As we approach the April tax deadline, now is an ideal time to review tax tips that will help you better understand accounting for major life events and milestones. In this article, we will take a look at the most common milestones and how to handle the tax aspects of each.

Death

Losing someone is one of the hardest life events we face, and taxes are likely the last thing on your mind in the wake of a tragedy.  Knowing the right questions to ask when tax season rolls around can make the process a lot less stressful. If you received an inheritance from an estate at the loss of a loved one, taxability is dependent on how the assets and their bequeathal were set up. Be sure to seek counsel from a tax professional to review anything included in your bestowal to ensure your accounting accurately for your inheritance.

Having a basic knowledge of how life’s biggest milestones may impact the way you file your taxes is essential to ensuring that tax season goes smoothly for you and your family. That being said, working with a tax professional is a great way to ensure that you’re not missing out on any beneficial deductions or credits this year, or in the years to come.

Conclusion

The IRS website has a very in-depth list of major life events and how they affect your taxes. You can read the information by following this link. Also, there are helpful tools that will streamline your taxes by converting your bank statements to PDFs for ease in filing your taxes.

Educating yourself about how any major life events affect your taxes is empowering! Share this article so your peers can benefit from the information we have offered. They will thank you at tax time.

Sources

• https://www.irs.gov/individuals/managing-your-taxes-after-a-life-event
• https://www.taxslayer.com/blog/life-events-affect-tax-return/
• https://www.cpapracticeadvisor.com/2024/03/19/tax-filing-tips-for-lifes-biggest-milestones/102923/

The post Tax Filing Tips For When You Experience Major Life Events appeared first on MoneyThumb.

Whether you're a seasoned accountant or just starting out, there are a few key things to keep in mind as the IRS deadline approaches. From double-checking everything to communicating with your clients, staying organized, and using tax software, these tips can help you stay on track and ensure that you're providing the best possible service to your clients.

In this article, we'll share some last-minute tips, covering everything from knowing the deadlines to recent tax law changes, reviewing previous years' returns, and most importantly, taking care of yourself. By following these tips, you can make tax season a little less daunting and a little more manageable. So, let's get started!

1. Know Your Deadlines

While the April 15th deadline is the most well-known tax deadline, there are other deadlines that you need to be aware of. For example, if your client is self-employed, they may need to make estimated tax payments throughout the year. As well as this, if you have multiple clients you’ve likely already set personal deadlines to help keep yourself on top of your work. Be sure to stick to these deadlines to minimize stress and leave enough time for final checks.

2. Communicate with Your Clients

Communication is key during tax season. Make sure that you are regularly communicating with your clients, whether that's through email, phone, or in-person meetings. If you have any questions or concerns about your clients' taxes, it’s always best to reach out to them and ask for clarification. It's better to have all the information you need upfront, rather than having to go back and make changes later or risk penalties for incorrect returns. Consistent communication will help you stay on top of any changes in clients’ financial situations and ensure that you are providing the best service possible.

3. Stay Organized

Staying organized is crucial during tax season. That means organizing your paperwork, files, and documents ahead of time so that you know exactly what needs to be filed. Make sure you have a system in place that works for you, whether that's a digital system or a physical filing system. This will help you stay focused, work quickly and avoid any mistakes. You don't want to be left reeling as the deadline approaches trying to find missing documents or information. If you find yourself procrastinating or panicking in these last few days, take a few moments to reorganize and clear your workspace.

4. Know Your Deductions

Knowing your deductions is essential during tax season. Make sure that you are familiar with all the deductions and credits that your clients may be eligible for. This can help you maximize their tax savings and ensure that they are not missing out on any potential benefits. Although tax season is a stressful time, you can still impress your clients and keep them coming back for years to come.

