Tag: Taxes

10 Purchases You Didn’t Know Were Tax Deductible
The tax season is almost here, and several small businesses defer their tax proceeds in fear of what’s to come. No worries, we have come to remind you of some tax items you may have overlooked.

A lot of small businesses exclude daily expenses in their tax return deductibles. Usually, these expenses reduce what you can reinvest. But you don’t need to worry (even though you’re a new to tax), this could be an opportunity to earn back some money.

Keep reading to see some purchases you didn’t know were tax-deductible – hopefully, you might get to save extra cash to help with cash flow.

Medical and Dental Bills

Nothing strains your income like emergency medical or dental bills, but the IRS makes these out of pocket expenditures easy for us.

Medical and dental bills that exceed 7.4% of your adjusted income are considered tax deductible by the IRS. That means you can save extra cash out of those sudden medical bills. Great, right?

Student Loan Interest Paid by You or Someone Else

Student loans are bad, and we all know it but what is even more horrible is the interest. Some stipulations make student loan interests tax-deductible.

If your student loan interest is more than 4%, the IRS allows you to deduct $2,500 from your taxable income. And get this; this deduction still works even if someone else paid the interest on the loan for you. However, this golden gift is only for people whose individual income is less than $80,000 per year.

Donations to Registered Charitable Organizations

Giving is an act of kindness and the IRS rewards that by awarding a tax deductible for charitable work. If you’ve been an ardent giver to local charities and this does not have to be large monetary donations, you can deduct these from your taxable income.

So, collate and add up the cost for that cake you made for a charitable organization. And remember to include 14 cents per mile for every trip you made for a charitable organization.

Home Improvement Renovations

Yes, the IRS recognizes and offers tax deductibles for home improvement renovations but only when they are done for medical purposes. So forget about getting a tax-deductible for that new pool you installed.

If you have had to make certain changes to accommodate a medical situation, the IRS would consider this expenditure and deduct it from your taxable income.

Compensation from Jury Service

Being a Jury is a great opportunity to play an active role in the criminal justice system and society. In addition to the salary concessions made for juries which make provision for them to be paid even while on jury service, they receive compensation from the state.

Although this money is often remitted back to the company where they work, it is tax deductible. If you’ve been a jury this year, just deduct the compensation from your taxable income.

State Sales Tax / Local Tax

If you haven’t been making use of this tax-deductible, then you’ve been missing out on saving extra money. You can deduct either your local income tax or your state sales tax. You can choose to deduct whichever tax would benefit you better.

For states like Texas and Washington that don’t pay income taxes, there is no choice; they have to deduct their state sales tax. For people living in the other states, pick between your state sales tax and your local income tax and subtract from your taxable income.

Expenses Incurred While Job Hunting

Looking for a job does take its toll not only on your finances which is a heavy impact but also on your mental well-being. While the IRS can’t do anything about the latter, they can help out with the former.

Any expense you incur while Job hunting and even after you get a job is recognized as a tax-deductible by the IRS. But you need to meet some conditions for this. One of them is that the job you’re going for must be within your field of study.

The following expenses are tax deductible under this heading:
- You can itemize any amount incurred from having your resume reviewed by professionals as long as you have receipts for this service.
- Travel expenses are also tax-deductible, and they cover gas expenses for transporting yourself for interviews.
- Moving costs necessitated by a new job are also tax deductible by the IRS. If you move within 50 miles, you should calculate 23 cents for every mile.
Child Care Tax Credit

Expenses double when you have kids and during the holiday, those expenses triple, especially when you have to pay for summer camp or babysitters to watch them.

The Child and Dependent Care Act recognize these expenses, and you can deduct $3000 for each child or dependent and $6000 for two or more. This tax-deductible is only valid as long as the babysitters aren’t family or relatives.

Loss from Disasters or Accidents

Any damages that aren’t covered by your insurance company can be claimed as tax deductibles.

Out of Pocket Teaching Expenses

Many teachers often have to make out of pocket expenses to aid their teaching. The IRS offers a tax deductible for these expenses even if they aren’t itemized. All teachers are allowed to subtract $250 from their taxable income.

Final Thoughts

You need to keep evidence of purchase and written records for every item you claim. Also, make sure you check with your tax expert to know how much and if you qualify for these tax claims. If you have any questions, feel free to contact us. We’d love to help you!
December 13, 2019
HOW TO PREPARE YOUR BOOKS FOR YEAR-END

Year-end is usually the time to take stock and review the current year. For small businesses, it signals the completion of an accounting period – hence the need to put things in order in preparation for the next period.

