What better way to celebrate Financial Planning Month than to focus on your financial health by implementing some helpful tips for October and beyond. Get a Head Start on Your Giving This Season If there are things you or your business have in excess or aren’t using, you can turn that excess into charitable donations. Not only is your generosity going to help those who need it, but if you donate to a 501(c)(3), you can often deduct at least part of the items’ worth on your taxes. The holiday season is just around the corner, and what better time to do a big inventory check of personal items like clothing, home furnishing, office supplies, and other equipment that many others may need in the new year. And the Tax Cuts and Jobs Act in 2020 also raised the standard deduction for charitable giving to $12,400 for individuals and $24,800 for married couples. Take Advantage of All the Ways You Can Reduce Income Tax Reducing your taxable income is a great way to decrease your tax responsibilities, but many of the ways in which you can reduce it can also help set you up for financial success in the future. Retirement accounts and plans are essential to your financial health as you transition away from the workplace. And that transition is much easier when you have spent your whole working life contributing to your retirement. 401(k), 403(b), and traditional IRA accounts all offer different avenues toward a relaxing future. So why not increase your contribution as we head into the end of the tax year 2021? Health savings accounts (HSAs) give you a multitude of tax benefits, including tax-deductible contributions, tax-free earnings, and tax-free withdrawals. Flexible Spending Accounts (FSAs) offer similar benefits to HSAs. Allocating some of your money here can help you two-fold: you can prepare for the inevitable health expenses while also foregoing taxes. If you are interested in continuing your education, 529 plans are a great choice. With one, you …
How the American Rescue Plan Changes Your Taxes
On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law with the goal of providing economic relief to promote family, state, and local recovery from the COVID-19 pandemic. Let’s talk about how that changes your taxes for 2021. Economic Impact Payments The third round of economic impact (or stimulus) payments went out in the spring of 2021. The first two rounds went onto your 2020 taxes and brought lots of confusion with it. Your last economic impact statement isn’t taxable because it isn’t income. It is classified as an advance payment of a tax credit, so it won’t change your taxes this year at all. If you didn’t receive your third stimulus check, or you received less than you’re entitled to, you can talk to your tax professionals to see if you can claim credit for the amount on your 2021 tax returns (which will be filed next year). Employee Retention Credit Originally set to expire at the end of June 2021, the Employee Retention Credit has been extended through December 31, 2021. If your business was hit hard and has gross receipts down by 90% or more compared to the corresponding quarter in 2019, you can claim this credit on all wages paid to employees who have continued to work during the quarter. You can use this credit to offset the employer’s share of Medicare taxes. COBRA The American Rescue Plan Act also allows any employees and individuals who were involuntarily terminated or who experienced reduced work hours the option to receive Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage without paying any premiums or fees from April 1, 2021, to September 30, 2021. Employers are responsible for these fees during this time. Excess Business Losses Under previous laws, owners of pass-through entities were able to deduct losses in excess of a specified amount as specified by IRC section 461(I). The cap on business loss deductions was supposed to expire at year-end in 2025, but that has been extended another …
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What to Do If Your 1099s Have Errors
Changes to Form 1099-MISC and 1099-NEC in the tax year 2020 mean you should be extra vigilant in your filing of these forms to prevent errors. But what happens if your 1099s have errors? Let’s talk about it. Wrong Form One of the first major errors you can encounter is the use of the wrong form. With the updates regarding 1099-MISC and 1099-NEC, it’s very easy to flip-flop these forms and fill them out incorrectly. The Balance Small Business uses the example that you have to use the 1099-NEC for attorney fee payments, but you’ll report gross proceeds to attorneys from lawsuits using the 1099-MISC. If you use the wrong form, be sure to double-check the instructions and let your tax service know, or – if you are doing the filing yourself – prepare and file the red Copy A with the IRS. Filling in the Wrong Box Sometimes, it’s not the form that is wrong, it’s the box you used incorrectly. Some examples include rent, which is found on box 1 and which will be shown on a 1040 Schedule E, or “other income” (which in and of itself is tricky to understand) which can be found on a 1040 Schedule C or other 1040 form. The IRS treats different income types very differently, depending on what boxes you choose to use. For 1099-MISC and 1099-NEC, be sure you have thoroughly read the instructions from the IRS before you begin inputting your information on the final forms. Name and TIN Errors If you made a mistake regarding your name, taxpayer identification number (TIN), or both, you will not need to file a corrected 1099. Instead, you will need to write a letter to the IRS with the following information included: Name and address Type of error, Tax year TIN Transmitter Control Code Type of return Number of payees Filing method Whether federal income tax was held The letter must be mailed to: Internal Revenue Service Information Returns Branch 230 Murall Drive, Mail Stop 4360 Kearneysville, WV 25430 Filing Corrected 1099s If …
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Hiring Independent Contractors – What You Need to Know