5. Stay Up-to-Date

Tax laws and regulations are constantly changing, so it's important to stay up-to-date on any new developments. Make sure that you are aware of any changes that may impact your clients' taxes and that you are taking them into account when preparing their returns. For example, the standard deduction has increased to $27,700 in 2023 for married couples filing jointly. There will also be an increase for single filers, who may claim $13,850, $900 more than last year. Keeping on top of these changes will ensure that you are providing accurate advice to your clients and taking advantage of any new tax breaks or deductions that may be available.

6. Review Previous Years' Returns

Take some time to review your clients' documentation, most importantly their previous years' tax returns. This can help you identify any recurring issues or problems, such as missed deductions or errors. It can also highlight potential changes in your client's financial situation that may affect their taxes.

7. Double-Check Everything

Before you file your clients' taxes, it's essential to double-check everything. This is the last chance you’ll have to make sure that all the numbers are correct and that you haven't missed any deductions or credits. Double recordings are another common mistake that can be easily avoided with a thorough re-check. Even a small mistake like this can result in penalties or additional taxes owed, so it's crucial to take the time to review your work carefully. Remember to always back up your work after every draft!

8. Use Tax Software

If double-checking isn’t good enough for you, tax software can be a valuable tool during tax season. This software can help you prepare and file taxes more efficiently and accurately, and it can also help you identify any potential issues or errors in your workings. Plus, if you struggle to keep on top of things, constantly tidying your desk or searching for that one document that seems to evade you, accounting software can be a simple way to organize all the important information you’ll need over the next few days. If you're not already using tax software, it's worth considering.

9. Take Advantage of Tax Season Deals

Although it may be a little late for accounting software to help with this tax season, some software providers and tax preparation services often offer deals or discounts during tax season. Be sure to take advantage of these offers and get the best value for your money, so you can utilize tax software during next year’s crush.

10. Know the Signs of Procrastination

Procrastination is a common problem during tax season. It's easy to put things off until the last minute, but this can lead to additional stress and mistakes. If you’re prone to procrastinating when things get too stressful, make sure that you are aware of your triggers and can nip any procrastination in the bud. If procrastination seems unavoidable, it may be time to take a break and re-center yourself.

11. Take Breaks

Speaking of breaks, while it may be tempting to work non-stop during tax season, it's important to take some time out now and again. Taking short breaks throughout the day can help you stay focused and productive, and it can also help you avoid burnout and other long-term issues.

12. Be Prepared for Extensions

Sometimes, despite your best efforts, you may not get all the information you need on time and will have to file for an extension. Make sure that you are prepared for this possibility and that you are aware of the deadlines for filing extensions. Although it’s often avoidable, it’s much better to file for an extension than to rush through the filing process and make mistakes.

13. Consider Outsourcing

If you're feeling overwhelmed with the amount of work you have to do, why not consider outsourcing some of it? Whether this be by checking in with others at your practice and seeing if they can help, or hiring an external aide. You can outsource tasks like data entry, bookkeeping, or even tax preparation to a qualified freelancer or another professional. This can help you save time and reduce your workload but does require some planning and coordination. If you find yourself with extra time, check in with your colleagues and see if there’s any way you can assist them with their workload, too.

14. Don't Forget About State and Local Taxes

While federal taxes may be your primary focus during tax season, it's important not to overlook state and local taxes. Make sure that you are familiar with the tax laws in your state and any local municipalities where your clients reside. This will help you avoid costly mistakes and ensure that your clients are in compliance with all tax laws.

15. Prepare for Audits

While audits are rare, they can happen. Make sure that you are prepared in the event that one of your clients is audited. Keep detailed records and documentation to support your clients' 2023 tax returns, and make sure that you are available to provide a timely response to any audit requests.

16. Take Care of Yourself

Finally, it's important to take care of yourself during tax season. Long hours, tight deadlines, and high-stress levels can take a toll on your physical and mental health. Make sure that you are taking regular breaks, getting enough sleep, eating healthy, and socializing or engaging in stress-relieving activities. A healthy work/life balance will allow you to maintain a positive attitude during tax season. While it can be stressful and overwhelming, remember that you are helping your clients navigate a complex and confusing process. Focus on the positive impact you're having and celebrate your successes along the way.