As a business owner, you must close your books at least once a year to file an income tax and also prepare financial statements. Beyond this, it also helps you to know where your business stands financially. With that, you can make the necessary adjustments or changes.

Below we’ve put together ten steps that you can follow to prepare your books for year-end. This will help every small business owner, especially the DIY enthusiasts who do their bookkeeping themselves.

Reconcile your monthly transactions

Reconciling your monthly transactions and bank statements are very vital. It makes preparing your books at the end of the year simpler and straightforward. Further, it makes you track every financial activity that occurs in your company. So, by year-end, you know what to expect.

Work toward sending 1099s

These are tax forms from individuals or companies that your firm has made payment to. It could be for either rent or other services. You must file these forms with the IRS at the appropriate time.

This process requires you sending out IRS form W9 to these vendors and then recording the accurate information into your bookkeeping system in readiness for the next accounting period.

Take year-end inventory

Be it physical products, supplies, or assets; you must take inventory, and then compare it to the value you have on your balance sheet. Ensure that there are no irregularities (missing or damaged items). If you notice any, make sure you record them accordingly.

Record all payments from your clients

You need to record all payments from clients as soon as possible. This helps you to keep an accurate record of all received payments and the outstanding ones, if any. It also makes it easy to balance your book at the end of the year.

Print a year-end general ledger

The YTD general ledger shows the opening and closing balances of your accounts in the year. It includes the total debits and credits as well as the net activity within this same period. You should always do a thorough check to ensure that all the transactions are posted to the correct accounts with documents to back them up.

Review your accounts payable and accounts receivable

The essence of doing this review is to ensure that your accounts payable and accounts receivable are in order. Doing this could help you uncover some discrepancies. For instance, you could find invoices that you’ve already paid in accounts payable.

Or discover amounts in accounts receivable, whereas they have not been billed for. Try to access all the invoices and ensure that there are no pending payments. What your statements say should tally with the activities that have taken place.

Reconcile all credit card accounts and statements

Ensure that you sort out all expenses charged to a credit card and also make sure that they are dated correctly. Note that the expenses should be dated when charged and not when the statement is paid.

This means that it’s possible to charge expenses at year-end, have the statements come at the beginning of the next year, and still be able to capture the expenses in the current year.

Go through your income statements

After reconciling your transactions, you can view your income statements to see how your business has fared overall. This will include expenses as well as profits and deficits. You need to do this monthly, so you can spot irregularities before they escalate.

Review your balance sheet

A balance sheet reveals the current value of your business. In reviewing it, try to compare the present value to previous periods. It helps you to see the progression or decline as the case may be. Also, you need to look out for other irregularities and sort them out immediately.

Budget for the next year

When you’re done with all the necessary checks and balances and have a clear picture of how things stand, you can then proceed with the following year’s budget. You must put every tiny detail into consideration while doing that, so you don’t get it wrong. Having a wrong budget will not only deny you profit, but it may also cause you to run on a loss.

Preparing and closing your books for year-end should never be seen as a mere formality. It is something that every business owner must do to keep track of their business’s financials. Aside from helping you to prepare your books efficiently, the above steps will also make your general bookkeeping experience a pleasant one.

If you would like assistance with closing your books or would like an analysis of your closing process, please contact us.

November 15, 2019
The Reality of IRS Scams

When fraudsters engage in phishing, they often use the Internal Revenue Service to deceive victims. It is, possibly, the most mimicked government agency used in scams to get your personal information.

Sadly, many people have lost a lot of money and their personal data to tax scams. Theses scammers employ the usual telephone, email, or mail to set up companies, people, and tax professionals.

While the authorities are doing all that they can to bring the perpetrators to justice, there’s a lot you can do to protect yourself. Information is key, and this article contains substantial information to help you avoid being scammed.

What You Should Know About Scams

It is essential to know how these scammers go about their criminal acts. Knowing this will help you be more vigilant and alert.

     I.       Scammers make contacts through emails, text messages, or phone calls. Here they hide under false identities to ask for your personal information. With these vital details, it’s easy for them to defraud you.

   II.       Scammers go under the guise of the Taxpayer Advocacy Panel (TAP) to make claims of a possible tax refund. This usually results in taxpayers revealing their personal information to get these refunds. TAP never requests personal information; they only play advisory roles to the IRS.

  III.       Some of these scammers are very sophisticated, big, and well organized. They operate on a high level of impersonation and usually have a lot of information on their targets. They could even have real IRS employee badge numbers or logos. Therefore, these aggressive identity thieves are very careful and thorough, so it’s easy to fall prey to them.

