Tax Options for the Self-Employed

Photo by Bonnie Kittle on Unsplash

From the U.S. Small Business Administration comes this insightful article on how to manage Self-Employment Taxes and the options those individuals have.

Self-Employment Tax Wrinkles
By BarbaraWeltman, Guest Blogger
Published: February 14, 2017
Updated: February 21, 2017

Individuals whose businesses are incorporated do not have to think about self-employment tax. Any salary they take from their corporations as owner-employees are subject to FICA taxes. In contrast, those with other types of business entities—sole proprietorships, partnerships, and limited liability companies (LLCs)—are not employees; they are self-employed individuals. As such they meet their Social Security and Medicare taxes obligation through the payment of self-employment tax.

Self-employed individuals pay what amounts to the employer and employee share of FICA tax; the employer share is deductible. In other words, they pay 15.3% (comprised of 12.5% for Social Security tax and 2.9% for Medicare tax). The self-employment tax is applied to net earnings from self-employment, although only net earnings up to an annual threshold ($118,500 for 2016; $127,200 for 2017) are taken into account for the Social Security tax portion. In basic terms, net earnings from self-employment are income minus expenses. It sounds simple enough, but there are some ins and outs that may impact your payments.

$400 threshold

While FICA taxes apply to the first dollar of wages paid to an employee, there is no self-employment tax due if net earnings from self-employment are less than $400.00. So a self-employed individual with only losses for the year, or someone with a modest sideline business, may be below the threshold for self-employment tax.

However, if net earnings are $400.00 or more, then the tax applies to all net earnings. There’s no exemption for this amount.

Optional payments

Self-employed individuals who have modest earnings may want to voluntarily pay self-employment tax. The reason: This enables such individuals to earn Social Security credits, which translate into higher benefits in retirement.

There are two optional methods for figuring earnings: one for farmers and one for all other self-employed individuals (nonfarm optional method). The farm optional method applies for 2016 returns if gross farm income was not more than $7,560 or net farm profits were less than $5,457. The nonfarm optional method can be used if net nonfarm profits were less than $5,457 and also less than 72.189% of gross nonfarm income but you had net earnings from self-employment of at least $400 in two of the prior three years. The nonfarm income optional method cannot be used more than five times by a self-employed individual

Determining self-employment income

In most cases, it’s easy to know what is or is not self-employment income for purposes of the self-employment tax. But there continues to be confusion about certain types of payments. Here are some recent matters concerning this issue:

• Payments for past performance. A former employee received a payment resulting from 34 years of services for a company. The IRS said it is subject to self-employment tax because there is a nexus between the income received and a trade or business. A court said the same thing for retirement payments made to a former Mary Kay sales person.
• Separate lines of work. A plastic surgeon who conducted his medical practice through a single-member professional limited liability company (PLLC) also had a minority interest in a limited liability company that ran a surgery center. The Tax Court said that his earnings from the surgery center were not subject to self-employment tax because he was a mere investor here; the activities did not have to be grouped as a single activity. He did not manage the center or have any day-to-day responsibilities there.

It should be noted that the IRS has yet to issue regulations explaining the extent to which a member’s distributive share from an LLC is subject to self-employment tax. This issue is on the IRS’s Priority Guidance Plan for 2016-2017.

Final thoughts
Self-employment tax must be taken into account in figuring estimated tax payments, and the first estimated tax payment for 2017 is due by April 18, 2017. Self-employed individuals should work with a tax professional to make sure this tax obligation is being handled properly.

Employee Benefits that Count as Taxable Income

As a small business owner, you always want to save wherever you can, but that doesn't mean cutting corners.  Cutting corners, like NOT hiring a professional to do your taxes or payroll could end up in either losing you money or making an error like deducting employee benefits you shouldn't (Number 6!).  That's why Accounting Works is offering affordable and competitive prices on Payroll Services to all small businesses.  With accounting software that allows employees to download their own W2s and Paystubs, you don't have to worry about going back and forth.  Not to mention our tax expertise to find you opportunities to save money and grow your business.