Sources

• https://tax.thomsonreuters.com/blog/how-to-survive-tax-season/
• https://synder.com/blog/tax-season-2021-5-survival-tips-for-busy-accountants/
• https://www.gobankingrates.com/taxes/filing/tips-last-minute-tax-filing/
• https://online.maryville.edu/blog/the-critical-importance-of-business-communication-in-the-field-of-accounting/
• https://skynarbookkeeping.com/blog/double-check-your-bookkeeping-in-these-five-ways
• https://www.top10.com/tax-software/top-10-advantages-of-using-tax-software
• https://www.cnbc.com/2023/03/06/inflation-boosted-the-2023-federal-income-tax-brackets.html
• https://www.acecloudhosting.com/blog/accountants-can-overcome-procrastination/
• https://www.forbes.com/sites/forbesfinancecouncil/2022/03/25/four-tips-for-accountants-to-beat-burnout/?sh=1ec8b6c859a6
• https://www.volopay.com/blog/benefits-of-outsourcing-accounting-services/
• https://money.usnews.com/money/personal-finance/articles/understanding-federal-vs-state-vs-local-taxes

The post Advice for Accountants Handling Last Minute Income Tax Returns for Clients appeared first on MoneyThumb.

Inflation & Tax Bracket for 2024

The tax brackets increase every year. That is to balance out the increasing inflation. However, the rate of growth in tax brackets is not set as a fixed value. Instead, it can change every year, depending on the inflation rate. 2023 saw a significant increase in inflation. It has been the highest recorded since 1996. The global inflation touched 6.9% affecting the worldwide market. Thus, the tax brackets adjustment also increased to 5.4% to account for the increasing inflation.

The IRS has announced new tax brackets for single and married filers. Furthermore, married joint and separate filing rates are increased. The tax brackets for Head of Household are also released for 2024.

Standard Deduction

The standard deduction has also been set for the newly announced tax brackets. It is the same growth, a 5.4% increase. This deduction has shifted the game for single, married, and head-of-the-household taxpayers. Here’s what every accountant and taxpayer needs to know:

• Single Taxpayers: $14,600
• Married Filing Separately (MFS): $14,600
• Married Filing Joint (MFJ): $29,200
• Head of the Household: $21,900

Individual Retirement Account and 401(k) Plans

It is important to know that the retirement contribution limits also change yearly. Hence, 2024 is no exception. Even though the increment is not much, it's still considerable. Here are the numbers you need to know for 401(k) plans:

• Roth/pre-tax employee contribution: $23,000
• Employee and employer maximum contribution: $69,000
• Catch-up employee contribution: $7,500

As for the IRA (Individual Retirement Account), there are only 2 numbers to consider. First, the IRA catch-up contributions are the same as 2023, $1000. However, the standard contribution limit has increased by $500. That means it is set at $7,000 for 2024.

There’s another factor to consider. The SEP-IRA contributions also utilize the IRS maximum, which is $69,000. Additionally, the SEP IRA will have the same wage calculation and income. That is only for years ahead of 25% for non-owner employees and 20% for self-employed individuals.

Roth IRA contributions have also increased slightly to $7,000. It is a $500 growth from the limit in 2023.

Alternative Minimum Tax Exemption 2024

The Alternative Minimum Tax exemption is $85,700 for 2024. However, it is planned to discontinue at $609,350.

But this number can vary depending on the taxpayer type. It is set at $133,300 for married couples joint filing with plans to phase out at $1,218,700.

How does it differ from the tax year 2023? Firstly, the alternative minimum tax exemption was $81,300. Its maximum value for married couples' joint filing had started to phase out at $1,156,300. For individuals, this number was $578,150.

Earned Income Tax Credit

Taxpayers always keep an eye out for the maximum Earned Income Tax Credit. In 2023, it was set at a maximum of $7,430. But it has seen a slight increase for 2024, bumping it up to $7,830. Note that the Earned Income Tax Credit is only applicable to taxpayers with three or more children.

