SME CPA https://www.smecpa.com Mon, 15 Feb 2021 20:11:47 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.6 https://www.smecpa.com/wp-content/uploads/2019/07/cropped-logo-32x32.png SME CPA https://www.smecpa.com 32 32 Tax and Financial Planning Tips: Marriage and Divorce https://www.smecpa.com/tax-and-financial-planning-tips-marriage-and-divorce/ https://www.smecpa.com/tax-and-financial-planning-tips-marriage-and-divorce/#respond Mon, 15 Feb 2021 20:11:47 +0000 https://www.smecpa.com/?p=1527 A wedding is an exciting milestone, but it is also a big financial turning point for couples. Whether it is a first marriage or two families blending, these unions have major tax consequences. Ending a marriage by divorce is also significant for your tax situation. To start off right, here are some tax tips to…

The post Tax and Financial Planning Tips: Marriage and Divorce appeared first on SME CPA.

]]>
A wedding is an exciting milestone, but it is also a big financial turning point for couples. Whether it is a first marriage or two families blending, these unions have major tax consequences. Ending a marriage by divorce is also significant for your tax situation. To start off right, here are some tax tips to keep in mind.

Tax returns and withholdings

Getting married could influence which tax bracket a couple falls into, so the first step is determining the most advantageous filing status. A couple must determine if it is in their best interest to file jointly or separately. Then, they should review how this choice affects each spouse’s tax burdens and adjust tax withholdings accordingly. 

Effects of marriage on taxes – If spouses have disparate incomes, they may see a marriage bonus. If one spouse’s income falls into a higher tax bracket than the other before marriage, their combined incomes may drop the couple down into a lower tax bracket if they file jointly.

Marriage penalty – When two people with similar incomes marry, they may be at risk of a marriage penalty as their combined incomes may bump the couple into a higher tax bracket. 

Medical expenses – Some couples may choose to file separately for various reasons, for instance, if one spouse has significant unreimbursed medical expenses. This could provide an overall tax savings since the hurdle to get over the 7.5% adjusted gross income threshold will be based on the income of that spouse.

Deductions – If a married couple chooses to file separately, both spouses must either itemize or use the standard deduction.

Qualified business income – Filing separately may also be beneficial if one spouse has income that qualifies for the 20% qualified business income deduction. The phaseout limitations are the same as for single taxpayers and this could allow a higher deduction in certain situations.

Blended families

Couples with children have unique tax implications to consider. This is especially true for blended families.

The Child tax credit is Worth up to $2,000 per qualifying child, with a refundable portion of up to $1,400.

The amount of the child tax credit begins to reduce or phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly. Note: To qualify for the full child tax credit, a child must be under the age of 17 and claimed as a dependent. Child and dependent care tax credit — This credit allows married couples filing jointly to claim up to $3,000 in childcare expenses per qualifying individual (up to $6,000 total). The qualifying individual must be under the age of 13 and claimed on the tax return as a dependent. Married couples claiming the credit must both be working and file jointly. How much a couple can claim depends on their income. Note: A parent must have custody of the child for more than 50% of the year to qualify for this credit.

Did you know that retirement accounts and life insurance policies pass in accordance with their beneficiary designation form and not per your will? After significant life events, such as marriages, divorces, and births, make sure to review all beneficiary designation forms and ensure the correct people are listed.

Divorce

No matter the cause, divorce is a sensitive and challenging issue that raises many tax concerns.

Filing status – Those couples who finalize their divorce after Dec. 31, 2020, may choose to file jointly or as married filing separately on their 2020 returns. Divorced individuals should consider filing as head of household if they claim a qualified child or relative as a dependent.

Alimony – If a divorce was finalized after Dec. 31, 2018, anyone making alimony payments will lose the alimony deduction, and the receiving spouse will not pay taxes on these payments. If the couple finalized their divorce before that date, the payor may still deduct these payments. The payments are considered taxable income to the recipient.

Child support payments – Child support payments are neither deductible by the payee, nor are they taxable income to the recipient. The noncustodial parent may claim the child as a dependent in some cases.

Child medical costs and care – Parents who continue to pay medical expenses for a child after a divorce may include these costs in their medical expense deduction even if they don’t have custody of the child and even if the ex-spouse claims the child as a dependent.

Capital gains – If a couple chooses to sell a home both spouses own, that sale may be subject to capital gains tax. In the year of the sale, couples filing jointly can avoid tax on the sale of their primary residence – up to $500,000 – if they have used the home as their personal residence for more than two years of the preceding five years. The limit is reduced for divorced couples and is set at $250,000 per individual.

Medical insurance – Individuals may be able to remain on their former spouse’s health care plan for up to 36 months if that plan is subject to COBRA. This option is available even if that individual’s coverage was terminated before the divorce was finalized. The cost of coverage is the responsibility of the recipient unless the couple reaches another agreement as part of the divorce proceeding.

Copies of records – Individuals should obtain copies of documents that may affect their tax situation in future years, including copies of prior year returns they filed with a former spouse along with the appropriate supporting information. Divorced individuals should retain records relating to any property transferred as part of the divorce to establish the required cost basis when selling the property. 

Note: Individuals should always retain documents relating to a separation or divorce.

Miscellaneous tips

Some married couples have special considerations complicating their tax situation. Investments and property – Couples with investments, property, back child support payments, back taxes or who stand to claim a significant inheritance should consider the unique tax implications of their union.

Same-sex marriage – Same-sex marriage is treated the same as traditional marriage for federal tax purposes. Civil unions and domestic partnerships are not, but state laws may require these couples to file jointly. Be sure to review state guidance.

Passive losses – Taxpayers who may have qualified for a passive loss deduction may no longer qualify after marriage. Taxpayers can take up to a $25,000 passive loss from rental real estate if they actively participate in the activity. Phaseout starts at $100,000 of adjusted gross income (AGI) and is completely lost at $150,000 for both single and married filers. Married taxpayers filing separately have phaseout thresholds of $50,000 and $75,000, respectively. Also, married couples filing separately may claim $12,500 each if they live apart the entire year. If this condition is not met, the deduction is $0.

Back child support payments – If one person owes back child support payments and files a joint tax return with their new spouse, any refunds generated from this joint filing may be used to satisfy this outstanding debt.