Credit: Getty Images

7 Employee Benefits You Didn't Know Were Taxable Income
With tax season upon us, it's important to understand what employee perks and benefits will count towards your employees' taxable income.

By Rebecca Wessell

With more perks and benefits becoming standard (and with tax day coming up), it's important to know which perks are considered taxable income for your employees. Here are some perks you may not realized are considered taxable by the IRS:

1. Gym or health memberships
I didn't know this one until recently (when our company offered us gym memberships), but the IRS considers a gym or health membership a fringe benefit, and therefore taxable income. The IRS will tax you on the fair market value of the gym membership, so if the gym membership is $50 per month, your employees will be taxed on that extra $600 per year.

One exception to this is if the gym facility is on-premise or employer-owned. In this case, employees won't typically be taxed on the gym, and the employer can usually write it off as a deduction. This is how big companies like Google can provide truly free gym memberships for their employees.

2. Business frequent flyer miles converted to cash
You probably knew that cash gifts to employees are considered taxable income, but you probably didn't know that the IRS doesn't care how the cash becomes cash in your employee's hands.

If you have a small business or corporate credit card and you allow employees to convert your business's points or frequent flyer miles for cash, that may be considered taxable income.

3. Season tickets
While providing infrequent or one-off tickets to events is considered a "de minimis" fringe benefit (and not taxable), providing season tickets can taxable. Depending on how expensive the season tickets are, this could be a pretty considerable tax burden to your employees.

It may be more cost-effective to your employees to provide the occasional ticket rather than a season pass.

4. Clothing
If you provide clothing to your employee that can replace everyday clothing (i.e., not a uniform), this may also be taxable. This doesn't include providing company t-shirts once a year or small value items.

However, if you frequently give your employees clothing and it amounts to a significant amount, they may need to pay taxes on them.

5. Vacation expenses
With some companies now providing "paid paid vacation" for their employees, you should also know that the IRS considers that a taxable fringe benefit. If your business pays for any vacation expenses for its employees, whether airfare, hotels or meals, this must be included in the employee's gross income.

Another kicker? None of these expenses is deductible to you as the employer.

6. Spousal travel or meals
There are some exceptions to this rule. Namely, the exceptions are if the spouse is also an employee or is there for a genuine business purpose, or if the expense would be deductible by your employee anyway.

Otherwise, any expenses, such as food, lodging or travel, covered for your employee's spouse will be taxed come April.

7. Personal use of employer vehicle
If you provide cars or other vehicles for employees, the employee's personal use of the vehicle will be taxed. This includes commuting to and from work, running personal errands or letting a non-employee use the vehicle.

And it's important to keep good records. Because if you don't keep records on when the employee uses the vehicle for business or personal purposes, then all of the usage will be taxed.

To view original article visit Inc.com

2017 New Tax Laws for Small Business Owners

It's my job as an accountant to help small businesses thrive and plan for their financial future.  Taxes are a big part of the picture, especially if there's a big liability at the end of the year.   There are strategies that can be put into place to avoid this, deductions you may not know about and proactive steps you may take to decrease the impact of the annual tax bill on your small business finances.  Doing it online, especially if you have questions or are unsure of what liberties you can and cannot take when filing, may end up costing you more.  Call a professional to save you time, money and stress!

New Tax Laws That Impacts Small Business Owners in 2017

Published February 3, 2017 Entrepreneur.com

Since it’s always best to be well-prepared when it comes to taxes, here are some of the new changes that you should be aware-of. As with anything to do with the government or taxes -- if you really want to stay-top of this information, meet with your tax advisor and frequently check for updates on IRS.gov.

Keep in mind, this isn’t legal advice as I’m not in that space … but more a few new tax laws for 2017 that I’ve noticed that business owners should pay attention too.

Section 179 expensing/bonus depreciation
Under Section 179 of the tax code, explains Brian McCuller, JD, CPA, “the expensing provision allows capital investments of up to $500,000 for certain property to be taken as an expense deduction -- rather than being depreciated break -- which was made permanent under the PATH Act passed at the end of 2015 -- phases out for asset purchases above $2 million.”

