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What Tax Credits Can I Expect in 2023?

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Tax Credits

Now that 2023 is underway, many households are preparing for tax season. Keyboards ablaze with frantic efforts to figure out 2022 tax brackets and estimate tax refunds. As a result, it’s wise to learn about tax credits that may reduce your total financial obligation before you file. That way, you can prepare for how the adjustments impact the broader picture. While there are far more tax credits than an article can reasonably list, some are relatively widely used. Here’s a look at tax credits that a more significant number of tax filers are potentially eligible for, what they’re typically worth, and some initial information on qualifying.

What Tax Credits Can I Expect in 2023?

Child Tax Credit

The child tax credit is one of the most commonly claimed ones in the country. Generally, any household with a qualifying child as a dependent is potentially eligible. During the 2022 tax year – which is filed in 2023 – it’s potentially worth $2,000 per qualifying child. As a result, it’s potentially sizeable.

Earned Income Tax Credit

Another widely used tax credit is the earned income tax credit. Eligible taxpayers without children can receive a credit worth up to $500 when they file in 2023.

Child and Dependent Care Credit

While the child and dependent care credit is worth far less than it was in 2021 – when it sat at $8,000 – it’s still a decent amount. Qualifying households are eligible for up to $2,100 when they file their 2022 tax information in 2023.

Retirement Contributions Savings Credit

Individuals with adjusted gross incomes at or below $34,000 ($68,000 for married filing jointly) are potentially eligible for a tax credit related to their retirement savings. It’s worth up to 50 percent of the total contributions to a qualifying account, with the exact amount varying by income and the maximum value set at $1,000 (or $2,000).

American Opportunity Credit

During the first four years of college at a qualifying institution, students are potentially eligible for the American opportunity credit. This is worth up to $2,500 per student and is refundable up to 40 percent. However, it’s only available to individuals with incomes at or below $80,000 ($160,000 for married filing jointly).

Lifetime Learning Credit

The lifetime learning credit helps offset the cost of qualifying tuition or educational expenses for students at eligible institutions. Typically, that includes colleges, universities, and technical schools beyond high school. However, it’s only available to single taxpayers with income at or below $80,000 (or $160,000 for joint filers).

Premium Tax Credit

The premium tax credit helps offset the cost of purchasing health insurance through the Health Insurance Marketplace. Generally, it applies to lower or middle-income households, though the number of dependents and other factors do alter eligibility.

Clean Vehicles Tax Credit

Individuals who purchased a qualifying “clean vehicle” – typically an electric vehicle – are potentially eligible for a clean vehicles tax credit. The rules are complex, so not all EVs qualify. However, it’s worth exploring if you purchased an EV in 2022.

Federal Adoption Credit

Households that adopted a child in 2022 are potentially eligible for the federal adoption credit, which is worth up to $14,890 when you file your 2022 return in 2023. Income limits do apply, and it starts to phase out at $223,410. This credit is also non-refundable, so those who spend less on qualifying expenses can only receive up to the amount paid to cover eligible costs.

Credit for Other Dependents

The credit for other dependents allows households with dependents who aren’t eligible for a traditional child tax credit to potentially see some relief on their taxes. Generally, that includes individuals living in the household as dependents who are age 17 or older, and it’s worth $500 per qualifying dependent.

Determining Your Eligibility for Tax Credits

While the information above provides an overview of what it takes to qualify for many common tax credits, the rules are often far more complex than what’s outlined above. As a result, it’s wise to research any tax credits you might be able to use carefully, allowing you to ensure you qualify.

If you have doubts, consider working with a tax preparer this year, as they’re often well-equipped to help you determine if you’re eligible for a tax credit. You can also try tax preparation software, as many of those solutions have built-in guides or questionaries that can point you in the right direction.

Ultimately, being confident that you qualify is essential. Improperly claiming a tax credit comes with consequences, including fees, penalties, and potential criminal charges. As a result, it’s best to consult with an expert if you have any doubts about your eligibility.

Can you think of any other tax credits people may want to check out when filing their taxes in 2023? Have you run into issues with tax credits before and want to tell others about your experience? Share your thoughts in the comments below.

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Minors Still Have to Pay Taxes

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minors still have to pay taxes

Even if your children are young enough to be considered dependents, that doesn’t mean they won’t have to pay federal or state income taxes. Like adults, income earned by minors is considered taxable. If you are wondering whether your child needs to pay taxes and file a tax return, here’s what you need to know.

When Do Minors Have to Pay Taxes?

As with adults, minors have to pay taxes when their income exceeds the standard deduction or exemption. This is true regardless of whether they’re considered a dependent and can apply to both federal and state taxes.

Generally, there are two types of income that may result in minors needing to pay taxes. First, there’s earned income, which is typically money that comes from a job. With this, a child is only considered to have taxable income on a federal level if their earnings exceed the standard deduction, which is set at $12,950 for 2022. The threshold for owing state income taxes can vary, so you’ll need to check your state’s exemption amount to determine if they’ll need to pay.