Pre-existing debts – If one spouse owes past-due federal tax, state income tax, state unemployment compensation debts, child or spousal support or a past-due non-tax debt, such as a federal student loan, the other spouse’s income could be vulnerable, particularly if the couple resides in a community property state. The other (“injured”) spouse may file Form 8379 with the return to request their portion of the joint refund. Form 8857 should be filed to relieve a spouse of a tax burden if they believe their current or former spouse should be responsible for all or part of the tax.

Note: Both spouses’ financial contributions to the household are taken into consideration when the IRS determines available income for payment plan negotiations.

Name and address changes Individuals changing their name after marriage must report their name change o the Social Security Administration (SSA) before filing their next tax return. If a child’s name changes due to marriage, they should notify the SSA. Report changes of address to the IRS via Form 8822.

This copyrighted resource is provided exclusively to AICPA members and should not be shared, reproduced, or used by anyone who is not a member of the AICPA without explicit consent from the AICPA Tax Section. See our terms and conditions. For information about content licensing, please email copyrightpermissions@aicpa-cima.com.

Founded by AICPA and CIMA, the Association of International Certified Professional Accountants powers leaders in accounting and finance around the globe © 2020 Association of International Certified Professional Accountants. All rights reserved. AICPA and American Institute of CPAs are trademarks

of the American Institute of Certified Public Accountants and are registered in the US, EU and other countries. The Globe Design is a trademark owned by the Association of International Certified Professional Accountants and licensed to the AICPA. 2011-95436

The post Tax and Financial Planning Tips: Marriage and Divorce appeared first on SME CPA.

]]>
https://www.smecpa.com/tax-and-financial-planning-tips-marriage-and-divorce/feed/ 0
How to scan .pdfs from your iPhone or Android https://www.smecpa.com/how-to-scan-pdfs-from-your-iphone-or-android/ https://www.smecpa.com/how-to-scan-pdfs-from-your-iphone-or-android/#respond Thu, 11 Feb 2021 18:38:27 +0000 https://www.smecpa.com/?p=1522 Let’s face it, tax season requires clients and accountants to share large amounts of data – mostly in the form of paper documents. With COVID happening, we are having to adjust the way we share those documents.   Dropping off an envelope full of tax documents to your accountant is becoming more of a rarity than…

The post How to scan .pdfs from your iPhone or Android appeared first on SME CPA.

]]>
Let’s face it, tax season requires clients and accountants to share large amounts of data – mostly in the form of paper documents. With COVID happening, we are having to adjust the way we share those documents.   Dropping off an envelope full of tax documents to your accountant is becoming more of a rarity than the norm.  Many of our clients like to send us electronic documents.  Not only does that help with social distancing, but it can be much easier and more convenient than locating, copying and delivering paper files. With that said, many times we receive documents as pictures or images (.JPEG files).  Many times, these are blurry and hard to read, and there is no easy way to convert them into a usable format. Ideally, we need documents in PDF format. To help make life easier on our clients and our accountants we wanted to share instructions on how to “scan” documents using your Apple and Android cell phones and other devices, instead of just snapping a picture and sending the image.  Below are the instructions:

The post How to scan .pdfs from your iPhone or Android appeared first on SME CPA.

]]>
https://www.smecpa.com/how-to-scan-pdfs-from-your-iphone-or-android/feed/ 0
New tax laws that affect businesses https://www.smecpa.com/new-tax-laws-that-affect-businesses/ https://www.smecpa.com/new-tax-laws-that-affect-businesses/#respond Tue, 05 Jan 2021 18:29:30 +0000 https://www.smecpa.com/?p=1501 The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA, 2021 include–along with spending and other non-tax provisions and tax provisions primarily affecting individuals–the numerous business tax provisions briefly summarized below. The provisions are found in two of…

The post New tax laws that affect businesses appeared first on SME CPA.

]]>
The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CAA, 2021 include–along with spending and other non-tax provisions and tax provisions primarily affecting individuals–the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CAA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).

Tax provisions made permanent (without other changes). The TCDTR makes permanent without other changes (1) the railroad track maintenance credit and (2) the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine or distilled spirits.

Tax provisions extended (without other changes). The TCDTR extends the following tax credits without other changes: (1) the new markets tax credit, (2) the work opportunity credit, (3) the employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act (2017 TCJA), (4) the carbon sequestration credit, (5) the business energy credit (the ” Code Sec. 48 credit”) both as regards termination dates and phase-downs of credit amounts, (6) the credit for electricity produced from renewable resources (the ” Code Sec. 45 credit”) and the election to claim the Code Sec. 48 credit instead for certain facilities (but the phase-down of the amount of the Code Sec. 45 credit for wind facilities isn’t deferred), (7) the Indian employment credit, (8) the mine rescue team training credit, (9) the American Samoa development credit, (10) the second generation biofuel producer credit, (11) the qualified fuel cell motor vehicle credit as applied to businesses, (12) the alternative fuel refueling property credit as applied to businesses, (13) the two-wheeled plug-in electric vehicle credit as applied to businesses, (14) the credit for production from Indian coal facilities, and (15) the energy efficient homes credit.  

Additional provisions extended by the TCDTR without other changes are the following: (1) the exclusion from employee income of certain employer payments of student loans, (2) the 3-year recovery period for certain racehorses, (3) favorable cost recovery rules for business property on Indian reservations, (4) the 7-year recovery period for motor sports entertainment complexes, (5) expensing for film, television and live theatrical productions, (6) empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets, and (7) the exclusion from being personal holding company income for certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.

Energy provisions. The TCDTR makes changes to energy provisions in addition to making them permanent or extending them.

The TCDTR adds ”waste energy recovery property” to the types of property that qualify for the Code Sec. 48 credit (above). And the credit rate assigned is 30%. ”Waste energy recovery property” is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn’t the generation of electricity. But it doesn’t include property eligible for the Code Sec. 48 credit for cogeneration property unless the taxpayer doesn’t take the  Code Sec. 48 credit for that property.

For wind facilities that are ”qualified offshore wind facilities,” the TCDTR relaxes the rules under which wind facilities that are eligible for the Code Sec. 45 credit can, by election (see above), be eligible instead for the Code Sec. 48 credit.