IV.       With the help of some vital information, they can infiltrate and doctor your tax returns. They can also make changes to your tax liability and then demand immediate payments. Some of them can go as far as threatening you with criminal fraud charges.

   V.       Additionally, scammers target information on the W-2 forms to initiate their fraudulent activities. The W-2 form reports the employees’ annual wages and the amount of taxes deducted from their paychecks. Scammers use data from these forms to carry out the W-2 scam.

The Red Flags You Should Look Out For

Below we will give you some tips on how the IRS operates. With that, you can easily detect the fraud attempt when you notice the contrary.

     I.       IRS never contacts taxpayers or businesses to request personal or financial information, not through emails, text messages, social media, or phone calls. It makes contact through mail delivered by the US Postal Service. Even in the few cases where it calls or visits taxpayers, the IRS will have sent a series of “notices” before that.

   II.       The IRS does not call taxpayers to demand payments through debit cards, gift cards, or wire transfers. However, it does usually send tax bills to taxpayers through the mail.

  III.       The IRS will never threaten taxpayers with police arrests or revoking of licenses. It, rather, gives guidelines on how taxpayers can pay their taxes to the United States treasury.

Sound Accounts is an establishment that understands licensing. If they handle the licensing and notary aspects of your business, scammers don’t stand any chance.

IV.       As a taxpayer, you have every right to contest your tax liability. The IRS always gives you the fair opportunity to do so.

   V.       The IRS can use private debt collectors to collect taxes. Note, however, that these debt collectors are not the ones that receive the payments. When real payments are sent, the taxpayers pay to the US treasury through the IRS.

What You Should Do

     I.       Any contact via email or text message will likely be a scam. It’s therefore advised that you don’t respond to such messages or download file attachments. You should forward such emails and texts to phishing@irs.gov, and then delete the message

   II.       When you get phony phone calls, make sure you don’t disclose personal or financial information to the caller no matter how authentic the number looks. Hang up instead and call the IRS phone number (1-800-366-4484) to verify the authenticity of the caller.

Unfortunately, IRS scam is real, and it has caused a lot of taxpayers millions of dollars. It may be challenging to be completely free of these scams, but you can increase your chances of safety. Some of these scammers, as we read, tend to target your filing system as a business or even individual.

It, therefore, becomes important that you have competent professionals to handle vital and delicate administrative roles for you. Such precautionary measures, coupled with the information we’ve provided above, will go a long way to protect you from scams. Good luck!

September 13, 2019
IRS Releases New Draft of Form W-4

The IRS has been trying to release a W-4 that more closely reflects the changes in the Tax Cuts and Jobs Act (TCJA) that was passed in 2017. These changes made by the TCJA affected itemized deductions that were normally claimed on a Schedule A and eliminated personal exemptions. While the IRS did give us a new W-4 in February 2018, this new form did not cover situations for all taxpayers. In June of 2018, the IRS released another draft version of the W-4 for 2019. Unfortunately, that draft was also met with criticism from tax professionals who felt that the form still wasn’t enough to protect taxpayers from claiming the wrong withholding. Taking the criticism to heart, the IRS did not release a 2019 W-4. Additionally, the IRS announced that penalty relief might be available and, in March of 2019, the IRS expanded the relief for those taxpayers making payments of at least 80% of the tax shown on the return for the 2018 taxable year. Despite the penalty relief, concerns about withholding remained.

Yet Another Draft

Because of these concerns, W-4 revisions have remained a priority to the IRS. This morning, the IRS premiered another draft version of the W-4 to be used in 2020. That draft can be viewed here (downloads as a PDF). The draft form is a little bigger than the older W-4 – taking up a whole page and including additional worksheets.

“The new draft Form W-4 reflects important feedback from the payroll community and others in the tax community,” said IRS Commissioner Chuck Rettig. “The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.”

While the IRS may believe this form is more simplistic, they want you to account for multiple jobs within your household, including whether you held more than one position or you and your spouse work and file jointly. Another section asks taxpayers to claim their dependents and to include the $2,000 child tax credit for each child under 17 or the $500 credit for other dependents. Additionally, taxpayers can use this form to clearly outline other types of income that didn’t have taxes withheld such as interest, dividends, or retirement income. Lastly, you can list the number of deductions you expect to claim if you think you’ll be itemizing.

For many, this form is anything but simplistic.

