Accurate Accounting And Its Importance

Tax law these days is getting increasingly complex.  Knowing what qualifies for a tax break, questioning what you’re required to claim or not along with saving your receipts year round can be overwhelming. Recent rulings in federal courts have put the burden of proof more heavily on the taxpayer rather than paid tax preparers, which a staggering 50 percent of Americans rely upon when tax time comes.  Whether it be e-filing at home or a larger firm, in the end the responsibility is still with the person who is filing.

In 2013, Federal Courts ruled that the IRS did not have the power to regulate paid tax preparers and this decision was upheld in appeals court last year.  In response to this ruling, there has been new legislation introduced in the Senate to give the IRS and the Treasury Department said needed authority.  The intent of this legislation is to protect tax payers from incompetent preparers by making enforceable standards to which they will be held.  While CPAs, tax attorneys and Enrolled Agents are still under the IRS’s umbrella of regulation, this new legislation is aiming for those tax preparers who aren’t already registered.  For now, the IRS is offering a voluntary program for continuing education and testing called the Annual Filing Season program. 

There is some controversy over whether or not this will be good for the taxpayer.  Some argue that making the IRS responsible for overseeing the very preparer who is trying to guard your money from the government seems as helpful as shooting yourself in the foot. In other cases, it is viewed as holding the preparer responsible for his or her job the way you would a contractor to build your home, there are rules you must be held accountable for.  However, in both cases it is clear that the taxpayer must ultimately be the one protecting themselves.  To stay organized throughout the year, spending a little extra money on a qualified accountant to keep track of yours can really pay off in the long run.  Maximize what you save in paying taxes or maximize what your tax return may be, keep track of your dollar so you can be solid and assured when its time to file.

Click here for more information about the introduced legislation.

4 Money Maneuvers for 2015

2014 is not over, at least in tax-terms and most taxpayers are not as prepared as they’d like to be in order to take advantage of all the tax savings available.  Why not include being prepared for the 2015 tax season a financial priority starting now!  You can get ahead by doing some or all of these 4 things:

Make a Roth IRA contribution sooner than later.  Don’t wait for the tax deadline to contribute.  While it doesn’t seem like a substantial amount in the short term, contributing in January rather than December adds a full year of tax free growth.  Over many years, that can translate into thousands of dollars.

Donate to your favorite charities with your appreciated securities.  Those who invest consistently in most cases have stocks or property that have increased in value, consider donating them and that way neither party has to pay capital gains taxes on the amount.  If a charity only accepts cash donations, a donor advised fund can provide the same tax benefits, and you can recommend grants from the fund periodically.

Remember your Flexible Spending Account throughout the year.  If you are frantically trying to spend the rest of your FSA at the end of this year, do some accounting for 2015 and contribute a little less, perhaps.  Also, get organized by saving all of your applicable receipts and keep them in one place.  These funds can be wasted if claims or receipts are submitted in a timely fashion. Ask your health care director what qualifies for reimbursement. 

Plan your deductions at the beginning of the year.  Pay your property taxes in advance, or gain deductions by paying your January mortgage payment in December.  These are financial maneuvers are usually unavailable at the last minute to save on taxes, but if you plan ahead now, you can increase your return even more in the long run.  Just an extra excuse to save!

With a little initiative, you can increase your return for the 2015 tax year by starting to think about them now!  Add these tips into your new years resolutions, stay organized and take advantage of all the breaks and benefits available to you for the upcoming year.

 

New Year’s Resolution - Avoid Accounting Regrets

One thing that I hear a lot from clients is that they don’t really know how to separate their business accounts from their personal accounts. This can make end of the year accounting a pain, not just for your accountant but for your business too.

As a New Year’s resolution you should consider paying yourself a salary if you’re self employed. I know this may sound a little bit weird since the money comes into a business that you own, so it makes sense to just use the money of the business to cover any expenses, right? Well the problem with that is that the IRS does not really see it that way. A business and an individual are two separate entities, this of course depends on how your business is setup but most businesses including LLC’s will benefit from keeping separate finances.

What you may not realize is that this will make it easier for you to track profit and loss. For example, if you’re paying yourself a consistent salary, then you’ll know exactly how much of a profit is left every month from the incoming transactions that a business has. There are many benefits from doing this but a lot of small business owners don’t realize that they should and probably have to do this to run a more efficient business.

On the flip side, if you pay yourself a salary you know how much money you can spend every month and budget accordingly. Business owners face the additional challenges of not having a steady paycheck, this can be especially difficult for those who have grown accustomed to having a job working for someone else. Knowing how much money you are paying your employees from a business stand point is important, and you should consider yourself an employee of your company.

Setting up a salary for yourself should not be so difficult, just look at your bank statements from previous months and approximate how much net income you’ve accrued constantly every month. Make sure to leave some buffer for unexpected expenses but at the same time make sure you’re being compensated fairly to avoid dipping back into the business account.

This New Year, make a resolution of being a better business by avoiding a whole year of accounting regrets, you'll be glad you did come tax season.