The TCDTR makes permanent the energy efficient commercial buildings deduction. Additionally, the TCDTR indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And the TCDTR provides that to the extent that deductibility depends on specified recognized energy efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing now-stale dates that applied under pre- TCDTR law).

Clarifications of tax consequences of PPP loan forgiveness. The COVIDTRA clarifies that the non-taxable treatment of Payroll Protection Program (PPP) loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above, are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.

Waiver of information reporting for PPP loan forgiveness. The COVIDTRA allows IRS to waive information reporting requirements for any amount excluded from income under the exclusion- from-income rule for forgiveness of PPP loans or other specified obligations. Note: IRS had already waived information returns and payee statements for loans that, before enactment of the COVIDTRA, were guaranteed by the Small Business Administration under section 7(a)(36) of the Small Business Act.

Extensions and modifications of earlier payroll tax relief. The TCDTR extends the CARES Act credit, allowed against the employer portion of the Social Security (OASDI) payroll tax or of the Railroad Retirement tax, for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed. And the TCDTR makes some retroactive clarifications and technical improvements to the credit as initially enacted.

The COVIDTRA extends (1) the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).

The COVIDTRA also makes retroactive clarifications of (1) the FFCRA paid leave credits that were extended as discussed above, (2) the exclusion of qualifying paid leave in calculating the employer portion of Railroad Retirement taxes and (3) and the increase in the amount of the FFRCA paid leave credits against the employer portion of Railroad Retirement taxes by the amount of the Medicare payroll taxes on qualifying paid leave. Additionally, the COVIDTRA directs IRS to extend the Presidentially ordered deferral of the employee’s share of OASDI and Railroad Retirement taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four-month period ending on April 30, 2021).  

Employee benefits and deferred compensation. The TCDTR provides that expenses for business-related food and beverages provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals. The TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA, (2) the raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 and (3) prospective changes in election limits set forth by a plan (subject to the applicable limits under the Code). 

With a view to layoffs in the current economic climate, the TCDTR relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants decreases.

Because of market volatility during the COVID-19 pandemic, the COVIDTRA relaxes, if certain conditions are met, the funding standards that, if met, allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan. The CARES Act’s relaxed rules for ”coronavirus-related distributions” are retroactively amended by the COVIDTRA to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the distribution requirements of Code Sec. 401(a) .

And under a provision of narrow applicability, the TCDTR lowers to 55 years, from the usually applicable 59½ years, the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans without affecting the status of trusts that are part of the pension plans as qualified trusts.

Residential real estate depreciation. For tax years beginning after December 31, 2017, the TCDTR assigns a 30-year ADS depreciation period to residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30-year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn’t subject to the ADS.

Farmers’ net operating losses. The COVIDTRA allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. It also allows farmers who before the CARES Act waived the carryback of a net operating loss, to revoke the waiver.

Low-income housing credit. The TCDTR provides a 4% per year credit floor for buildings that aren’t eligible for the 9% per-year credit floor. (Both floors are alternatives to the calculation under which the per-year credit is generally a percentage, prescribed by IRS, that is intended to result in a credit that, in the aggregate over the 10-year credit period, has a present value of 70% of the qualified basis for certain new buildings and 30% of the qualified basis for certain other buildings.)

Life insurance. The TCDTR changes the interest rate assumptions that determine whether a contract meets the cash value and premium caps for qualifying as a life insurance contract. The change is to designated floating rates from the respective 4% and 6% rates fixed by prior law.

Disaster relief. The TCDTR includes several provisions targeted at ”qualified disaster areas,” some of which affect individuals and some which affect businesses as described below. ”Qualified disaster areas” are areas for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending February 25, 2021. The incidence period of the disaster must begin after December 27, 2019 but not after December 27, 2020. Excluded are areas for which a major disaster was declared only because of COVID-19.

The relief includes relief for retirement funds that consists of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area and that have suffered economic loss because of the disaster (qualified individuals), (2) a right to re-contribute to a plan distributions that were intended for home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.

The relief also provides to employers in the harder-hit parts of a qualified disaster area an up-to-$ 2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits. Generally, tax-exempt organizations can take it as a credit against FICA taxes.

Corporations are provided with relaxed charitable deduction rules for qualified-disaster-related contributions, and individuals are provided with relaxed loss allowance rules for qualified-disaster-related casualties.

The low-income housing credit is modified to allow, subject to various limitations, increases in the state-wide credit ceilings to the extent allocations are made to harder-hit parts of qualified disaster areas.

Excise taxes. The TCDTR makes various excise tax changes for beer, wine and distilled spirits. The TCDTR also provides that the temporary increase in the Black Lung Disability Trust Fund tax won’t apply to coal sales after 2021 (instead of after 2020). And the end of the liability imposed because of the Oil Spill Liability Trust Fund Rate is deferred until after 2025. Additionally, the alternative fuels credit against the diesel and special motor fuels tax is extended.

I will be pleased to hear from you at any time with questions about the above news or any other matters.

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

The post New tax laws that affect businesses appeared first on SME CPA.

]]>
https://www.smecpa.com/new-tax-laws-that-affect-businesses/feed/ 0
What does the additional 2020 Stimulus Check mean for you? https://www.smecpa.com/what-does-the-additional-2020-stimulus-check-mean-for-you/ https://www.smecpa.com/what-does-the-additional-2020-stimulus-check-mean-for-you/#respond Tue, 05 Jan 2021 18:20:00 +0000 https://www.smecpa.com/?p=1497 You’ve probably heard that IRS will be making millions of ”economic impact payments” (also called ”recovery rebates”) in the near future to help people stay afloat during this time of economic uncertainty related to the COVID-19 crisis. These payments are in addition to the $1,200 payments ($2,400 for married couples) issued earlier in 2020. Here’s…

The post What does the additional 2020 Stimulus Check mean for you? appeared first on SME CPA.

]]>
You’ve probably heard that IRS will be making millions of ”economic impact payments” (also called ”recovery rebates”) in the near future to help people stay afloat during this time of economic uncertainty related to the COVID-19 crisis. These payments are in addition to the $1,200 payments ($2,400 for married couples) issued earlier in 2020. Here’s what you need to know about these additional payments.

Amount of payment. IRS has begun making payments of up to $600 to eligible taxpayers or up to $1,200 to married couples filing joint returns. Parents will get an additional $600 for each dependent child under age 17. Thus, a married couple with two children under 17 will get a $2,400 payment.