Hiring an independent contractor is a great way to get a temporary or occasional job done when your staff doesn’t have the time or expertise to do a specific job. Here’s what you need to know about hiring independent contractors. Why Hire Independent Contractors Independent contractors are great when you need a specific, but often not permanent or daily, job to be done. Hiring independent contractors can save your company time and money by having skilled professionals on hand to analyze problems and find quick solutions. It also helps by keeping projects that are unrelated to your staff’s core duties off their proverbial desk. No need to pull a vital employee from their normal job to have them try and perform a task they are not familiar or comfortable with, or in some cases qualified for. This also allows you to pay an individual for their services without having to add the financial and resource burden of another employee. Pros and Cons of Hiring Independent Contractors Like with anything, there are pros and cons to hiring independent contractors for your business. Pros: You’ll likely save money: Though you’ll be paying more per hour with an independent contractor, you don’t have to pay a number of expenses associated with hiring an employee, like Social Security tax, Medicare tax, unemployment compensation, worker’s compensation, etc. It’s more flexible: Hiring and letting go of staff members is hard. With independent contractors, you can feasibly hire double (or half) the contractors on a day-to-day or job-to-job basis, without the attachment issues and repercussions. Cons: You have less control: Since an independent contractor is just that, independent, you don’t have as much say in how and when things get done. Your workers are more apt to come and go: You trade consistency for efficiency – you may not know which person will show up on a given day to work on a project. For more pros and cons of hiring an independent …
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FAQs for Filing Taxes
No matter who you are or what you do, you’re going to have tax questions. Let’s take some time to go through the most frequently asked questions for filing taxes. Are Unemployment Benefits Taxable? In 2020, the unemployment rate reached 14.8%, which is the highest rate observed since data collection began in 1948. And many people had to include unemployment benefits in their 2020 (and possibly their 2021) tax returns. Typically, unemployment income is taxable. If you collected unemployment payments, you will receive Form 1099-G which will show your total payments. It is also worth noting that under the 2021 American Rescue Plan, the first $10,200 (or $20,400 if married filing jointly) of unemployment income was tax-free on your 2020 taxes. No word yet if those provisions will carry forward to the tax year 2021 returns. What Is Self-Employment Tax? Self-Employment tax is a separate tax from your typical personal returns. It is a self-employed person’s version of the FICA tax, in which the independent contractor is responsible for paying for Social Security and Medicare. This is important to remember because those who are self-employed are responsible for both the employer and employee portion of the tax. Do I Need a FEIN for my Home Business? If you run a business out of your home as a sole proprietor, you don’t need a Federal Employer Tax ID Number. You can use your personal Social Security number. Any other business setup, however, will require you to set up a FEIN. What Are the Tax Ramifications of Withdrawing Money from a Retirement Account? Before the age of 59 1/2, withdrawing money early from a retirement account comes with a 10% tax penalty. The money may also bump you up into a higher tax bracket. I Started My Own Business. Can I Take Advantage of Home Office Deductions? Home office deductions are a little tricky. If you started a business and are looking into home office deductions, you’ll want to make sure everything you purchased …
Why You Should Hire a Tax Pro
On the fence about hiring a tax professional, buying tax prep software, or just filing taxes yourself? Let’s compare them! Pros and Cons of Tax Prep Software Tax preparation software is a great way to do your own taxes in a way that offers subtle guidance. So let’s talk about the pros and cons. The pros: tax software is affordable, speedy, and (if you got a good one) easy to use. Purchasing software will always cost less than hiring a real-life CPA or another tax pro. And this price is tailored to your tax needs. If you have an easy return, without lots of property dependents, and business accounts to reconcile, you will pay much less than someone who does have assets in all of these areas that need to be accounted for. As for speed, once you’ve collected all the necessary information, doing your taxes using tax prep software should very rarely take you more than an hour. And most software is straightforward, instructional, and user-friendly. Many of the cons of tax prep software will be pros for hiring a tax professional and vice versa. Using tax prep software means that you are going it “alone” in a sense – while the software may have helpful tools and insights if you get stuck, it doesn’t have the human touch and knowledge that a trained tax preparer will. Tax prep software also isn’t as well-equipped to handle more complex questions. And with all the COVID aid and new tax rules present in tax years 2020 and 2021, it’s much more likely that you’ll need some extra help navigating those changes. Pros and Cons of Hiring a Tax Pro Hiring a tax pro comes with its own unique perks. One pro of paying someone else to do your taxes is that you don’t have to do them! But besides that, professional tax preparers often have much more advanced (and expensive) tax software they use to make sure your taxes, corrections, and TIN checking are done correctly and accurately. Arguably the biggest pro to hiring a tax preparer is the human touch element. When …