Additionally, HVAC units are now eligible as an expense deduction instead of depreciation in tax years beginning after Dec. 31, 2015.

“The bonus depreciation provision allows businesses to claim additional depreciation for certain property in the first year of the recovery period if placed in service from 2015 to 2019 (with an additional year for certain property with a longer production period),” adds McCuller. “For property placed in service in 2015, 2016 and 2017, the bonus depreciation is 50 percent. For 2018, it drops to 40 percent; for 2019 it goes to 30 percent.”

In other words, if you purchased or leased new hardware or software for your business, for example, you can depreciate half the cost as part of “bonus depreciation.” For 2017, it may be in your best interest to invest in the most up-to-date equipment possible.

Tighter filing deadlines
Filing deadlines have been changed so that flow-through entity return deadlines are due prior investor return deadlines. This means that partnerships and S-corporations operating on a calendar year will have a new deadline of March 15. The deadline for calendar year based C-Corporations will be pushed from March 15 to April 15.

Below is a the complete list of changes to deadlines for each state.

Furthermore, if your business provides health benefits then please note that the deadline for Form 1095, which is the proof of insurance coverage, will be on January 31. Also take note that hard filing deadlines have been imposed for Forms 1094-B and 1095-A, B and C. These are due by February 28 by mail or by e-file on March 31.

New partnership audit rules
Effective in 2018, partnerships could be liable at the entity, as opposed to partner level for audit related tax collections. This change will have a significant impact on how partnership interests are valued and transferred. Because they’re also so complex, it’s best to speak to your tax advisor for additional information.

Expanded eligibility for R&D tax credit
Until the PATH Act, the development of internal use software was not eligible for the research and development tax credit.

Organizations, particularly in construction, software, manufacturing, wine, aerospace subcontracting, boat building and biotech, can qualify for this credit if they have engineers, scientists or product development personnel on staff.

Other qualifications include software that is innovative and can be commercially sold.

Tom Sanger, a partner with accounting and advisory firm Moss Adams, says that, “small businesses, now defined as having an average of less than $50 million in gross revenue over the prior three years, will be able to offset (the alternative minimum tax ) AMT with R&D credits generated after Jan. 1, 2016.”

“This provision opens up the credit to small corporations subject to the AMT, as well as pass-through entities (where the credits flow through to shareholders),” Sanger adds. “In the past, these credits were suspended and carried forward for up to 20 years until they were no longer subject to the AMT.”

Pending estate planning changes
“The IRS has proposed changes in the rules for how minority stakes in family-owned businesses are valued when owners transfer interests to the next generation during their lifetimes,” explains McCuller. “The changes have not been finalized, and business owners who have been considering passing along part of their ownership interests may want to consult with their tax advisors about accelerating those plans to take advantage of current rules.”

Possible tax laws under President Trump
In addition to the changes listed above, business owners should also pay attention to the tax laws that may take effect under President-elect Donald Trump.

For starters, “The Trump plan would reduce the corporate tax rate from a maximum rate of 35 percent to a rate of 15 percent (the GOP Blueprint calls for a U.S. corporate rate of 20 percent),” says accounting, tax and consulting firm Elliott Davis Decosimo. Also, “U.S. manufacturers would be able to fully expense new plant and equipment investments, though by doing so would forego any deduction for net interest expense.

“Most tax credits, other than the research credit would be eliminated. For U.S. taxpayers with foreign subsidiaries, there would be a one-time deemed repatriation tax of 10 percent on foreign earnings of those subsidiaries.”

This could have major tax consequences for small businesses. In fact, Trump’s tax reform will most likely benefit the wealthy and large corporations as opposed to SMBs.

(By John Rampton)

Tax Credits and Tax Deductions: What's the Difference?

As we move through the first quarter of 2017 tax season is already upon us.  If you are concerned with reducing your liability knowing the difference between tax credits and tax deductions can have an impact.  Both of these methods can save you big money but in very different ways.  Check out this article published by NerdWallet to learn how to maximize your savings.