Who is eligible. U.S. citizens and residents are eligible for a full payment if their adjusted gross income (AGI) is under $75,000 for singles or marrieds filing separately, $112,500 for heads of household, and $150,000 for married couples filing jointly and surviving spouses. The recipient must not be the dependent of another taxpayer and must have a social security number that authorizes employment in the U.S.

Phaseout based on income. For individuals whose AGI exceeds the above thresholds, the payment amount is phased out at the rate of $5 for each $100 of income. Thus, the payment is completely phased out for single filers with AGI over $87,000 and for joint filers with no children with AGI over $174,000. For a married couple with two children, the payment will be completely phased out if their AGI exceeds $198,000.

Payments are nontaxable. The economic impact payment that you receive won’t be included in your income for tax purposes. It won’t cause you to owe tax or decrease your refund for 2020.

How to get a payment. The vast majority of people won’t have to do anything to get an economic impact payment. IRS will calculate and send the payment automatically to those who are eligible.

If you’ve filed your 2019 tax return, IRS will use the AGI and dependents from that return to calculate the payment amount. The credit won’t be allowed if the return doesn’t include a valid identification number (typically, a social security number) for each individual for whom a credit is sought. Thus, for example, a joint return must include valid identification numbers for both spouses to get the full $1200 credit. A $600 credit is allowed if only one spouse provides a valid identification number, and no credit is allowed if neither spouse does so.

IRS will deposit the payment directly into the bank account reflected on the return. IRS has developed a web-based tool called Get My Payment, www.irs.gov/coronavirus/get-my-payment, for individuals to provide banking information to IRS, so that payments can be received by direct deposit rather than by check sent in the mail. The tool includes the date the payment is scheduled to be issued to the individual.

If you have not yet filed for 2019. The due date for 2019 individual income tax returns was July 15, 2020, or October 15 if an automatic extension of time was requested on Form 4868. Individuals who are required to file a return for 2019 and haven’t done so should file the return as soon as possible. Doing so will help give IRS time to process and make all resulting economic impact payments before January 15, 2021 (the deadline for processing payments).

If you aren’t required to file. If you receive social security, supplemental security income, social security disability income, railroad retirement, or veterans’ compensation and pension benefits, and you aren’t required to file a tax return, you don’t have to file to receive a payment. IRS will generate an automatic payment using information from the Social Security Administration and the Department of Veterans Affairs. The payment will be made by direct deposit or paper check, in the same manner as the recipient’s regular benefits.

If you aren’t required to file a tax return and you don’t receive any of the above payments, you can register to receive an economic impact payment by providing information on IRS’s web-based Non-Filers: Enter Payment Info Here tool, www.irs.gov/coronavirus/non-filers-enter-payment-info.

Non-filers with dependent children; $600 payment. Non-filers who have a dependent child under age 17 must register their dependents on the Non-Filers: Enter Payment Info Here tool to receive the additional payment of $600 per child. Non-filers who receive the economic impact payment before registering a dependent child can still get the additional $600 payment by filing a 2020 income tax return on which the dependent is listed.

Please let me know if you have any questions about the economic impact payments or any other COVID-19 issues.

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

The post What does the additional 2020 Stimulus Check mean for you? appeared first on SME CPA.

]]>
https://www.smecpa.com/what-does-the-additional-2020-stimulus-check-mean-for-you/feed/ 0
2020 COVID relief bill provisions affecting individual taxpayers https://www.smecpa.com/2020-covid-relief-bill-provisions-affecting-individual-taxpayers/ https://www.smecpa.com/2020-covid-relief-bill-provisions-affecting-individual-taxpayers/#respond Tue, 05 Jan 2021 18:15:16 +0000 https://www.smecpa.com/?p=1494 Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the “Act” or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021. RECOVERY REBATE/ECONOMIC…

The post 2020 COVID relief bill provisions affecting individual taxpayers appeared first on SME CPA.

]]>
Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the “Act” or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.

RECOVERY REBATE/ECONOMIC IMPACT PAYMENT

Direct-to-taxpayer recovery rebate. The Act provides for a refundable recovery rebate credit for 2020 that will paid in advance to eligible individuals, often automatically, early in 2021. (Code Sec. 6428A, as added by COVIDTRA Sec. 272) These payments are in addition to the direct payments/rebates provided for in earlier Federal legislation, the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020), which were called Economic Impact Payments (EIP).

The amount of the rebate is $600 per eligible family member-$600 per taxpayer ($1,200 for married filing jointly), plus $600 per qualifying child. Thus, a married couple with two qualifying children will receive $2,400, unless a phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers.

Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the nonfiler portal on IRS’s website will also receive these additional payments.

Nonresident aliens, persons who qualify as another person’s dependent, and estates or trusts don’t qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.

Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer’s 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.

Advance payments of the rebates are generally not subject to offset for past due federal or state debts, and they are protected from bank garnishment or levy by private creditors or debt collectors.

Pro-taxpayer changes to CARES Act Economic Impact Payment rules. As noted above, the CARES Act provided EIPs. 

The Act makes the following changes to the CARES Act EIP:

  • Provides that the $150,000 limit on adjusted gross income before the credit amount starts to phase out, which, under the CARES Act, applied to joint returns, also applies to surviving spouses. (Code Sec, 6428(c)(1), as amended by Act Sec. 273(a)) This change may allow taxpayers who qualify to use the surviving-spouse filing status to claim a larger EIP on their 2020 returns.
  • Makes the requirement to provide IRS with the taxpayer’s identification number identical to the same requirement under the new rebate, described above under “Direct-to-taxpayer recovery rebate.” (Code Sec. 6428(g), as amended by COVIDTRA Sec. 273(a))

DEDUCTIONS

$250 educator expense deduction applies to PPE, other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten-through-grade-12 teachers, instructors, etc.) can claim the existing $250 above-the-line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020. IRS is directed to issue guidance to that effect by Feb. 28, 2021. (COVIDTRA Sec. 275; Code Sec. 62(a)(2)(D)(ii))

7.5%-of-AGI “floor” on medical expense deductions is made permanent. The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.