Second, minors may have unearned income. Usually, this is money relating to investments or savings, such as interest or dividends. With this, the exemption is only $1,150 for 2022. Anything above that is potentially taxable.

Do Minors Get Taxes Taken Out of Their Paycheck?

If your child works for a traditional employer, taxes are often taken out of their paycheck. Most employers use the same process to ensure they meet legal requirements regarding withholding, so they treat all employees the same in that regard, no matter their age.

Like adults, minors complete Form W-4. On that, they can use the form to alter what’s withheld, allowing them to essentially have less removed than would be standard for their earnings. If a minor knows they won’t cross the standard deduction amount with their earnings, this could help them limit the amount that’s taken out of their paycheck. However, if they may exceed the threshold, that strategy could cause them to under withhold, which would leave them owing money when it was time to file.

Additionally, unless a child works for a company owned by their parents, FICA taxes – those covering Social Security and Medicare – are removed from their paycheck. There are no available exemptions to these taxes, aside from the aforementioned case of them working for a parent’s business.

Do Minors Have to File Taxes?

Technically, minors that earn less than the standard deduction and all of their income has already been reported to the IRS aren’t required to file their taxes, as they don’t owe any money to the government. However, that doesn’t mean they shouldn’t file, either through a parent’s return or on their own.

Many employers remove taxes from the paychecks of minors. If your child had taxes deducted, filing their taxes allows them to receive a refund. Without filing, that money isn’t returned, which makes submitting their tax information during the filing period essential.

For minors that earn more than the standard deduction, filing their state and federal taxes is essential. In that case, they do owe federal and state taxes. Even if their payroll deductions cover what’s owed, they need to file to formally settle the amount and either pay any additional amount owed or get a refund on the excess.

Additionally, minors that earn tips that aren’t reported to the IRS through their employer – something that’s more common with cash tips that go unrecorded by the company – they’ll need to file regardless of how much they’ve earned. That ensures that FICA taxes owed on the tip money are collected.

Finally, self-employed minors need to file their taxes if they make more than $400 in profit. Additionally, if the amount of tax owed is expected to exceed $1,000, then making quarterly tax payments is essential.

How a Minor Needs to File Taxes

There are technically two approaches a minor might have to use to file their federal taxes. First, if they make more than the standard deduction, they have to file their own return, regardless of age. Generally, minors with self-employment income should also file separately. Per the IRS, children who can’t handle the task on their own can receive assistance from a parent or guardian.

For earnings below that threshold, parents can report the income on their tax return instead. This ensures it’s properly tracked. Thus, any potential refund is capturable without the complexity of having a minor file a separate return. However, filing a separate return is an option here. This could serve as a great financial lesson that introduces your child to filing taxes, setting up for refunds, and otherwise understanding how taxes work.

If you have any questions regarding filing taxes for a minor child, speaking with a tax professional is a wise move. It allows you to get explicit guidance relating to your unique situation, which is beneficial.

Filing Requirements May Vary

Additionally, it’s important to note that state filing requirements for minor children can vary. While they often align with the federal thresholds, there can be some variances that alter the picture. As a result, you’ll want to research the rules in your area. This will help to determine if your child has to file separately or if they can be on a parent’s return. When in doubt, speak with a tax professional operating in your state for additional guidance.

Does it surprise you to learn that minors still have to pay taxes? Do you think making minors pay taxes is a smart move or that they should be exempt? Share your thoughts in the comments below.

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5 Places to File Your Taxes For Free

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file your taxes for free

Filing your taxes is always cumbersome. You have to gather up paperwork, complete a number of forms, and make sure the calculations are correct. Usually, you also have to dive into deductions and credits, ensuring you find every legitimate opportunity for savings. Once you’re done, you typically have to pay a pretty penny to wrap it all up, which isn’t fun. But is paying to file a necessity? Not necessarily. If you qualify for certain programs, you may be able to handle the filing without spending a dime. Here’s a look at five places where you can file your taxes for free.

1. IRS Free File

If you’re looking for a straightforward option that lets you file your taxes for free, the IRS Free File program is an excellent option. You can complete your forms online and get clear guidance along the way. Plus, it’ll handle all of the calculations, so you don’t’ have to worry about the math.

Technically, this program is a partnership with many leading tax software providers. You can choose the service that best meets your needs, all without having to pay a traditional price tag.

Qualifying for the program is relatively straightforward. The biggest part is having an adjusted gross income (AGI) below $73,000. You’ll also have to answer some basic questions to show that you have a simple return and cover a few other must-haves. If you’re eligible, you can then choose a service provider from the list of options.

2. TCE or VITA

If you want in-person support, the Tax Counseling for the Elderly (TCE) or Volunteer Income Tax Assistance (VITA) programs may work well for qualifying individuals. The programs are sponsored by the IRS and help disadvantaged households get the support they need.

Qualifying for TCE usually involves being at least 60 years old. For VITA, the income limit is generally near $58,000. However, those with disabilities or limited English proficiency may qualify even if their income is higher, so it’s worth reaching out if either of those circumstances apply to you.