Tax Credits vs. Tax Deductions
Published September 9, 2016

Tax credits and tax deductions may be the most satisfying part of preparing your tax return. Both reduce your tax bill, but in very different ways.

Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your tax bill by the corresponding $1,000.

Tax deductions, on the other hand, reduce how much of your income is subject to taxes. Deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 25% tax bracket, a $1,000 deduction saves you $250.

The catch to tax credits

Some tax credits are intended to help cover individual costs around adopting a child, child care expenses or caring for an elderly parent.

But these are nonrefundable tax credits.  If you don’t owe a lot in taxes to begin with, you don’t get the full value if the credits take your tax bill below zero.  In other words, a $600 tax bill combined with a $1,000 credit doesn’t get you a $400 tax refund check.

Other credits are refundable. If you qualify to take refundable tax credits — things like the Earned Income Tax Credit, the Premium Tax Credit, the Child Tax Credit and the Additional Child Tax Credit — the value of the credit goes beyond your tax liability and can result in a refund check.

The IRS lays out specific criteria you must meet to qualify for both nonrefundable and refundable credits.

As you run the tax credit calculations in your return, keep in mind that you must determine your tax liability before you apply any credits. The credits don’t reduce your taxable income.

But tax deductions do.

The catch to tax deductions

There are two types of tax deductions.

The standard deduction is a one-size-fits-all reduction in the amount of your income that’s subject to tax. You don’t have to do anything to qualify for the standard deduction or provide any documentation.

You can claim the standard deduction on whichever form you file: Form 1040, 1040A or 1040EZ. The amount varies depending on your filing status. The standard deduction in 2016 for single filers and married couples filing separately is $6,300; it’s $12,600 for married couples filing jointly. For those filing as heads of household, the standard deduction is $9,300. In 2017, the standard deduction for single filers and married couples filing separately is $6,350; it’s $12,700 for married couples filing jointly. For those filing as heads of household, the standard deduction in 2017 is $9,350.

But you may be better off opting to use the second type of deduction, the itemized deduction, instead.

Itemizing allows you to total the amount you spent on allowable deductions such as home mortgage interest, medical expenses or charitable donations. If together they exceed the value of the standard deduction, you’ll want to itemize.  You’ll need to use the regular 1040 filing form and Schedule A.

Taking the standard deduction or itemized deductions is an either/or situation.  You can claim one kind or the other, but not both.

And, just as with tax credits, taking certain deductions requires meeting certain qualifications based on your filing status, current life events and the amount of your income that’s taxable. Be sure you meet IRS criteria to qualify for both tax credits and deductions.


To read the original article, visit NerdWallet.com

Key Accounting Issues for 2017

4 Key Accounting Issues to Watch in 2017
Terry Sheridan
Jan 11, 2017
accountingweb.com

As if 2017 doesn’t promise enough drama and change already, the accounting profession is poised for a year brimming with expected regulatory issues and scrutiny.

Bloomberg BNA recently released its 2017 Tax & Accounting Outlook report that covers the gamut of legislative, state, international, and tax administration issues. But it also highlights the following four key accounting issues that could impact practitioners and companies in the new year.

1. Banks and credit losses. New rules on the reporting of loans and other credit losses portend one of the biggest changes ever in the financial accounting of banks and other companies, the report states.

Under Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was issued by the Financial Accounting Standards Board (FASB) last June, banks and other lending institutions will be required to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The “current expected credit loss model,” the core of the new standard, replaces the long-standing accounting model shaped around incurred losses.

This year “promises to be a period of preparing for the sweeping modifications in accounting for credit impairments,” the report states. “Companies have to assess what information must be assembled to shift to the new standard.”

Companies that file reports with the US Securities and Exchange Commission (SEC) will apply the new rules beginning in January 2020. Smaller and private companies have until 2021.

“Work that led to the credit losses rules of FASB and the International Accounting Standards Board was spurred by the 2008-09 financial crisis,” the report states. “Working in tandem for several years, the two boards sought to remedy the widely seen problem of recording loan losses ‘too little, too late.’”