The lower threshold will allow more taxpayers to take the medical expense deduction in 2021 and later years. (Code Sec. 213(a), as amended by Act Sec. 101)

Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer’s adjusted gross income. (Code Sec. 163(h)(3)(E)(iv)(I), as amended by Act Sec. 133)

Above-the-line charitable contribution deduction is extended through 2021; increased penalty for abuse. For 2020, individuals who don’t itemize deductions can take up to a $300 above-the-line deduction for cash contributions to “qualified charitable organizations.” The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers). (Code Sec. 170(p), as added by Act Sec. 212(a)) Taxpayers who overstate their cash contributions when claiming this deduction are subject to a 50% penalty (previously it was 20%). (Code Sec. 6662(l), as added by Act Sec. 212(b))

Extension through 2021 of allowance of charitable contributions up to 100% of an individual’s adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual’s adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021. (Code Sec. 170(b)(1)(G), as amended by Act Sec. 213)

EXCLUSIONS FROM INCOME

Exclusion for benefits provided to volunteer firefighters and emergency medical responders made permanent. Emergency workers who are members of a “qualified volunteer emergency response organization” can exclude from gross income certain state or local government payments received and state or local tax relief provided on account of their volunteer services. This exclusion was due to expire at the end of 2020, but the Act made it permanent. (Code Sec. 139B, as amended by Act Sec. 103)

Exclusion for discharge of qualified mortgage debt is extended, but limits on amount of excludable discharge are lowered. Usually, if a lender cancels a debt, such as a mortgage, the borrower must include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if “qualified principal residence debt” is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately). (Code Sec. 108(a)(1)(E), as amended by Act Sec. 114(a))

Extension of exclusion for certain employer payments of student loans.  Qualifying educational assistance provided under an employer’s qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee’s income. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020) added to the types of payments that are eligible for this exclusion, “eligible student loan repayments” made after Mar. 27, 2020, and before Jan. 1, 2021. These payments, which are subject to the overall $5,250 per employee limit for all educational payments, are payments of principal or interest on a qualified student loan by the employer, whether paid to the employee or a lender. The Act extends the exclusion for eligible student loan repayments through the end of 2025. (Code Sec. 127(c)(1)(B), amended by Act Sec. 120)

TAX CREDITS

Individuals may elect to base 2020 refundable child tax credit (CTC) and earned income credit (EIC) on 2019 earned income. If an individual’s child tax credit (CTC) exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit equal to 15% percent of so much of the taxpayer’s taxable “earned income” for the tax year as exceeds $2,500. And the earned income credit (EIC) equals a percentage of the taxpayer’s “earned income.” For both of these credits, earned income means wages, salaries, tips, and other employee compensation, if includible in gross income for the tax year. But for determining the refundable CTC and the EIC for 2020, the Act allows taxpayers to elect to substitute the earned income for the preceding tax year, if that amount is greater than the taxpayer’s earned income for 2020. (Act Sec. 211(a))

Health coverage tax credit (HCTC) for health insurance costs of certain eligible individuals is extended by one year. A refundable credit (known as the health coverage tax credit or “HCTC”) is allowed for 72.5% of the cost of health insurance premiums paid by certain individuals (i.e., individuals eligible for Trade Adjustment Assistance due to a qualifying job loss, and individuals between 55 and 64 years old whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation). The HCTC was due to expire at the end of 2020, but the Act extended it through 2021. (Code Sec. 35(b)(1)(B), amended by Act Sec. 134)

New Markets tax credit extended. The New Markets credit provides a substantial tax credit to either individual or corporate taxpayers that invest in low-income communities. This credit was due to expire at the end of 2020, but the Act extended it through the end of 2025. Carryovers of the credit were extended, as well. (Code Sec. 45D(f)(1)(H), amended by Act Sec. 112(a))

Nonbusiness energy property credit extended by one year. A credit is available for purchases of “nonbusiness energy property”-i.e., qualifying energy improvements to a taxpayer’s main home. The Act extends this credit, which was due to expire at the end of 2020, through 2021. (Code Sec. 25C(g)(2), amended by Act Sec. 141)

Qualified fuel cell motor vehicle credit extended by one year. The credit for purchases of new qualified fuel cell motor vehicles, which was due to expire at the end of 2020, was extended by the Act through the end of 2021. (Code Sec. 30B(k)(1), as amended by Act Sec. 142)

2-wheeled plug-in electric vehicle credit extended by one year. The 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) was extended until the end of 2021 by the Act. (Code Sec. 30D(g)(3)(E)(ii), amended by Act Sec. 144)

Residential energy-efficient property (REEP) credit extended by two years, bio-mass fuel property expenditures included. Individual taxpayers are allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. The REEP credit was due to expire at the end of 2021, with a phase-down of the credit operating during 2020 and 2021. The Act extends the phase-down period of the credit by two years-through the end of 2023; the REEP credit won’t apply after 2023. (Code Sec. 25D(h), as amended by Act Sec. 148(a))

The Act also adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit, effective beginning in 2021. (Code Sec. 25D(a), as amended by Act Sec. 148(b)).

DISASTER-RELATED CHANGES IN RETIREMENT PLAN RULES

10% early withdrawal penalty does not apply to qualified disaster distributions from retirement plans.  A 10% early withdrawal penalty generally applies to, among other things, a distribution from employer retirement plan to an employee who is under the age of 59½. The Act provides that the 10% early withdrawal penalty doesn’t apply to any “qualified disaster distribution” from an eligible retirement plan. The aggregate amount of distributions received by an individual that may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by that individual for all prior tax years. (TCDTR Sec. 302(a))

Increased limit for plan loans made because of a qualified disaster.  Generally, a loan from a retirement plan to a retirement plan participant cannot exceed $50,000. Plan loans over this amount are considered taxable distributions to the participant. The Act increases the allowable amount of a loan from a retirement plan to $100,000 if the loan is made because of a qualified disaster and meets various other requirements. (TCDTR Sec. 302(c)(3))

© 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

The post 2020 COVID relief bill provisions affecting individual taxpayers appeared first on SME CPA.