The preparers typically set up shop in widely accessible places, like public libraries, community centers, or local colleges and universities. You can find out exactly where you’ll need to go by using the IRS search tool.

Due to COVID-related restrictions, appointments may be necessary. Additionally, you might need to follow certain protocols – such as wearing a mask and not attending with guests – depending on where you live.

3. TurboTax

Another option that lets you file your taxes for free is the TurboTax Free Edition. As long as you have a simple return, you are potentially eligible for no-cost federal and state tax filings.

Along with using the online service to complete your own tax return, you have other choices. You can use a mostly DIY approach, reaching out to an expert only if you have a question. This approach is ideal if you are generally comfortable with using a classic fill-in-the-blank method to provide the needed information but might have questions about certain deductions, credits, forms, or fields.

However, you also have the option of having a tax professional take care of all of the work, all without owing a single cent when you’re done. This part of the program is only available until February 15, so act fast if you want to go in this direction.

Even if you don’t use a professional, everyone can get help for free if there is a technical issue. Additionally, if you’re having trouble accessing your account, you can reach out then, as well.

4. H&R Block

Like TurboTax, H&R Block has a Free Online program for simple returns that covers both federal and state tax filings. It’s simple and intuitive to use. Plus, you’ll get access to helpful information about potential deductions and credits, allowing you to reduce your tax obligation based on the options you’re eligible to use.

Do keep in mind that reaching out to a tax professional using this option isn’t necessarily free. However, there are a decent number of no-cost resources available, which may be enough if you aren’t wholly unfamiliar with tax filings. Additionally, you can get free help if you experience a technical issue, such as trouble accessing your account, so you aren’t entirely on your own as you work through the process.

5. TaxAct

TaxAct is another company with a free online filing option for federal returns. You’ll need to have a simple return to qualify, though you are eligible if you have education-related deductions, unemployment income, or a few other common – but not universal – tax situations you’ll need to navigate.

State filings do cost extra with TaxAct, so it may not be an ideal fit if you have to file in your state, too. Otherwise, you’ll get plenty of guidance through easy-to-use document libraries and similar resources to help you complete the forms and file electronically. However, assistance from a professional isn’t included for tax-related questions, only account issues like login trouble or similar technical difficulties.

Are you aware of any other places that let you file your taxes for free? Have you tried one of the free tax filing options above and want to let others know about your experience with that approach? Share your thoughts in the comments below.

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Pay Attention to These 8 Tax Pitfalls

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tax pitfalls

Filing your taxes each year isn’t usually easy. For one, tax laws are incredibly complex. For another, there is a slew of credits and deductions out there, making it hard for most people to ensure that they’re tapping everything they’re eligible to use. Thankfully, by learning about tax pitfalls, it’s possible to handle your taxes correctly. Here are eight tax pitfalls that all filers need to pay attention to this year.

1. Not Researching Tax Breaks

As mentioned above, there are numerous credits and deductions available to tax filers. The thing is, if you don’t find the ones you can use on your own (or by using an appropriate tax service or professional), the IRS isn’t going to tell you that you missed one.

Generally, the IRS worries about you underpaying, not overpaying. If you miss a credit or deduction, that’ll essentially be on you.

If you’re worried that you’re overlooking an opportunity, then turn to a tax professional or use reputable tax software. With the former, they’ll have the expertise to ensure you check every potential option. With the latter, the software knows about every deduction and credit that’s out there and can help determine if you’re eligible with a few clicks.

2. Mixing Up the Deadlines

While it would be easier if all of the tax-related deadlines were the same, that isn’t how they’re set up. Certain things wrap up on December 31 of the tax year, while others extend into the new year. For example, mortgage interest and 401(k) contributions are calculated from January 1 through December 31 during the tax year.

However, you can make a qualifying contribution into an IRA until the tax filing deadline the year after. For instance, if you wanted to boost your tax deduction when you file your 2021 taxes in 2022, you could contribute to a qualifying IRA up until April 15, 2022, and apply that amount to your 2021 taxes. The same option is available for health savings accounts.

By knowing the various deadlines, you have the ability to maximize certain deductions within a given tax year. As a result, you may be able to reduce what you owe significantly.

3. Overlooking Non-Traditional Income

When you file your taxes, you need to include all of your income from every source. While this is simple with traditional jobs that provide W-2s, those aren’t the only kinds of earnings that you’ll need to report.

For instance, anything reported on a 1099 typically needs to be reported. This includes self-employment income from specific sources, as well as investment earnings, gambling winnings, sweepstakes prizes, lottery winnings, savings account interest, and more.

Additionally, you have to report income that doesn’t show on any forms. Usually, a 1099 is only required if the dollar amount in question crosses a specific line, such as $600. However, if you earned $200 doing online surveys, you still have to report that money, even if you don’t get a 1099. Otherwise, you may underreport and could face a penalty.

4. Making Math Mistakes

Even a small math error can have big consequences if it causes you to underpay. Plus, errors might increase your odds of getting audited, which isn’t any fun.

Usually, math issues are most likely for those doing their taxes by hand. With software systems – including those traditionally used by tax professionals – the calculations are built into the program, reducing the likelihood of a mistake. As a result, using a solution could be your best bet.