2. Insurance. Life insurance and annuities are complex as it is, and a FASB proposal to change insurance accounting rules “brings hurdles, because of challenges inherent in the sector as a whole,” the report states.

Overall, the proposed ASU, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, seeks to modernize an accounting model dating back more than 35 years that doesn’t address the newest insurance products, Bloomberg BNA says. FASB contends that better and more consistent information will result.

Companies will need more data, which means more IT, internal controls, and more people in an industry that’s already faced cutbacks.

The proposal, which was issued last September, is expected to most affect traditional life insurance companies that issue long-term care policies and disability income, sell participating contracts, and sell products with market risk benefits, such as variable universal life and variable annuities, the report states.

Trouble spots include financial reporting projecting 30 years outward; how companies account for market risk benefits, like variable annuities; and disclosures.

Look for a FASB public roundtable early this year on the proposal and at least some changes to be made final later in the year.

3. Non-GAAP financial reporting. Will the SEC’s intense scrutiny of non-GAAP financial reporting continue this year? That’s the big question, according to Bloomberg BNA. A “flurry” of cautionary letters is expected, says one SEC staffer in the report.

Proponents of non-GAAP reporting indicate that its use can tell a better corporate story than GAAP, particularly in earnings reports. Whether the FASB will get involved isn’t clear, but at least one industry source in the report indicates that the board might want to begin by considering what issues lead to non-GAAP reporting.

When Bloomberg BNA recently asked SEC Chief Accountant Wesley Bricker whether the commission would continue to aggressively address non-GAAP reporting in 2017, he said, “I am confident that the commission will remain focused, as it always has, on the appropriate administration of the securities laws.”

4. Auditor disclosure rules. New requirements in audit transparency and a revamp of the auditor’s report are coming, courtesy of the Public Company Accounting Oversight Board (PCAOB).

Beginning on Jan. 31, audit firms must disclose the name of the audit engagement partner in the new PCAOB Form AP, Auditor Reporting of Certain Audit Participants. The form also will disclose other accounting firms that participated if they did at least 5 percent of the total audit hours. Foreign countries already require this.

“US auditors have vehemently opposed this requirement for liability reasons,” the report states.

Audit firms will have until June 30 to disclose the other firms’ participation.

A proposed revision to the auditor’s report will require auditors to explain “critical audit matters,” which PCAOB members initially described as “those matters that kept the auditor awake at night,” the Bloomberg BNA report states.

The board also wants experienced or “lead” auditors to supervise inexperienced auditors instead of simply signing off on their work.

The report cites an email from Larry Shover, a member of the PCAOB’s Investor Advisory Group, in which he states that the supervision of other auditors is the most significant of all the board’s projects to investors.

6 Tax Deductions Homeowners Won't Want to Miss

Last year was a big year for Richmond's Real Estate Market! If you bought a home, you know how expensive it can become.  Take advantage of all that's afforded you this tax season, and deduct some of those homeownership costs!

6 Tax Deductions Homeowners Won't Want to Miss
By Maurie Backman, January 4, 2017

Though there are plenty of good reasons to buy a home, owning property can be a costly prospect. From maintenance to insurance to real estate taxes, there are numerous costs that come with buying a home. But one major upside to homeownership are the tax benefits that come along with it. If you're a new homeowner, here are six deductions you don't want to miss out on.

1. Mortgage interest deduction
Looking at your mortgage statement can be a demoralizing prospect during the early years of homeownership, especially once it becomes obvious that the majority of your payments are going toward the interest portion of your loan and not its principal. But before you get too down, remember: That interest will serve as a helpful tax deduction when the time comes to file your taxes. You can deduct interest on up to a $500,000 mortgage as a single tax filer or $1 million as a couple filing jointly.