What About 2019

As we approach the mid-year point, we are running out of time for taxpayers who may have been unhappy with their 2018 tax return. “Two-income families and people with multiple jobs may be more vulnerable to being underwithheld or overwithheld following these major law changes,” the agency said in a statement.

In order to feel more certain about your 2019 return, we suggest you work with your CPA or take a look at the IRS Withholding Calculator to figure out how much to have withheld from your paychecks.

More Changes Coming

Although the IRS has given us a new draft to review, they are taking public comments at WI.W4.Comments@IRS.gov. Comments should be submitted before July 1, 2019 and they won’t be responding to any comments. The IRS is planning to release employer instructions soon. They advise that you see this website for the latest Form W-4 information and this website for the latest information on employer instructions.

May 31, 2019
Tax Deductible Categories for Small Businesses

As the calendar turns, it won’t be long until annual taxes are due. Business owners have different categories they can claim as deductions. Here are 10 categories to remember when seeing your tax professional:

Employee Pay and Benefits

Everything you pay your employees in salary and most benefits are a tax benefit to you. Double check with your tax professional

Auto Maintenance and Mileage

This one can be tricky to navigate. You must keep good records, but you can claim the maintenance costs or the mileage deduction. Your tax professional can help you determine which way would be best for you.

Home Office

Home offices can be a deduction for you on your taxes. This includes costs for utilities, security, maintenance, cleaning, etc. Work with your tax professional to get the most for you.

Education

Seminars, symposiums and trade shows that are related to your business are deductions. Remember to include any trade magazine subscriptions, training CD’s/ DVD’s and all other training materials.

Advertising and Marketing

Include all areas where you pay for a service. Promotional costs are also included in the category.

Outside Help

Not just the office cleaning crew. Review the records of anyone you pay as part of your business that is not an employee. Hire your kids out to help stuff your mailing envelopes. They may be a deduction for your business.

Service Fees

Do you pay for processing credit card payments? Does your bank charge maintenance fees? Keep track, because it may mean a deduction for you.

Professional Fees

Do you have a lawyer? An accountant? A tax adviser? A bookkeeper? (If you don’t, you should call us.) All of those fees are deductible to you.

Licenses

Keep track of all licenses, fees and permits that you are required to operate your business. They are likely a deduction

Taxes

As strange as it may sound, taxes incurred while running your business, are a deduction. After all, they are a business expense.

Always consulate your financial professional as they have the training and knowledge to ensure you follow the appropriate tax law. Sound Accounts is always ready to help you with your business needs.

January 20, 2019
Unfiled Tax Returns

A non-profit came to us one day because they received a bill from the IRS for over $120,000 plus penalties and interest for failure to file their tax returns. They were in a panic and had no idea what to do. This is where we stepped in.

The Issue

This non-profit thought they had been compliant. That is, until they realized their treasurer had been stealing money from them. Additionally, they had no idea that the treasurer hadn’t been filing the non-profit’s tax return for the past three years. Per the IRS, “the maximum penalty for any return is the lesser of $10,000 or 5 percent of the organization’s gross receipts for the year. For an organization that has gross receipts of over $1 million for the year, the penalty is $100 a day up to a maximum of $50,000.”

The Plan

First, we knew we had to work quickly. We had to get all their information into a QuickBooks file so that we could produce financial statements. Then we had to have a tax preparer utilize those statements to file the past due tax returns. Lastly, we had to put together a letter explaining the situation this non-profit was in and their plan to keep this from happening in the future.

The Work

We quickly started putting together their numbers for the years they had not been compliant. This was not an easy task as they did not have all the information readily available. They had to go to their bank and request paper copies of their prior year bank statements because they were no longer available to download online. They also had to speak to their bank and request copies of checks that were written because they had no idea what some of their expenses were. Once we had all the information together, we entered it into QuickBooks and produced financial statements.

The Wait

As soon as we had everything together and handed it off to the tax preparer, we put together the letter explaining the situation the non-profit was in and the systems they had in place to ensure future compliance. Our letter also outlined the financial situation this penalty was putting them in and asked that the penalties and interest be waived. We knew that the IRS might not be so lenient, but we had to ask as trying to pay this amount would surely put this non-profit out of business. Once our CPA put the tax returns together and sent them in with our letters, all we could do was wait.

The Outcome

Several weeks passed without any word from the IRS. Then, approximately two months later, our non-profit client called us. They were giddy with excitement! They had just received a letter from the IRS informing them that all fines, penalties, and interest had been dropped. The non-profit owed nothing to the IRS. They couldn’t thank us enough! So, if you find yourself in a situation with the IRS, give us a call. We would be more than happy to help you work your way through these issues and we have an amazing CPA that we partner with to take care of your tax issues.