]]>
https://www.smecpa.com/2020-covid-relief-bill-provisions-affecting-individual-taxpayers/feed/ 0
SME CPAs Announces Our Strategic Partnership With Avantax Planning Partners. https://www.smecpa.com/sme-cpas-announces-our-strategic-partnership-with-hk-financial-services/ https://www.smecpa.com/sme-cpas-announces-our-strategic-partnership-with-hk-financial-services/#respond Fri, 20 Nov 2020 20:41:22 +0000 https://www.smecpa.com/?p=1476 At SME, we have the privilege of being one of the oldest and largest accounting firms in the greater Augusta region. We are proud to say we’ve built trust through tradition; we are incredibly passionate about helping our clients and community; and we take a team approach to your financial security and peace of mind.…

The post SME CPAs Announces Our Strategic Partnership With Avantax Planning Partners. appeared first on SME CPA.

]]>
At SME, we have the privilege of being one of the oldest and largest accounting firms in the greater Augusta region. We are proud to say we’ve built trust through tradition; we are incredibly passionate about helping our clients and community; and we take a team approach to your financial security and peace of mind.

As a solution-focused, full-service tax, accounting, and auditing firm, we are excited to announce we have added financial planning, wealth management services, and retirement plan solutions to our list of services.

Through our strategic partner, Avantax Planning PartnersSM, we are now able to holistically pair our tax expertise with the financial planning professionals of Avantax Planning PartnersSM. This means before making financial decisions, as a team we can fully explore and understand the impact of each decision from both a long-term financial plan and tax lens.

The planning tool, known as GPS – which stands for Guidance, Planning, Strategies – visually lays out a long-term financial plan, looking at all the impacts of financial decisions, such as investing in your 401(k), selling a business, donating to charities, or how plans for your estate impact your future. We’ll also look at strategies for reducing risk in your long-term plan.

Avantax Planning PartnersSM is a nationally-known registered investment advisor (RIA) for private clients of their affiliated CPA firms. Avantax Planning PartnersSM is:  

  • Recognized in the industry as a Top 100 RIA in the country by Financial Advisor (FA) Magazine1;
  • Included in Accounting Today’s Wealth Magnets Billion Dollar Club2; and,
  • Has over $4.1 billion in assets under management3.

We believe the addition of these services fit right in line with our ongoing promise to you: your financial security and peace of mind delivered by the people you know and trust. We look forward to sharing more about GPS and our integrated approach to wealth management next time we connect.

Sources:

1 FA Magazine dated 07/2020

2 Accounting Today dated 07/2020

3 ‘Regulatory’ assets under management (as reported on HKFS 12/31/2019 Form ADV Part 1A filing) at $4.1 billion

Disclosure:

Investment advisory services are offered through Avantax Planning PartnersSM. Commission-based securities products are offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Insurance services offered through licensed agents of Avantax Planning Partners. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. The Avantax entities are independent of and unrelated to SME CPAs. Although Avantax does not provide or supervise tax or accounting services, our Financial Professionals may offer these services through their independent outside business. Not all Financial Professionals are licensed to offer all products or services. Financial planning and investment advisory services require separate licenses.

The post SME CPAs Announces Our Strategic Partnership With Avantax Planning Partners. appeared first on SME CPA.

]]>
https://www.smecpa.com/sme-cpas-announces-our-strategic-partnership-with-hk-financial-services/feed/ 0
What are the duties of an Executor of Personal Representative? https://www.smecpa.com/duties-of-an-executor-or-personal-representative/ https://www.smecpa.com/duties-of-an-executor-or-personal-representative/#respond Fri, 20 Nov 2020 20:35:07 +0000 https://www.smecpa.com/?p=1473 You may have a family member or friend who has chosen you to be their executor or the personal representative of their estate when they pass away.  They trust you as being capable of handling their affairs and carrying out their requests after death.  While this may be somewhat of an honor, this may require…

The post What are the duties of an Executor of Personal Representative? appeared first on SME CPA.

]]>
You may have a family member or friend who has chosen you to be their executor or the personal representative of their estate when they pass away.  They trust you as being capable of handling their affairs and carrying out their requests after death.  While this may be somewhat of an honor, this may require hours of your time, and entail legal responsibilities in protecting all of their estate’s assets and being sure all of their debts are paid.      

Below are some steps to assist in the responsibility as being an estate executor or personal representative:

1. Contact attorney (or notify of intestate death) within several days of death to consider if the Will needs to be probated, what forms are required to be filed, and publish the death notice. 
2. Obtain certified copy or the conformed copy of the Will, which is an exact duplicate of the original.
3. Obtain several certified copies of letters testamentary or letters of administration.
4. Obtain several certified copies of the death certificate.
5. File a change of address form for the decedent with the post office.
6. Make a list of safe deposit box contents and arrange that they are secure.
7. Obtain beneficiaries’ social security numbers and relationship to the decedent.
8. Apply for employer identification number (U.S. Form SS-4).  SME or your attorney can assist with this.
9. Open estate checking and/or savings account(s); close decedent’s solely-owned bank accounts and CD’s into the estate account(s).  Deposit all funds received and pay all bills using estate account(s).  Identify all deposits in detail.
10. Compile an inventory and record the contents of the estate, including all assets and debts, to determine the total values as of the date of death. Schedule cash needs of estate and determine which (if any) assets must be sold. SME can assist with this.
11. Be sure all assets are properly safeguarded and adequately secured. 
12. Pay debts of decedent, costs of administering estate and funeral expenses; save invoices and canceled checks.
13. Notify Social Security Administration and Veterans’ Administration of death; apply for lump sum death benefits. Social Security number: 1-800-772-1213
14. Contact each life insurance company and file claim(s), and obtain Form 712 from insurance company for each policy.
15. Discuss options with SME regarding the filing of claim(s) for pension and profit-sharing benefits; consider income tax implications of mode of payment. File appropriately for the specific situation.
16. Obtain decedent’s federal and state individual income tax returns for the prior year.  SME can provide if SME prepared.
17. Obtain financial statements or income tax returns on any business interests owned by decedent for the prior year plus any signed buy/sell agreements.
18. Obtain copies of all federal and state gift tax returns filed by decedent. SME can provide if SME prepared.
19. Obtain appraisals of real property and of personal property at fair market values as of date of death (consider income tax basis issues).
20. Obtain from banks written statements as to date of death values of all bank accounts, including principal balance and interest accrued to date of death.  For certificates of deposit, requestprincipal balance, interest accrued to date of death, issuance and maturity dates, interest rate and frequency of interest payment (monthly, quarterly, at maturity, etc.).
21. Value stocks at average of high and low prices on date of death.  Request your broker to assist in providing this information.
22. Obtain broker’s statement as to date of death value on corporate and government bonds.
23. List U.S. Savings Bonds by type (E/EE/H/HH), face amount, issue date, and value as of date of death.
24. Consider the issues involved in the distribution of assets.
25. Consider obtaining releases from beneficiaries.
26. Review income tax issues and elections before selling or distributing any specific assets.
27. Review post-mortem tax planning opportunities available on:
The filing of the Decedent’s final federal and state income tax returns.
The filing of Estate/trust income tax returnsIf a Federal estate tax return (Form 706) should be filed
If any State inheritance/estate tax returns should be filed
If any Federal and state gift tax returns should be filed

As you can tell from this list of duties, being an executor or personal representative can be time-consuming and complicated.  If SME can be of assistance to you in this area, please contact our office at 706-722-5337.