Medical Savings Account

Many taxpayers may have self-only coverage in a Medical Savings Account (MSA). For 2023, it was set at a maximum of $3,950. Its minimum amount was $2,650. It has seen a slight growth for the tax year 2024.

Currently, it is set at a maximum of $4,150, a $ 200 growth from the last year. And, its minimum value is $2,800, showing a growth of $150.

However, these numbers can vary for individuals with family coverage accounts. In that case, the maximum annual deductible is $8,350, highlighting an increase of $450 from 2023. Furthermore, its minimum deductible is $5,550.

Lastly, the out-of-pocket expense limit has also seen an increase of $550 from 2023. As for 2024, the limit is set at $10,200.

Foreign Earned Income

The tax year 2024 has also seen an increase in the foreign-earned income exclusion. It was set at $120,000 for 2023. However, the value has since grown to $126,500.

Credit for Adoptions

The tax year 2023 had a maximum credit allowed for adoptions of $15,950. However, it was only for qualified adoption expenses.

While the conditions and eligibility criteria stay the same, the credit has increased to $16,810 for 2024.

Required Minimum Distributions (RMD)

To understand this factor, one must know about the economic changes in 2023. The last year saw many legislative updates for the tax code. They have drastically changed the settings for the tax year 2024.

One of the most significant changes was the Secure Act 2.0, signed on December 29, 2022. This bill was created to keep the government funded. The majority of its changes were planned to take place in 2023.

The Secure Act 2.0 has impacted the Required Minimum Distributions (RMD). RMDs have been increased to age 73 for individuals born between 1951 to 1959 and age 75 for those born in the ‘60s or later.

Besides the age update, the changes in IRA distributions have also occurred. The inherited IRAs for a decedent below the RMD age mark require no annual distribution. However, IRA now requires their entire account to be liquidated by the end of the 10th year.

Gifts

The annual exclusion for gifts was $17,000 for the tax year 2023. It has increased by $1,000 for the tax year 2023. So, it now sits at $18,000.

Flexible Spending Account

The FSA is a major item to consider in the tax year updates. The health flexible spending arrangements have increased to $3,200.

The maximum carryover amount has been set at $640 for the unused amounts. As you may have guessed, it is not a significant growth. That’s because this amount has only increased by $30 from the tax year 2023.

Health Savings Account

We have discussed the changes in the Medical Savings Account (MSA). Thus, it would be unfair to talk about the Health Savings Account (HAS).

Like MSA, HSA also has two types of coverage. The family coverage has an annual deductible of $3,200 maximum. Furthermore, its out-of-pocket expense is $16,100.

However, the individual or self-coverage sits at a maximum of $1,600 with an out-of-pocket expense of $8,050. Another thing to note is that participants over 55 years old can contribute an extra $1,000 yearly. However, they should have coverage under the High Deductible Health Plan (HDHP).

What Do You Need to Know About the Tax Year 2024

The 2024 tax year has seen a considerable increment in almost every item. As mentioned earlier, many legislations passed in 2022 and before have also impacted these numbers.

Another thing to look out for is the Tax Cuts and Jobs Act. Originally passed in 2016, it is now moving towards its end. That is where the legislation will mainly focus after the 2024 election.

However, the impact of the Secure Act 2.0 is also visible in the tax plans for 2024. Most major updates have occurred due to this newly passed legislation, which only became applicable in 2023.

Now that we have discussed the items affected by inflation, let’s look at the unaffected ones. For instance, the limitation on itemized deductions is still eliminated until the end of the Tax Cuts and Jobs Act.

Moreover, the personal exemption also sees no change (stays at 0) because the Tax Cuts and Jobs Act is still in motion. Lastly, the Lifetime Learning Credit modified adjusted gross income account has stayed the same since December 31, 2020.