June 15, 2018
Protect Your Identity
The thieves are eager to submit tax returns under your name and claim your refund dollars for themselves. The IRS is already warning consumers against new email scams that target specific email accounts. Scam phone calls are also abundant. So what steps can consumers take to protect their identity?

Webinars

The FTC offers multiple free webinars and Twitter chats to talk about this issue. We suggest you visit them to participate, however, here is a sampling of some of their offerings:
- January 29, 2 p.m. EST — The FTC and the Identity Theft Resource Center co-host a webinar for consumers about tax identity theft, IRS imposter scams, how to protect yourself, and recovery steps for victims.
- January 30, 2:30 p.m. EST — The FTC, AARP Fraud Watch Network, AARP Foundation Tax-Aide program, and the Treasury Inspector General for Tax Administration invite consumers to a webinar about tax identity theft and IRS imposter scams.
- January 31, 11 a.m. EST — The FTC and the Department of Veterans Affairs co-host a Twitter chat for service members, veterans, and their families about minimizing your risk of tax identity theft and recovering if you’re a victim.
- January 31, 1 p.m. EST — The FTC, the Department of Veterans Affairs, and the Treasury Inspector General for Tax Administration discuss tax identity theft, IRS imposter scams, and what to do if you become a victim. This is a closed webinar for Veterans Administration employees, patients, and contractors.
- February 1, 1 p.m. EST — The FTC and IRS offer a free webinar for small businesses about tax identity theft, imposter scams that target businesses, cybersecurity, data breaches, and free resources for your business, employees and customers.
- February 1, 3 p.m. EST — The FTC and the Identity Theft Resource Center invite consumers to join a Twitter chat about tax identity theft, its warning signs, and what to do if it happens to you.
Additional Tips

Aside from educating yourself with the webinars and chats listed above, below are some steps you can take to keep your tax identity safe.
- File your return early. Early filing makes it difficult for identity thieves to file a return on your behalf.
- Respond to all IRS mail promptly.
- Learn to recognize and avoid phishing emails, threatening calls, and texts posing as your bank, credit cards, or the IRS.
- Don’t click on unknown or suspicious links or open attachments from strange emails.
- Don’t care your Social Security Card with you.
- Shred old bank and tax documents as well as credit card offers.
- Stay informed of data breaches that may affect you and put a fraud alert on your credit record if you find you were a victim of a data breach.
- Protect your mail by installing a lockable mailbox.
- Become well versed in your credit and bank statements. Therefore, we suggest that our clients pay attention to credit scores and freeze credit information if they won’t be applying for credit anytime soon.
- Place credit freezes on anyone under 18, the disabled, and the elderly as they are the most likely to become victims to identity theft.
- Be sure that no financial transactions may be authorized by email. This can help prevent fraudulent wire requests.
If You’re a Victim

First, don’t panic. Being notified that a return has already been filed for you can be frightening. However, the IRS has made tax-related identity theft a top priority. Here is what the IRS says you should do if you are a victim of identity theft from the IRS:
- All victims of identity theft should follow the recommendations of the Federal Trade Commission: File a report with the local police.
- File a complaint with the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338 or TTY 866-653-4261.
- Contact one of the three major credit bureaus to place a “fraud alert’ on your account:
  - Equifax – www.equifax.com, 800-525-6285
  - Experian – www.experian.com, 888-397-3742
  - TransUnion – www.transunion.com, 800-680-7289
- Close any accounts that have been tampered with or opened fraudulently.
If your SSN has been compromised and you know or suspect you may be a victim of tax-related identity theft, take these additional steps:
- Respond immediately to any IRS notice; call the number provided.
- Complete IRS Form 14039, Identity Theft Affidavit. Use a fillable form at IRS.gov, and send according to instructions.
- Continue to pay taxes and file your return.
- If you previously contacted the IRS and did not have a resolution, contact the Identity Protection Specialized Unit at 800-908-4490. They have teams available to assist.
The IRS has greatly reduced the time it takes to resolve identity theft cases. Unfortunately, these are extremely complex cases, frequently touching on multiple issues and multiple tax years. It can be time consuming. A typical case can take about 120 days to resolve.

Contact the Taxpayer Advocate Service toll-free at 877-777-4778 if you are experiencing financial difficulties and are unable to get your issue resolved.
February 15, 2018