2. Home improvement loan interest deduction
Looking to spruce up your home? You might get a tax break for it. If you borrow money for the purpose of making home improvements, you can deduct whatever interest you pay on that loan with no upper limit. The only thing to keep in mind is that your loan must be used for capital improvements to your home, not repairs. If you borrow money to put up a new fence, finish your basement, or build an addition, you can deduct whatever interest you pay on your taxes. But if you take out a loan to repair a leaky roof, you won't be eligible for a deduction.

3. PMI deduction
Many homeowners aim to make a 20% down payment to avoid getting hit with private mortgage insurance Opens a New Window. , or PMI. But if you're stuck paying PMI, there's some good news: You can deduct your premiums provided you don't make too much money. The PMI deduction starts to phase out when you earn $50,000 a year as a single tax filer or $100,000 as a couple filing jointly. And the deduction goes away completely when you earn more than $54,000 as a single filer or $109,000 as a couple filing a joint return.

4. Mortgage points deduction
Some borrowers pay mortgage points, which are up-front fees, in exchange for a lower long-term interest rate. A point on a mortgage is equal to 1% of the loan amount, so the higher your mortgage, the more you'll pay per point. On the other hand, points can serve as a tax deduction, either immediately or over time. If the points you pay are consistent with what most lenders are charging and you use your loan to buy your primary home, you can typically deduct the entire cost of your points right away. Otherwise, you'll need to spread out that deduction over the life of your loan.

5. Property tax deduction
The average U.S. homeowner pays a little more than $2,000 a year in property taxes, but in some states, that figure can be anywhere from two to five times as much (or more). And while nobody wants to spend a fortune on property taxes, they can serve as a nice tax break. If you're going to claim a property tax deduction, just make certain to do so the year you actually make your payments. Property taxes are often billed quarterly, so it could be that you pay the first part of your 2018 taxes at the end of 2017 -- in which case you'd take the deduction for the 2017 tax year.

6. Home office deduction
If you're self-employed and have a dedicated space in your home that you use for work purposes, you can claim a home office deduction against your income. To calculate your tax benefit, figure out how much you spend annually on costs like water, electricity, internet service, and homeowners' insurance. Next, calculate the amount of space your office takes up relative to your home, and then prorate your expenses to arrive at your deduction. For example, if you spend $3,000 a year on eligible expenses and your office takes up 10% of your home's total square footage, you can claim a $300 deduction.

Whether you're new to homeownership or have carried a mortgage for years, it pays to learn more about the tax deductions available. The more you're able to claim, the more cash you'll manage to pocket and keep away from the IRS.

Original article appeared on foxbusiness.com

Charitable Donations for Small Business

As the year comes to a close, many small business owners and individuals look for ways to make deductions on their taxes.  Contributing to your favorite cause is a great way to minimize your bottom line.  Here's how to make those charitable donations count!

Small Business Guide to Deducting Charitable Donations
By Bonnie Lee

Businesses can make tax deductible donations to bona fide nonprofit organizations. But you may be surprised to learn how it is deducted on your tax return. In fact, the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

If you are a sole proprietor and you make a donation of $100 to a dog rescue society which is registered as a 501(c)(3) with the Internal Revenue Service – all bona charities must be registered as such for your gift to be tax-deductible – and your business received no goods or services in return, the deduction is listed as an itemized deduction on Schedule A of your tax return. This provides a tax benefit only if you are able to itemize deductions.

You cannot deduct this contribution on Schedule C. It is not a business expense; it will not reduce your self-employment tax. The IRS views it as a personal expense paid from business funds.

But now let’s say you want to support young athletes and therefore donate $100 from business funds as a sole proprietor to the local soccer league. In exchange, they run a small display ad for your business on their program. This is no longer a donation. This is an advertising expense; you received something in return which can be classified as an “ordinary and necessary business expense,” and therefore the cost is deductible as such on Schedule C.

If as a sole proprietor you donate your services to a bona fide 501(c)(3), you have no deduction whatsoever. Doesn’t seem fair, does it? But the IRS places no value on your time or expertise. A manicurist donated her time to do nails for women clients at a shelter who were preparing for job interviews. While she was not allowed to deduct the $35 per manicure she would normally charge, she was able to deduct her mileage to and from the shelter, and the cost of all supplies and materials used in the performance of the manicures. She gave away bottles of nail polish to be distributed by the nonprofit to their clients. These were a write off for her as well.