5. Incorrect Names or Social Security Numbers

While you might think that a small typo in a filer’s or dependent’s name or Social Security number isn’t a big deal, the IRS doesn’t agree. Missing or incorrect Social Security numbers will get noticed and trigger ramifications, the nature of which may vary depending on the rest of your situation.

The same goes for misspelled names. If the name doesn’t match what’s on file with Social Security, you could face filing difficulties.

6. Choosing the Wrong Filing Status (or Incorrectly Claiming Dependents)

When you file your taxes, you have to select a filing status. If you pick the wrong one, you could end up paying more than you should or less than you’re required. With the former, that means sending money to the IRS that you didn’t owe, which isn’t ideal. With the latter, you’ll face penalties when your mistake is caught.

Incorrectly claiming dependents comes with the same risks. You could end up over or underpaying, neither of which is good.

If you need more information about filing status and dependent options, the IRS has an online tool that can help. Plus, most tax software solutions and professionals can help you determine the right classification for your situation.

7. Not Filing for an Extension If You’re Struggling Last Minute

If you’re trying to wrap up your taxes and filing day is just a couple of days away, be realistic about whether you can pull it off. If your situation is too complex to finish on your own in that time, file for an extension immediately.

When you file for an extension, you’re letting the IRS know that you are having trouble getting everything handled before the deadline, keeping the agency in the loop. Usually, the IRS is reasonably forgiving if you file an extension and will typically grant you the needed time in this situation. Just remember that you need to pay what you owe by the filing deadline. Otherwise, you may face financial penalties.

8. Paying Too Much to File

Many people don’t realize that those with simple tax situations and who have household incomes below a specific threshold can usually file their taxes online for free. For example, if your adjusted gross income (AGI) is no more than $73,000, you can use the IRS Free File program, which includes online forms, automatic calculations, and e-file capabilities.

However, there are other free services available. Many of the major tax software providers have a free version for simple tax situations, such as those who only have W-2 income to report, are claiming the standard deduction, and are only using basic tax credits.

Before you pay for any service, see if a free filing option is available to you. That way, you can get the job done without spending any money unnecessarily.

Can you think of any other tax pitfalls people should watch out for when they file? Have you had to deal with any of the pitfalls above and want to tell others about your experience? Share your thoughts in the comments below.

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Tax Tips for Tax Time

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April is fast approaching and soon, everyone will have to visit their accountants and file their taxes. That said, we need to make sure we are filing taxes correctly. Keeping accurate and up-to-date records is important. Here are some tax tips and how to be well-prepared for tax time.

Contribute to retirement accounts

If you haven’t done so yet, or you’d like to contribute more, you have until tax filing day to do so. For a refresher, here are the contribution limits for some IRAs: IRA/Roth IRA – Max contribution is $6,000 ($7,000 if you’re over 50 or older).

If you have a SEP IRA and you get an extension, you have until October 17, 2022, to make your 2021 contribution.

This is more of a tip for the end of the year, but make sure you take your Required Minimum Distributions. For people that are either over 70 ½ or over 72, depending on when you turned those ages, you need to withdraw money from your IRA. If you don’t, you’ll pay a tax penalty of 50% of the amount you should have withdrawn. For example, if your required amount was $10,000. You’ll pay a $5,000 tax penalty if you didn’t take that distribution.

Make a last-minute estimated payment

If you didn’t pay enough or you didn’t make a payment to the IRS for 2021 taxes, you have until you file to make your payment.

According to the IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s or you will owe an underpayment penalty.

Get tax docs in order

Get all of your tax documents in order. For earnings for the year, you’ll need one to several forms, depending on what you do for a living and how your business is set up. W2s are pretty common. If you’re an independent contractor, you’ll need 1099. 

Itemize your deductions

Most people will take the standardized deduction, which is $12,550 for single filers and $25,100 for married couples filing jointly.

However, if you are self-employed or you have a lot of expenses that are tax-deductible, itemize your deductions. You could save a lot more money IF your total itemized deductions are larger than the standardized deduction.

Home office tax deduction

With the move to work from home still taking place, it might make sense to take advantage of the home office tax deduction. Here are some of the rules:

  • You must use the space exclusively for business
  • Expenses related to the space used for business are tax-deductible but need to be calculated according to the amount of square footage used for business
  • A lot of taxpayers stay away from this deduction, as they think it’s a red flag for an audit. If you’re legitimately using the space as you say and you aren’t fabricating numbers, then you have nothing to worry about

Last-minute tax tips for tax time

Triple-check your work if you prepared your own taxes and file on time. If you’re having someone prepare your taxes on your behalf, make your appointment ASAP because their calendars will fill up really fast.

Related reading:

Tax Tips for Small Business Owners

Are You Ready for Tax Time?

Why Financial Literacy is Important

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

How To Ask for Reimbursement of Travel Expenses

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At this point in time, business travel is less common than it used to be. I have a hunch that it will never return to pre-pandemic levels, as employers found it easier and less expensive to accomplish this through Zoom. It’s still important to know the ins and outs. Today we will cover how to ask for reimbursement of travel expenses.