Conclusion

The inflation tax brackets have seen a massive change in the tax year 2024. Almost every major item has increased its maximum contributions and deductibles. That includes FSA, MSA, HSA, gifts, foreign earned income exclusion, alternative minimum tax exemption, and earned income tax credit. Furthermore, retirement plans will also need to be adjusted as per the updates released by IRA and 401(k) plans.

An accountant can understand all the major changes for the tax year 2024 by going through this detailed guide. We have covered all the updates and tax laws that will be impactful in the coming year. To make your job easier in 2024, accountants can streamline the process by converting client's bank statements into PDF format. This saves tons of time and headaches.

Sources

1. 2024 Tax Law Changes and Updates (innovativecpagroup.com)
2. What You Need to Know About the Secure Act 2.0 | RGWM Insights (rgwealth.com)
3. 2024 Tax Code Changes: Everything You Need To Know | RGWM Insights (rgwealth.com)
4. IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service

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While most people tend to think of the year as divided into four seasons, accounting professionals know that the year is really divided into two: tax season and pre-tax season. Although everyone in the industry is familiar with the rush of tax season, all too often they make the mistake of assuming that there isn’t a lot of “real” work that can be accomplished during the pre-tax season. The “off” season is a great time, however, to get accounts in order and get prepared so that as soon as tax season starts, filing is fairly simple.

One of the most time-consuming parts of getting ready to file is the problem of entering data from a variety of sources. In order to accurately know the financial details of a business, it is necessary to input every receipt, invoice, bill, and estimated expense into an accounting software program. Unfortunately, most of these documents arrive at a business in pdf format. While this makes it possible for everyone to open and read the file, most business accounting software programs are unable to do much more than store the file. Thus, it becomes someone’s job to manually open, read, and enter the data.

Save yourself the time and the pain

This process is not only time-consuming, but it has the potential to create transcription errors. As each invoice or receipt is manually typed into the computer, it is easy for numbers to be transposed or dropped. That can lead to big problems later on as extra money seems to appear in expense accounts and/or disappears from income charts. Finding the source of those errors can take dozens of man-hours as every document is manually checked and reports are re-run. In some cases, errors can compound for years; waiting for an audit to occur before they are finally found and corrected.

Automated financial conversion software can reduce or completely eliminate many of these problems. Instead of paying personnel to convert all of those documents by hand, this software is able to convert the files into something that can be read by many common accounting software programs. Once the file is converted, the data in it can be entered into the program automatically. There is no chance for human error to enter the system. Best of all, you and your company will save hundreds of hours of employee time.

By using the lull of pre-tax accounting season to install and utilize a financial conversion software program, a period that used to be downtime can significantly reduce the workload during tax season. You and your employees can immediately start processing invoices, receipts, order forms, bills, and other documents in a matter of minutes. When it is time to file, you’ll have everything you need ready to go.

MoneyThumb's PDF financial file converters for the accounting profession are the best-selling financial file converters on the market. If you are an accountant and are not yet using this great product to help you during the pre-tax season, you can take a free test drive by visiting this link.

The post PDF Financial File Converters Make Pre-Tax Season a Breeze appeared first on MoneyThumb.

Tax season is a stressful time, so when you interview a client for financial information related to doing their tax return, you don't want to appear like a salesman, hawking your additional wares when they are only concerned about their taxes and what they can deduct. However, there is a way to seamlessly bring up additional services you offer during this initial tax interview. For instance, many of the questions you will be asking have to do with saving money, while you are getting information to ascertain what tax breaks the client can take advantage of. This is the perfect time to bring up financial planning and how the client can save on taxes with investment alternatives.

Why Sell to Existing Clients?

First and foremost, it is easier to sell to existing clients. To a certain extent, they are presold as they already have an investment in their relationship with you, their accountant. Who knows their financial situation better? Imagine all the personal documents that must be reviewed to prepare a tax return. They provide insight into not only tax matters but family, investment, and business matters as well. The condition of the records alone may provide an opportunity to add value for the client by offering bookkeeping or organizational services.