By the same token, if this manicurist were to give away a nail care set of polish and files and other products to a poor individual who needs help, she would not be able to write off the donation. This is simply because the IRS does not allow the deduction of gifts to individuals, or for that matter to political organizations or candidates.

If your business is incorporated as an S Corporation or formalized as a partnership filing Form 1065, the same rules apply. In fact, any donations made at the S Corporate or partnership level flow out as a special line item on your Schedule K-1 and end up on Schedule A of your individual income tax return. Again, this is a tax benefit only if you are able to itemize deductions.

A C Corporation may take the deduction on Form 1120 but must follow all of the IRS rules regarding donations.

Remember to acquire and retain the acknowledgment letter from the nonprofit for your donation. Your canceled check is not enough documentation and the IRS may disallow the deduction if you cannot provide this document. It must be obtained before filing your tax return. You cannot request it later during an IRS audit.

To view the original article, click here.

How to Maximize Your Refund!

From Fox Business, comes great advice on how to maximize your return! That is - if you haven't already spent it somewhere else...!

5 Simple Steps to Triple The Value of Your Tax Refund
By: Chuck Saletta

According to the IRS, the average refund taxpayers received during the 2016 filing season was $2,732. That's a substantial chunk of change, but what if I told you that you could take that money and potentially triple its value for you by the end of this year?


Indeed, you can turn that average refund into over $8,000 toward your retirement by the end of this year, with absolutely no impact to your lifestyle. All you need to do is follow these five simple steps.

Step 1: Contribute your refund check to your IRA
For 2016, if you or your spouse are working, you can potentially contribute up to $5,500 each to either a Roth IRA or a Traditional IRA. If you're age 50 or up, that potential contribution increases to $6,500.

• Your taxable compensation for the year, if your compensation was less than this dollar limit.

A refund check of $2,732 fits easily within those limits, which makes it a straightforward way to turn your tax refund into money for your retirement.

Step 2: Increase your contributions to your traditional 401(k) or equivalent plan at work
Your tax refund isn't a gift from the Government. It's the return to you of an interest-free loan you handed Uncle Sam during the year by over-withholding your taxes. Take that money back and put it to productive use for yourself. You can contribute pre-tax money to your traditional 401(k) and get not only your money working for you but also money Uncle Sam would have otherwise taxed from you.

To fully make use of your refund check, increase your 401(k) contributions by enough to make up for both the refund itself and the tax you won't be paying on the contributed income. The basic math is Refund / (1-marginal tax bracket). If you're in the 25% tax bracket and got that typical refund, that would turn into $2,732 / (1-0.25) = $3,642.67.

Step 3: Adjust your withholding at work to get it closer to break even
In step 2, you invested the money that you had over paid Uncle Sam, but in doing so, you did decrease your take home paycheck. Key to making this plan neutral to your everyday lifestyle is to decrease the amount Uncle Sam withholds every paycheck. Using IRS Form W-4 or your employer's substitute, you can adjust your withholdings to make it so you won't be making another large interest free loan to Uncle Sam this year.

When you're making this adjustment, your objective should be to get close to break even when it comes time to filing your taxes next year. If you reduce your withholdings too much, you could have to pay underpayment penalties on top of any taxes you owe. The key is to be within one of the IRS' "Safe Harbor" limits. For 2016, the key Safe Harbor limits are:

• If you owe less than $1,000 in taxes for 2016 when it comes time to file in 2017
• You've paid at least 90% of what you owe for 2016 (66 and 2/3% for farmers and fishermen)
• You've withheld or paid via timely estimated tax payments at least 100% of what you owed for 2015 (110% if your income in 2015 was above $150,000 or if it's above $75,000 and your filing status is "married filing separately")

Step 4: Thank your employer for its 401(k) match
Many employers offer a match to encourage employees to contribute money toward their own retirement. Matches vary by company, but a common practice is a $0.50 match for every $1.00 the employee contributes, up to some percentage of salary. On that $3,642.67 contribution you made in step 2, a 50% match would be an additional $1,821.33, contributed into your retirement account, on your behalf.