What are travel expenses?

Travel expenses occur when an employee travels for business purposes. A business trip can include conferences, business meetings, client meetings, training, job fairs, etc.  One thing about travel expenses, is you need to be sure you’re getting the best jet card program.  You want to get as many points or cash back rewards as possible.  

Travel expenses include lodging, food, rental car, tips for servers and bellhops, etc. Most organizations that require employees to travel on a regular basis have policies in place.

If an employee is traveling for an extended period of time or is at a particular location for an extended stay, the business may also include reimbursement to pay for your family to visit.

When entertaining a client or a business partner, there are limits on entertainment expense reimbursement, so make sure you check your company’s guidelines so you don’t breach that threshold.

How do employees pay for travel expenses?

Company credit cards, personal credit/debit cards, cash, or allowances given by the employer.

How to ask for reimbursement of travel expenses

If the corporate policies are unclear about the process, write a letter first. Before you go on a trip or take a client out for lunch, request the payment of the expense, or at least ask for some information about what is covered, what isn’t, and what the limits are. Establishing communication upfront is very important.

Per diem, aka travel allowance or an expense account, is recognized by the IRS. Per their guidelines, your expense report is due to your employer (usually HR) within 60 days. The report should include dates, location(s), and receipts.

If you have any allowances or advancements that haven’t been used or can’t be justified as a business expense, then you must return that to your employer. If you don’t return it, that money can be classified as taxable income.

Conclusion

As I said in the opening, I don’t believe business travel will return to pre-pandemic levels, but it’s important to know what travel expenses are and how to ask for reimbursement of travel expenses.

Review your company’s business travel policy for more information, and if your company doesn’t have one, speak to them about what’s covered, what’s not covered, and any limitations.

Related reading:

Why Financial Literacy Matters

Top Reasons you Need Car Insurance

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

The Best Way to Do Your Taxes When Running Your Own Business

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taxes when running your own business

Filing your taxes each year can be a daunting experience. Even if you’re only handling an individual income tax return. When you operate a business. The situation is often significantly more complex. Whether you run a sole proprietorship, limited liability company (LLC), or any other kind of corporation. You will need to file forms with the Internal Revenue Service (IRS) – and possibly your state, as well – covering that organization’s financial activities. If you are wondering what’s the best way to do your taxes when running your own business. Here’s what you need to know.

Preparing to Do Your Federal Taxes When Running a Business

Start with Record Collection

Generally speaking, your first step any time you need to file your taxes is to gather the various financial documents that you’ll need to complete the forms. In most cases, this is any receipts, statements, financial records, or other kinds of paperwork that demonstrate your business earnings, losses, and expenses.

Without the records, you won’t be able to fill in all of the details that need to be present on your tax forms. As a result, it’s best to handle this in advance. Thus, ensuring that, once you sit down to take care of your filing. You will have everything you need available.

Select the Right Forms

The forms you need to file with the IRS vary depending on the type of business you operate. If you’re a sole proprietorship, then you’ll usually need to attach a Schedule C to your personal income tax return. The same goes if you are operating an LLC, are the sole owner of the business, and want to treat the company like a sole proprietorship, which is an option.

However, if you prefer to treat the LLC as a separate entity, you’ll need to use Form 1120. The same is true for C-Corps.

For S-Corps, a different form is necessary. When you file, you’d need Form 1120S. Partnerships also require a different form, as those use a Form 1065 when they need to file.

If you use software or a tax professional to file, you’ll usually get some assistance when it comes to choosing forms. If you’re doing your taxes by hand on actual paper, then you’ll need to make sure you get printed copies of the correct forms.

Learn the Deadlines

Different filing deadlines may apply depending on the kind of business you run. For sole proprietorships, the deadline is the same as it is for personal income taxes. As a result, you typically need to complete your filing by April 15 to be on time.

C-Corps have to file by the 15th day of the fourth month following the closing of the tax year being filed. Typically, that means filing by April 15, as well.

S-Corps have to file Form 1120S by the 15th day of the third month following the closing of the tax year. As a result, that means having to file by March 15, in most cases.

By knowing the deadlines that impact you, you can make sure that you file in a timely manner. Since filing late can have consequences, this allows you to avoid fees, penalties, or other issues.

However, if you need more time beyond the deadline, it lets you know the cutoff for requesting an extension. If you file for an extension by the initial due date – usually by submitting a Form 4868: Application for Automatic Extension of Time to File U.S. Individual Income Tax Return or Form 7004: Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, depending on your type of business – you can typically get yourself more time to handle your business tax filing.

Research Tax Breaks

Before you move forward with completing your forms, it’s wise to do a little research into business tax breaks. By spending some time looking into what may be available, you increase your odds of securing every deduction or credit that may be available to you, ensuring you can reduce your tax burden while using the correct options.

The number of available IRS business tax credits is extensive, covering anything from hiring workers from specific demographic groups to using alternative energy vehicles as part of your company’s operations. These give you credits and deductions beyond your business expenses, and they can potentially add up quickly.

