exceeds the $5.49 million (for 2017) estate tax exemption, less any gift tax exemption used during life. (Be aware that President Trump and congressional Republicans have proposed an estate tax repeal. It hasn’t been passed as of this writing, but check back with us for the latest information.)
Then it’s taxed — potentially a second time — as income to the beneficiaries who receive it. This income retains the character it would have had in the deceased’s hands. So, for example, income the deceased would have reported as long-term capital gains is taxed to the beneficiary as long-term capital gains.
What can be done
When IRD generates estate tax liability, the combination of estate and income taxes can devour an inheritance. The tax code alleviates this double taxation by allowing beneficiaries to claim an itemized deduction for estate taxes attributable to amounts reported as IRD. (The deduction isn’t subject to the 2% floor for miscellaneous itemized deductions.)
The estate tax attributable to IRD is equal to the difference between the actual estate tax paid by the estate and the estate tax that would have been payable if the IRD’s net value had been excluded from the estate.
Suppose, for instance, that you’re the beneficiary of an estate that includes a taxable IRA. If the estate tax is $150,000 with the retirement account and $100,000 without, the estate tax attributable to the IRD income is $50,000. But be careful, because any deductions in respect of a decedent must also be included when calculating the estate tax impact.
When multiple IRD assets and multiple beneficiaries are involved, complex calculations are necessary to properly allocate the income and deductions. Similarly, when a beneficiary receives IRD over a period of years — IRA distributions, for example — the deduction must be prorated based on the amounts distributed each year.
We can help
If you inherit property that could be considered IRD, please consult our firm for assistance in managing the tax consequences. With proper planning, you can keep the cost to a minimum.
Married couples don’t always agree — and taxes are no exception. In certain cases, an “innocent” spouse can apply for relief from the responsibility of paying tax, interest and penalties arising from a spouse’s (or former spouse’s) improperly handled tax return. Although it isn’t easy to qualify, potentially affected taxpayers should review the rules.
Applicants may qualify for various forms of relief if they can meet the applicable IRS conditions. One factor that’s considered is whether the applicant received any significant direct or indirect benefit from the tax understatement. For instance, an applicant’s case could be weakened if he or she had used unreported income to pay extraordinary household expenses.
The IRS will also look at the distinctive aspects of the case. The fact that a spouse applying for relief has already divorced his or her partner is significant. Whether the applicant was abused physically or mentally will also play a role, as will whether he or she was in poor mental or physical health when the return(s) in question was signed. In addition, the IRS will consider whether the applicant would experience economic hardship without relief from a significant tax debt.
Generally, an applicant must request innocent spouse relief no later than two years after the date the IRS first attempted to collect the tax. But other forms of relief may still be available thereafter. Please contact our firm for more information.
The Achieving a Better Life Experience (ABLE) Act of 2014 created a tax-advantaged savings account for people who have a qualifying disability (or are blind) before age 26. Modeled after the well-known Section 529 college savings plan, ABLE accounts offer many benefits. But it’s important to understand their limitations.
Tax and funding benefits
Like Section 529 plans, state-sponsored ABLE accounts allow parents and other family and friends to make substantial cash contributions. Contributions aren’t tax deductible, but accounts can grow tax-free, and earnings may be withdrawn free of federal income tax if they’re used to pay qualified expenses. ABLE accounts can be established under any state ABLE program, regardless of where you or the disabled account beneficiary live.
In the case of a Section 529 plan, qualified expenses include college tuition, room and board, and certain other higher education expenses. For ABLE accounts, “qualified disability expenses” include a broad range of costs, such as health care, education, housing, transportation, employment training, assistive technology, personal support services, financial management, legal expenses, and funeral and burial expenses.
An ABLE account generally won’t jeopardize the beneficiary’s eligibility for means-tested government benefits, such as Medicaid or Supplemental Security Income (SSI). To qualify for these benefits, a person’s resources must be limited to no more than $2,000 in “countable assets.”
Assets in an ABLE account aren’t counted, with two exceptions: 1) Distributions used for housing expenses count, and 2) if the account balance exceeds $100,000, the beneficiary’s eligibility for SSI is suspended so long as the excess amount remains in the account.
ABLE accounts offer some attractive benefits, but they’re far less generous than those offered by Sec. 529 plans. Maximum contributions to 529 plans vary from state to state, but they often reach as high as $350,000 or more. The same maximum contribution limits generally apply to ABLE accounts, but practically speaking they’re limited to $100,000, given the impact on SSI benefits.