The post What are the duties of an Executor of Personal Representative? appeared first on SME CPA.

]]>
https://www.smecpa.com/duties-of-an-executor-or-personal-representative/feed/ 0
South Carolina Military Tax Rates and Deductions https://www.smecpa.com/south-carolina-military-tax-rates-and-deductions/ https://www.smecpa.com/south-carolina-military-tax-rates-and-deductions/#respond Fri, 20 Nov 2020 20:14:17 +0000 https://www.smecpa.com/?p=1467 I am a stereotypical nerdy, sweater vest-wearing tax accountant, so when I sat reading the posts of all of my friends and family on social media on Veteran’s Day this year, my thoughts turned to all the tax benefits and deductions given to Veterans in South Carolina.  I realize that most people don’t think tax…

The post South Carolina Military Tax Rates and Deductions appeared first on SME CPA.

]]>
I am a stereotypical nerdy, sweater vest-wearing tax accountant, so when I sat reading the posts of all of my friends and family on social media on Veteran’s Day this year, my thoughts turned to all the tax benefits and deductions given to Veterans in South Carolina.  I realize that most people don’t think tax law is entertaining and even fewer people find learning about or understanding the tax return that they are signing each year rewarding.  I would like to pause here and thank all the veterans that are reading this post for their service!   That being said, if you are a veteran or plan to be one in the future and live in South Carolina the next few minutes of reading could save you real money on your tax returns. 

South Carolina ranks fairly high on the scale for places to retire from the military with low tax rates.  That is accomplished in multiple ways including low personal and real property tax rates, reasonable sales tax rates and low-income tax rates that fall even further with the many deductions given to retired military taxpayers.

One of the most missed items on the returns that I review and see from other tax preparers are the multiple different benefits afforded to Veterans in South Carolina. South Carolina lawmakers made the decision starting in 2016 to give a deduction to military retirement income. For the 2020 income tax year, the deduction amount is $17,500 if you are under 65 years old and have at least that amount of earned income elsewhere.  If you don’t have any earned income, or if it is less than $17,500, the deduction is the higher of the earned income or $3,000. Once you are 65 or older, that deduction goes up to $30,000 and loses the earned income stipulation. If your spouse served in the military but has passed away and you receive military benefits as a surviving spouse, you qualify for the same deduction. If you are a veteran who is still active in the National Guard or the Military Reserves, any income you have from those sources is deducted on the South Carolina return.  You also can deduct a portion of any military retirement that is from service in the National Guard or the Military Reserves. 

South Carolina has taken an active stance on making living in the state attractive for our Military Veterans.  Many of my retired military clients pay a very small percentage in tax to South Carolina for their total income each year.  Make sure that you are taking complete advantage of these favorable benefits! Another item to watch for the future, is the inclusion of police and first responders’ retirement income into the same category as military retirement.  This change in law has not happened as of November of 2020; but it is currently working its way through the South Carolina legislature.  If that does pass, retirement income for police and first responders will be eligible for the same $30,000 deduction.

If you have any questions on these issues or any other entertaining tax law, please give me a call anytime and I will be happy to help answer your inquiries.  I have been practicing in Aiken, SC for close to 15 years and am on the tax staff at SME CPAs, the largest locally-owned CPA firm in the area.  

Joel Stewart

803.648.6047

The post South Carolina Military Tax Rates and Deductions appeared first on SME CPA.

]]>
https://www.smecpa.com/south-carolina-military-tax-rates-and-deductions/feed/ 0
5 Business Accounting Mistakes to Avoid https://www.smecpa.com/5-business-accounting-tips-to-avoid/ https://www.smecpa.com/5-business-accounting-tips-to-avoid/#respond Tue, 27 Oct 2020 16:21:37 +0000 https://www.smecpa.com/?p=1458 When a business owner’s mind is focused on running a business, acceptable accounting practices can often be overlooked or forgotten. Of course, mistakes are bound to happen; but for businesses that could mean a negative impact to the bottom line. Accounting can be time-consuming for businesses, so the urge to push through and complete the…

The post 5 Business Accounting Mistakes to Avoid appeared first on SME CPA.

]]>
When a business owner’s mind is focused on running a business, acceptable accounting practices can often be overlooked or forgotten. Of course, mistakes are bound to happen; but for businesses that could mean a negative impact to the bottom line. Accounting can be time-consuming for businesses, so the urge to push through and complete the task quickly can lead to mistakes. Having clean and accurate books will not only provide peace of mind, but could save you money and time. We have compiled a list of five common accounting mistakes for you to consider and avoid.

Mixing personal expenses with business expenses.

It is best to keep separate bank accounts and credit cards for business transactions. Comingling business and personal transactions can lead to several mistakes in record keeping and reporting. Not keeping personal and business transactions separate could result in penalties if audited or even missed opportunities for tax deductions. It would also be difficult to rely on accounting records if the two are mixed.

Not regularly reconciling your bank and credit card accounts.

Checking your bank account or credit card balance is important; but reconciling them at least monthly, is even more important. Reconciling allows you to review any outstanding transactions, detect fraudulent charges, or pick up any unrecorded bank fees. If you have outstanding checks as far back as six months, do they need to be voided or reissued? Do you have any outstanding deposits? You should only have outstanding deposits if you are holding cash or checks at your office. Since most credit card transactions post immediately, they should clear by the end of each statement. If you have transactions that have not cleared and were recorded earlier in the month, look into them. The transaction may not have processed correctly or it was recorded in error.