Depending on the tax break involved, this can also mean needing another tax form. Many require the use of a Form 3800: General Business Credit, so you want to make sure you have this available if you plan on filing a paper return.

Decide How You Want to File

When it comes time to file, you can usually either file electronically or mail your return to the appropriate office. Either approach is allowed, even if paper returns are largely falling out of favor.

Electronic submission is usually the preferred method. With an electronic filing, you can easily track when the information is received. Plus, you don’t really have to worry about your return being lost or damaged along the way.

Even if there’s an issue with an electronic submission, you’ll typically get an alert, allowing you to correct the problem quickly. If a paper return gets lost in the mail or is damaged to the point it becomes unreadable, you likely won’t know that anything has gone wrong. As a result, you could face penalties for a late or missing filing simply because your tax forms weren’t officially received or couldn’t be processed when they arrived.

Preparing to Do Your State Taxes When Running a Business

In many cases, the process of preparing to complete your state taxes when you run a business is similar to the approach you need to handle your federal tax filing. You’ll need to gather documents, research forms, and filing requirements based on your business type, learn about any potential tax breaks, and go over the deadlines in advance.

However, the exact process may vary from one state to the next. As a result, you’ll need to do some additional research regarding your state’s specific requirements. That way, you can follow any required processes, ensuring you handle this obligation correctly as well.

Filing Your Taxes When You Run a Business

When the time arrives for you to actually file your taxes, you have two choices. First, you can tackle the work yourself, completing your own documents and handling the submission.

Usually, if you are going the do-it-yourself route, the best option for small business owners is to take advantage of tax software. This can include downloadable options or web-based services, as both of them typically offer a similar experience.

You can follow the prompts to fill in the needed sections. Typically, you won’t have to worry about doing any math by hand, as the software will complete the calculations for you.

Now, that doesn’t mean you don’t want to review the figures for accuracy. While tax software typically won’t make a math mistake, if you incorrectly enter information, choose the wrong options, or there happens to be an error in the software, it could result in incorrect numbers. You’re ultimately responsible for the accuracy of your returns, which is why you should always look at the details closely before you finalize the filing.

Then, once all of the details are in place, and you’ve reviewed them for accuracy, you can file electronically or print out the forms and mail them. With electronic filing, you can apply a digital signature, sign up for notifications that will let you know when your documents were received, and save a copy of the documents for your records.

You Could Hire A Tax Professional

Alternatively, you can hire a tax professional to handle the paperwork and manage the submission of taxes. This method may be better if your tax situation is particularly complex or you simply don’t have the time, energy, or desire to take care of the filing yourself.

Generally, filing through a tax professional will cost more than doing it yourself. However, it does give you direct access to a tax expert who may be able to help you find credits, deductions, or approaches that may benefit you.

Additionally, just because you use a tax professional, that doesn’t mean filing electronically won’t be an option. Many tax preparers have the ability to submit your taxes electronically. However, some may rely on the paper approach, which means putting your return in the mail.

If you want the benefits of an electronic submission but also wish to use a tax professional, speak with them before you begin the process. That way, you can confirm the preparer can meet that need before you hire them to handle your tax filing.

Do you run your own business? What approach do you use when tax time rolls around? Share your thoughts in the comments below.

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Are Business Gifts Tax Deductible?

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How do you strengthen relationships with customers and/or business partners? A tried and true way is using gifts. However, gifts cost money, so the next question is, are business gifts tax deductible?

The straight answer is yes, but it’s much more nuanced than that.

There are limitations

Business gifts are tax deductible, up to a certain dollar amount. You can deduct no more than $25 of the cost of the gift you give to each person through the course of the year.

Incidental costs such as engraving, packaging, and shipping are not included in the $25 limit as long as it doesn’t add substantial value to the gift.

Gifts that cost $4 or less are not included in the $25 limit IF the company name is permanently placed on the item and the gift is widely distributed.

Entertainment

Any item that can be considered a gift or entertainment is usually considered entertainment and is deducted at 50% of the value of the gift. For purchases that fall under both categories, use the “gift deduction” on lower-cost items and the “entertainment deduction” on items larger than $50.

Gifts to others

If you and your spouse give gifts to the same person, you’re treated as one taxpayer. The same rule applies to partnerships.

Gifting to a customer’s family counts as a gift to that customer, unless the customer’s family member(s) is a client as well.

The $25 limit only applies to gifts given to individuals. Gifts given to other companies, generally, don’t apply and are fully tax deductible.

Gifts to employees are taxable compensation.

Other relevant information

Keep adequate documentation that includes the purpose of the gift, what was spent, the date of purchase, and the business relationship.

Gifts given to a 501(c)3 non-profit are tax-deductible. Up to 25% of taxable income for a corporation.

A large majority of the information I have listed above came from the IRS publication about “Gift taxes”.