Like a 529 plan, an ABLE account allows investment changes only twice a year. But ABLE accounts also impose an annual limit on contributions equal to the annual gift tax exclusion (currently $14,000). There’s no annual limit on contributions to Sec. 529 plans.
ABLE accounts have other limitations and disadvantages as well. Unlike a Sec. 529 plan, an ABLE account doesn’t allow the person who sets up the account to be the owner. Rather, the account’s beneficiary is the owner.
However, a person with signature authority — such as a parent, legal guardian or power of attorney holder — can manage the account if the beneficiary is a minor or otherwise unable to manage the account. Nevertheless, contributions are irrevocable and the account’s funders may not make withdrawals. The beneficiary can be changed to another disabled individual who’s a family member of the designated beneficiary.
Finally, be aware that, when an ABLE account beneficiary dies, the state may claim reimbursement of its net Medicaid expenditures from any remaining balance.
If you have a child or relative with a disability in existence before age 26, it’s worth exploring the feasibility of an ABLE account. Please contact our firm for more details.
Like many people, you probably feel a great sense of relief wash over you after your tax return is completed and filed. Unfortunately, even professionally prepared and accurate returns may sometimes be subject to an IRS audit.
The good news? Chances are slim that it will actually happen. Only a small percentage of returns go through the full audit process. Still, you’re better off informed than taken completely by surprise should your number come up.
A variety of red flags can trigger an audit. Your return may be selected because the IRS received information from a third party — say, the W-2 submitted by your employer — that differs from the information reported on your return. This is often the employer’s mistake or occurs following a merger or acquisition.
In addition, the IRS scores all returns through its Discriminant Inventory Function System (DIF). A higher DIF score may increase your audit chances. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things may increase the likelihood of an audit, such as:
Bear in mind, though, that no single item will cause an audit. And, as mentioned, a relatively low percentage of returns are examined. This is particularly true as the IRS grapples with its own budget issues.
Finally, some returns are randomly chosen as part of the IRS’s National Research Program. Through this program, the agency studies returns to improve and update its audit selection techniques.
If you receive an audit notice, the first rule is: Don’t panic! Most are correspondence audits completed via mail. The IRS may ask for documentation on, for instance, your income or your purchase or sale of a piece of real estate.
Read the notice through carefully. The pages should indicate the items to be examined, as well as a deadline for responding. A timely response is important because it conveys that you’re organized and, thus, less likely to overlook important details. It also indicates that you didn’t need to spend extra time pulling together a story.
Your response (and ours)
Should an IRS notice appear in your mail, please contact our office. We can fully explain what the agency is looking for and help you prepare your response. If the IRS requests an in-person interview regarding the audit, we can accompany you — or even appear in your place if you provide authorization.
Besides being the last day to file (or extend) your 2014 personal return and pay any tax that is due, 2015 first quarter estimated tax payments for individuals, trusts, and calendar-year corporations are due today. So are 2014 returns for trusts and calendar-year estates, partnerships, and LLCs, plus any final contribution you plan to make to an IRA or Education Savings Account for 2014. SEP and Keogh contributions are also due today if your return is not being extended.
Second quarter estimated tax payments for individuals, trusts, and calendar-year corporations are due today.
The annual exclusion for gifts remains at $14,000 for 2015. (Married couples can gift up to $28,000 combined.) This limit applies to the total of all gifts, including birthday and holiday gifts, made to the same individual during the year. However, any payment made directly to the medical care provider (for example, doctor, hospital, etc.) or educational organization for tuition is not subject to the gift tax and, therefore, is not included in the $14,000 limit.
So, when paying tuition or large medical bills for parents, grandchildren, or any other person who is not your dependent minor child, be sure to make the payment directly to the organization or service provider. Don’t give the funds to the parent or other individual first and have them pay the school, doctor, or hospital. By doing so, you have made a gift to that person, subject to the $14,000 limit. In summary, make direct payments to schools or medical providers and avoid taxable gifts that could be subject to the gift tax or reduce the payer’s unified credit.
Caution: Direct payments of tuition reduce the student’s eligibility for financial aid on a dollar-for-dollar basis. However, if the gift were made directly to the student, only 20% of the gifted assets would be counted as assets of the student for financial aid purposes. Accordingly, careful analysis of the trade-offs between the gift tax exclusion and impairment of financial aid eligibility should be considered.