Step 5: Count your cash
Your $2,732 IRA contribution from your refund check plus your $3,642.67 contribution to your 401(k) plus your employer's match of $1,821.33 brings your total to $8,196. That's triple your original refund amount, now working on your behalf to help fund your retirement.

Perhaps best of all, you just figured out how to save that $8,196 with no impact to your everyday lifestyle. Every penny of that money came straight from your tax refund this year, from the money that would otherwise have been a tax refund next year, and/or from your employer's matching program.

How often can you come up with $8,000 that easily?
As fun as it might be to hold that $2,732 refund check, wouldn't it be even more fun to see it turn into more than $8,000 this year? On top of that, once you've taken these five steps, that $8,196 will be in your retirement accounts, where it can grow tax-deferred on your behalf for the rest of your career.

That's an amazing opportunity available to you simply by choosing to no longer offer Uncle Sam an interest free loan, instead putting that very same stack of your own money to work for you. So get started today, and turn that tax refund into the foundation for your financial future.


To see the original article, click here.

Last Minute Money Saving Tax Moves

Now that we’re really down to the wire, it’s time to start crunching those numbers!  You’ve have a little bit longer this year, Individual Tax Returns are due on April 18th, but you may want to take the weekend to make sure you’re taking advantage of all the deductions available to you.  Lower your tax liability and avoid IRS scrutiny with some of these last minute tips.

1. Did you know you could deduct the cost of your 2015 Startup?

As long as your costs fall below the $50,000 mark, you could deduct up to $10,000 of your taxable income.  Up to $5,000 for research, development and creation of your business and $5,000 for the implementation costs such as incorporating, patenting, and legal fees.  Research costs spent improving your product or service are considered eligible expenses as well.

What doesn’t count:

-Advertising

-Promotions

-Quality control testing

-Consumer Surveys

2. Did you know that the threshold for big company purchases has been raised?

If you’ve purchased expensive equipment last year for your business, this year you can deduct up to $500,000 as long as your total eligible property costs are less than $2 million.  This can include big items like a new walk-in refrigerator for restaurants, or furniture for your office space, even computer programs.

What doesn’t count:

- Improvements on rental properties

- Air conditioning or heating units

- Any property used outside of the U.S. 

Did you know that in addition to mileage you can deduct auto loan interest?

Everyone’s favorite year end deduction— mileage, now includes any interest you’ve paid on auto loans!

What doesn’t count:

- Your daily commuting miles don't count as business miles

3. Did you know that the Home-Office deduction equation has simplified?

It has! Up to 300 square feet at $5 per square foot for a whopping total of $1,500. There is still the old method available for filing, it may be worth looking into which one saves you more.

What doesn’t count:

- Multi-Use Space; a playroom/office doesn’t count. Neither does your living room where you occasionally check emails.

It’s not too late!

Contribute to a Health Savings Plan (HSA), a Retirement Savings Plan like a traditional or Roth IRA and a percentage will be deductible.  However, each one has a cap A Roth IRA cannot except $5,500, or $6,500 if you’re over 50.  HSAs max out at $3,350 for individual and $6,650 for families.

Take these extra few days to scrutinize your account statements.  An extra couple hundred in tax liability is nothing to scoff at! 

Hardywood Park Brewery's Tax Dispute Finally Being Settled

     After disputing their tax bill since 2012, Hardywood and the City of Richmond are finally coming to a settlement.  Hardywood is an enormously successful brewery that got slapped with an unexpected tax bill that kept them in litigation until now.  Had they been a smaller business, would they have been able to afford to dispute their tax liability for this long?  

     Tax laws are constantly changing.  In order to protect your small business, it’s vital to be prepared for tax season.  With the third quarter tax due dates approaching, take advantage of my free one hour Quickbooks consultation and make an appointment today!

To read more about Hardywood’s tax dispute, read here.