Related reading:

Some Often Overlooked Tax Deductions for Business Owners

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Here’s What You Should Do If Your Accountant Has Plead Guilty to Tax Fraud

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tax fraud

If your accountant pleads guilty to tax fraud, they’ve done more than make an honest mistake. Tax fraud involves the willful attempt to reduce the filer’s tax obligation through false statements, documents, or claims. These include  underreporting income, inflating deductions, and similar acts. Tax fraud is a crime and is treated seriously. However, the impact your tax preparer’s actions have on you can vary. If your accountant pleads guilty to tax fraud. Here’s what you need to do.

Understand Your Responsibility

First and foremost, it’s critical to understand your level of responsibility when it comes to your taxes. Regardless of who prepares your documents. You are ultimately responsible for your tax return. If you benefited from your accountant’s actions, and those actions were deemed fraudulent. There will be ramifications. This is true even if you weren’t aware of your tax preparer’s illegal acts.

Know What Can Occur

The exact ramifications you’ll face for fraudulent tax returns prepared by your accountant will vary depending on your situation. If you can prove that you had no knowledge of the fraud and played no role in it being committed. The impact is usually purely financial. The IRS will require you to pay any taxes that should have been paid had the returns been correct. Additionally, you may owe interest on the back amount, as well.

If you did play an active role in the fraud. The outcome could be different. Along with having to pay the amount owed. You could face criminal charges. The exact nature of the charges would depend on your fraudulent actions. If found guilty, you could owe additional fines and penalties or even end up with jail time.

Gather and Review Your Tax Returns

Once you know that your accountant has pled guilty. You should gather up every past tax return they handled. While the IRS can only audit your returns for three years. A guilty plea on the part of your accountant can extend the review window. Thus, giving the IRS the ability to look at more past filings.

The IRS will review these returns to look for fraudulent activity and other discrepancies. So it’s wise to start that process yourself. As a result, it’s best to review every one you possibly can. Which allows you to identify fraudulent activity and estimate the impact.

Usually, you want to conduct reviews yourself. However, you may also want to enlist help from a tax professional. This is especially true if you aren’t fully aware of tax law or don’t understand some of the information contained in your return. Who you turn to for assistance is up to you.  Although you may want to consult with a tax attorney or a reputable tax accountant as a starting point.

Consider Amending Past Returns

If during your review you find fraudulent information on your returns. You may want to amend them. Using Form 1040-X, you can submit updated tax calculations, allowing you to correct the issues proactively.

However, you should only file the amendments proactively if you have not received a notification that an issue has already been identified by the IRS. If you’ve received a notice that a given tax year’s return has already been reviewed and a decision regarding whether additional money is owed is being (or has already been) made. Filing an amended return may either not be necessary or could complicate the situation further.

If you’re uncertain about whether to amend a past return after your accountant pleads guilty to tax fraud. Consult with an expert. A tax attorney could provide you with guidance. Thus, helping you determine which approach is best based on your current situation.

Don’t Avoid the IRS

While you may want to take time to review any tax returns that may be impacted by fraud, don’t actively avoid the IRS. Generally speaking, it’s better to engage sooner rather than later.

Precisely how you may want to engage could vary depending on any communications you’ve received from the IRS. If you’ve been notified about specific dollar amounts of back taxes being owed or other penalties related to your returns, the process may be fairly simple. If you don’t disagree with their assessment and they aren’t pursuing criminal charges against you, you may choose to simply pay the amount (or make payment arrangements if the amount is too large to cover) to end the matter.

However, if you disagree with the assessment or are concerned about criminal liability, you might want to contact a tax attorney first. While this can cost a tidy sum of money, it ensures you have access to a professional who understands the nuances of what you’re going through and can speak to the IRS on your behalf.

Additionally, if you’re simply uncomfortable speaking with the IRS, you can enlist support from a tax lawyer. They can help you navigate the situation and find a reasonable resolution.

Exploring Additional Legal Avenues

If your tax accountant’s actions left you with a significant financial liability, you might want to consider suing the preparer for damages. While this can be costly in its own right, as you usually need assistance from an attorney, it is an option on the table.

Whether it’s the right move for you will depend on the nuances of your case. Additionally, you may want to take the accountant’s financial situation into consideration. If the accountant has no way to pay any amount awarded – either through cash, assets, or other sources – even if you win, you may not see any financial reward for the favorable judgment. This could leave you in a tougher situation, as you could still be responsible for your attorney’s fees, at a minimum.

 

Have you ever worked with an accountant who was later convicted of tax fraud? Has your accountant ever put you in a sticky financial situation? Share your thoughts in the comments below.

 

Read More:

Should You Report Income from the Sale of Your Home on Your Income Taxes?

The Best, Low Maintenance Way to Invest 30K

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If you’ve been building your savings to start investing and you’ve managed to put aside $30K, you may be wondering what your next step should be. How do I invest 30k? What is the best, low maintenance approach?

Here are some great ways to apply that 30K towards growing your wealth.

Pay Off Debt

First and foremost, use some of the money to pay off any debt you may have. It will save you money in the long-run. If you’re carrying a $10K credit card balance with a 15% interest fee, you’ll be paying an extra $1500/year in interest. That’s money that can be better spent on investments down the road. If you want to invest 30k, first start by getting rid of debt.