Not recording business transactions correctly.

Accounting records are only as reliable as the information placed into your accounting system. Understanding how certain transactions need to be recorded is very important. It is best for you to generally understand the basic accounting categories when recording transactions. If transactions are recorded incorrectly throughout the year, your accountant may have to do clean-up work during your tax return preparation. This extra work may cost you more money on your tax return preparation bill. Not having accurate accounting information can also have an impact on any future planning. If things are not recorded correctly it would be difficult to rely on the information provided on your financial statements.

Not regularly reviewing or understanding your financial position.

Do you regularly review your balance sheet or your income statement? If not, you may want to take a look at least quarterly. Reviewing financial statements can tell you a lot about how a business is operating. If your cash flow is good you may think you do not need to take a look. This is not always true. There could be areas of your business which are more profitable than others and currently being overlooked. There also may be an area that was once thriving, but for some reason is now struggling. Regularly reviewing financial statements can answer questions such as; are your collections on receivables timely, have certain expenses increased over time, can some expenses be eliminated and are you operating as efficiently as you once were or could be?

Not consulting with your CPA or accountant.

If you are unsure on how to read your financial statements, reach out to your CPA or accountant for guidance. They can point out certain areas on your financial statements that may be beneficial in making business decisions. Your accountant will often be inquisitive to make sure they have all of the facts so they can guide you in the right direction. The more communication, the better the outcome. You should also reach out to your CPA or accountant before the end of the year for tax planning. Planning ahead for your tax return is always better than being hit with a tax bill you were not expecting. Tax planning may also help with year-end decisions.  

For some business owners accounting can be a cumbersome task. Knowing some of the common mistakes will hopefully be beneficial to your business. If you are not comfortable with the task, reach out for help. CPAs and accountants are here to assist with accounting so you focus on what you do best, running your business.

-Jason Douglas, jdouglas@smecpa.com

The post 5 Business Accounting Mistakes to Avoid appeared first on SME CPA.

]]>
https://www.smecpa.com/5-business-accounting-tips-to-avoid/feed/ 0
Small Business Tax Saving Tips. https://www.smecpa.com/small-business-tax-saving-tips/ https://www.smecpa.com/small-business-tax-saving-tips/#respond Mon, 26 Oct 2020 15:23:08 +0000 https://www.smecpa.com/?p=1454   Business Tax Prep Tips Use payroll tax software to avoid costly IRS penalties. Approximately one third of all companies get fined each year for incorrectly handling payroll taxes. This is due in large part to the fact that around 40% of businesses with employees try to handle payroll on their own, using paper or…

The post Small Business Tax Saving Tips. appeared first on SME CPA.

]]>
 

Business Tax Prep Tips

  • Use payroll tax software to avoid costly IRS penalties. Approximately one third of all companies get fined each year for incorrectly handling payroll taxes. This is due in large part to the fact that around 40% of businesses with employees try to handle payroll on their own, using paper or spreadsheets, without assistance of a third party. 
  • Keep business and personal finances separate. A common mistake of small business owners is to commingle business and personal funds. It’s important to have separate bank and credit card accounts for your business. 
  • Get organized. Set up a filing system to keep all of the paperwork you accumulate in one place. Block out a couple of hours each month to organize all of your paperwork. Reconcile your bank and credit card accounts by matching your receipts with the statements received from your bank. 
  • Use accounting software to track revenue and expenses throughout the year. Assuming you have a working knowledge an accounting software program can help make tax time a breeze You can quickly create financial statements prepared to send to your CPA or tax professional so they can file your tax return. 
  • Forecast cash flow. Build a cash flow forecast to estimate your tax impact and prepare for your payments. 

Business Tax Deductions 

  • Take the home office deduction.  If you use part of your home for your business, you may be able to deduct a portion of expenses. However, you must meet the requirements to take this deduction. Your CPA or tax professional will be able to determine if you do. 
  • Take the auto expense deduction. If you use your car in your business, you can deduct car expenses. You can choose one of the following methods for this deduction: standard mileage rate for 2020 is 57.5 cents or actual car expenses which include expenses like gas, repairs and insurance. However, if you choose the actual car expenses then you  must calculate the percentage that the vehicle was used for business purposes first and then apply that percentage to the total car expenses. Your CPA or tax professional will be able to help you determine which option will get you the greatest return. 
  • Meals and entertainment. You can deduct 50% of meals that are considered business-related. This includes taking a client out to lunch. Entertainment is not deductible like tickets to a football game even if you are taking a clients. However, the meals provided during entertainment can be deducted if paid for separately. For example: You treat a client to a baseball game (which you also attend) and pay for beers and food while at the game. Since you paid for the beer and food separately, you can deduct 50 percent of the cost. You can’t deduct the cost of the tickets.
  • Donate unused inventory. If you have unsold or unused inventory, donate it and get the tax deductions instead of spending cash on storing it. Be aware that donations of goods greater than $500 have stricter reporting rules, and once you exceed $5,000 an appraisal is required.
  • Take the Section 179 deduction. This deduction allows you to recover the full cost of equipment or property up to $1,040,000 that you purchased for your business in the same year that you purchased it. 
  • Consider setting up a retirement plan. A retirement plan can provide several benefits for you, your business, and your employees. Here are a few of the benefits: employer contributions are tax-deductible, assets in the plan grow tax-free and you are able to attract and retain better employees. 

Filing Your Business Tax Return 

  • Consider using a tax professional. An experienced tax professional has seen everything and knows how to get you the most favorable tax deductions and benefits. This usually saves the taxpayer or business at least as much as the fee the CPA or tax professional charges, plus you get the added benefit of being sure that your returns were prepared and filed properly. 
  • File on time. Do your best to file your tax return on time. If you fail to file your tax return on time and pay any taxes that are owed, in addition to interest, you will be assessed the failure to file and pay on time penalties. 
  • Take responsibility. If you do hire a CPA or tax professional to prepare your tax return, have them go over the return with you. Make sure that you understand and agree with the information they are reporting. 
  • Check out the IRS video portal. You will find a section dedicated to small businesses.

The post Small Business Tax Saving Tips. appeared first on SME CPA.

]]>
https://www.smecpa.com/small-business-tax-saving-tips/feed/ 0