Secondly, a level of trust has already been established with the client. One of the biggest barriers to selling any type of personal service, especially those involving finances, is developing a solid level of trust. This is also why obtaining a new client through a referral is much more valuable than by a cold approach. Existing clients transfer some level of their trust via the referral so that the accountant does not have to start at ground level.

A client's experience with his or her accountant is a good basis for a relationship, but even better is when the accountant knows the client. Increasingly, tax professionals are learning the value of vetting potential new clients and ensuring a solid onboarding process before accepting them. When determining which clients should be offered additional services, you can look to previous behaviors, including treatment of staff, condition of records, level of participation, and payment history to determine if this is a client he or she would serve again.

The No. 1 reason to sell additional services to existing clients is that clients want them. Too frequently clients seek new providers because they complain that their accountant is not proactive enough. Clients say that they want someone who comes to them with updates, ideas, and recommendations throughout the year, rather than just preparing their tax return once a year. Clients assume that in addition to preparing tax returns, an accountant will identify opportunities and help them reach their goals. Cross-selling may generate revenue for the firm, but it is really about adding value for the client.

During the interview, be interested in the client, ask what they are concerned about, and really listen. With this perspective, you are offering not only your tax services but yourself, and the conversation will often naturally turn to other topics of interest other than taxes.

Of course, you don't want to stray too far from the tax issue in your initial interview. The art of good marketing is creating a relaxed environment where the client feels they are showing interest rather than being bullied to sign up or buy. Take notes during your interview about any additional services the client showed interest in, then later, weeks or a month say, send them a follow-up email regarding the services they seemed interested in. Give them ample time to become relaxed after their tax issues are taken care of. In your email, just remind them of the things you two talked about, whether it be financial planning, investment suggestions, budgeting concerns, etc. Be cordial and professional and you will find that you often end up with a client for a whole other product you handle. Who knows? If your new client is a small business owner, you could end up taking care of their finances all-around or coming on board as a consultant.

Here at MoneyThumb, we love the saying, "If you don't ask the answer is always no." Don't be afraid to ask. You never know what new service a client could need and they will thank you later down the road for mentioning it in the initial tax interview if you handle it like a boss.

The post Make Clients Aware of Additional Services Your Firm Offers in Initial Tax Interview appeared first on MoneyThumb.

Here at the Rules of Thumb blog from MoneyThumb, we want to help our accounting readers and others who handle income taxes avoid as much stress during tax season as possible, so we have compiled a list of ways to do that below:

Tips for Avoiding Burnout During Tax Season

Get Plenty of Quality Sleep

Of course, it goes without saying how essential getting enough sleep is to avoiding stress. However, it is the quality of sleep that matters most. The National Sleep Foundation also has a nice list of ways to make sure you are getting good, quality sleep.

Get Regular Exercise

One of the drawbacks of an accounting job is the unavoidable fact of sitting for long periods of time. This article from WebMD calls it "the sitting disease." Here is a portion of the article:

"The Price of Sitting Too Much- A growing body of research shows that long periods of physical inactivity raise your risk of developing heart disease, diabetes, cancer, and obesity. In January 2010, British experts linked prolonged periods of sitting to a greater likelihood of disease. And that same month, Australian researchers reported that each hour spent watching TV is linked to an 18% increase in the risk of dying from cardiovascular disease -- perhaps because that time is spent sitting down."

The good news is they have great advice for how to avoid the stress and strain of sitting too much. A great and necessary read for those of us who live a mostly sedentary lifestyle.

Eat Healthily

Another tip which we all understand is of crucial importance, to eat healthy food, but when you are rushed, or live alone, that is easier said than done. After years of eating on the run, or eating fast food, even though the medical community has proven beyond a shadow of a doubt that a proper diet is the most important thing we can do to positively affect our health, still, we are often drawn back to our bad eating habits. A few ways to make sure you are eating healthy that is not outside the realm of possibility for a busy accountant during tax season are listed below:

• Keep raw vegetables and fruit always on hand and easily accessible
• Pre-prepared meals such as Lean Cuisine and Weight Watchers are actually good and good for you. Stock up on these types of meals.
• Make sure to at least once a week take yourself out to dinner or lunch at a healthy restaurant, you need a treat anyway
• Cook yourself a delicious, homemade meal at least once a week, with all the food groups.
• Avoid fast food as much as possible.