Emergency Fund

If you don’t already have one, put some of your money aside in an emergency fund so you know you’ll be able to manage if something unexpected happens. You should have 3-6 months’ worth of expenses put aside in an easily accessible account like a savings account. Just make sure it’s not linked to your debit card so you can’t spend it. The period of time you need to cover varies based on how long you think it would take you to find another job should something happen to your current job.

Earning return

What’s next has all to do with three things: risk tolerance, time horizon, and investment objectives. As a matter of fact, that’s how all of your investment decisions are made.

There are several different vehicles you can utilize, so what I’m going to do is give each vehicle its own section, explain what it is, and then give a little more detail as to when it could be used.

Certificate of Deposit (CD)

A bank product with a specified interest rate and a specified maturity. CDs are used to hold money for a specified period of time in a virtually risk-free fashion. More about CDs.

You’ll choose a CD for two reasons. The first is if you want a safe, federally insured vehicle to stash away some cash. The other reason is if you do not want to touch that money for a specified period. For example, you’re going to buy a house in three years and you don’t want to jeopardize that down payment. You buy/invest in a 3 year CD. At the end of year three, you’ll get back your principal (what you put in) and some accrued interest. Early withdrawal penalties apply.

Savings/Money Market Accounts

Typically used for your emergency fund. Easily accessible, and able to earn a little interest.

That’s pretty much it when it comes to these accounts. The interest they offer will be (not always) pretty low, but, like the CD, it offers a very safe place to store your cash until you need it. Unlike the CD, however, there are no early withdrawal penalties.

Qualified accounts

Basically any retirement account. Traditional IRA, Roth IRA, and employer-sponsored plans (401k, Simple IRA, etc.). There are contribution limits associated with these accounts.

With these accounts, as I said, contribution limits are something to pay attention to. With your Traditional and Roth IRA, there’s a $6,000 contribution limit ($7,000 if you’re 50 and older). 401ks have a limit of $19,500 (25,500 for 50 and older). Simple IRA limit is $13,500 ($16,500 for 50 and older).

This is a long term investment solution, as early withdrawal penalties apply. There are several ways to “exempt” yourself from that penalty, however, such as a first home purchase. For an extensive list of these exemptions, click here.

These accounts are also called “tax-advantaged” accounts because, as the name suggests, there are tax advantages. You either lower your taxable income with your contributions or have the ability to withdraw the funds “tax-free” (barring an early withdrawal penalty, of course).

Non-Qualified Accounts

Brokerage accounts or any investment vehicle that doesn’t have any tax benefits. Meaning, you pay taxes on any capital gains and dividends you receive. No contribution limits.

Honestly, the only advantage to these accounts is there is no contribution limit. For example, if you’ve maxed your contribution for your employer-sponsored plan and your IRA, then you can dump the rest of your money here.

Health Savings Account (HSA)

Accounts specifically designed to help you with your medical expenses. Money that you contribute to this account is “tax-free” or “tax-deductible”, which means it lowers your taxable income. Also, the funds, if used for qualified medical expenses, are tax-free.

With some, not all HSAs, you can invest what you’ve contributed. So if you have 30k to invest, I’ll point you to the below section to help with that. There are contribution limits with the HSA, however, so keep that in mind.

Asset allocation

After you’ve selected an investment vehicle (this section does not apply to CDs, savings accounts, or money market accounts), it’s time to invest your capital.

Asset allocation is my preferred method to invest, and I’ve written extensively on it here. So if you want to invest 30k, here’s what you need to ask yourself. How long until I need these funds? What is my ultimate goal for these funds? What am I willing to lose?

If your time period is less than 5 years, ignore this section and stick your money in a savings account or a CD. The risk/reward is unfavorable in this scenario.

If you have, ideally, 10+ years, then you have some options. The next question is about risk tolerance. What kind of portfolio are you comfortable with? Using the stocks/bonds/cash breakdown, are you a 60/40/0 type of person? Maybe you’re quite tolerant and prefer an 80/20/0 approach.

For those of you that are not tolerant of risk and/or you have a shorter number of years until you need to access these funds. Your portfolio should start at 50/50/0, and then adjust as you see fit. The cash portion in this breakdown should be used as investable cash for when you see a buying opportunity and/or funds you’ll need access to in the near future (unriskable capital).

Risk Tolerance

If you really want to know what your unique risk tolerance is, take our quiz!

I know I didn’t really give a concrete answer to what’s posed in the headline, but that’s the thing about investing – it’s incredibly personal. You need to do what’s best for you.

If time is on your side, max your retirement contribution, then put the rest in a savings account until next year. At that time, max it again.

If time isn’t your friend, a CD isn’t a bad idea. As I said earlier, paying down/off debt is incredibly worth it. That’s an automatic 15% return on your money if you pay off your credit card. Money that can be used more effectively going forward.

Read our articles, ask for advice, and do what’s best for you. That’ll help you answer the question: how do you invest 30k?

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see website for full disclosures: www.crgfinancialservices.com