Use MoneyThumb's financial file converters

If anything can save you time and stress as an accountant, it is taking advantage of MoneyThumb's financial file converters. You will be able to quickly convert your client's bank statements and other documents into a form you can work with. Our product converts statements for most all banks and is complimentary with QuickBooks, Quicken, Xero, FreshBooks, Sage, YNAB, Wave, MYOB, Moneydance & other software. Or you have the option of simply converting documents into a spreadsheet.

If you are not currently using our product designed specifically for accountants, now is the perfect time to take a free test drive.

The post How to Avoid Accountant Burnout During Tax Season appeared first on MoneyThumb.

1. You Are Responsible For Self-Employment Taxes--A small business owner is considered a self-employed person by the IRS.  That means you have to pay self-employment tax, but don't be too alarmed, as a business owner you can claim half of what you pay in self-employment tax as an income tax deduction, so for instance, a $5,000 tax payment decreases income by $2,500. Additionally, it’s important to take advantage of all possible business and startup expenses to limit net income and, by extension, your self-employment tax burden.
2. The Type of Business You Are Affects Income Tax Return--The legal entity you elect to form can have a tremendous effect on your tax liability throughout the years. From sole proprietorships and LLCs to S corporations and partnerships, there are various business types, each with its own benefits and limitations. For example, S corporations offer small business owners the advantage of paying taxes at the shareholder level, rather than being subject to higher corporate rates. However, a company of this kind must be limited to 100 shareholders and feature a single stock class. On the other hand, while C corporations can deduct a wider range of expenses and include hundreds of shareholders, these groups must contend with double taxation.
3. You Should Be Making Estimated Payments Throughout the Year--As a new small business owner, you probably know that it’s important to pay taxes accurately and on time. However, you may not realize that self-employed persons are responsible for making quarterly estimated tax payments throughout the year. While startup founders are excused from making estimated tax payments in the first year of operation, they are responsible for submitting accurate quarterly payments in the years to come. Business owners filing as sole proprietors, partners, and S-corporation shareholders must all make estimated tax payments if they anticipate owing $1000 or more for the tax year.
4. You Have the Opportunity For Lots of Deductions--From materials to employee salaries, to business rent, to utilities, the various operational costs of a startup can be overwhelming. Fortunately, as a new small business owner, you may be able to deduct a number of expenses in order to minimize your business taxes while maximizing company profits. According to the IRS, businesses can deduct expenses deemed both ordinary and necessary. Some of the most common business deductions include rent on a business or home office, supplies, furniture, and equipment, such as computers, copiers, and fax machines. Additionally, many small businesses can deduct costs associated with providing healthcare benefits for their employees. As a NEW small business, make sure you take advantage of all startup expenses. The QuickBooks blog has a definitive list of all the startup expenses you may be able to take advantage of.

As a new small business, you may want to consider having a professional accountant handle your income tax return, at least this first one. They know all the ins and outs and little-known ways you can save yourself from paying out more money than necessary to the IRS.

If you decide to handle your income tax return yourself, MoneyThumb has great PDF financial file converters designed specifically for small businesses that will assist you in getting all your financial information in order quickly and seamlessly.

The post Income Tax Tips For First-Time Small Business Owners appeared first on MoneyThumb.

1. Phishing

Taxpayers should be alert to potential fake emails or websites looking to steal personal information. Remember that the IRS will never initiate contact with taxpayers via email about a tax bill, refund, or Economic Impact Payment (EIP). Don't click on links claiming to be from the IRS.

IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts, and links. Typically, they use keywords like “coronavirus,” “COVID-19” and “Stimulus” in various ways. Most of these new schemes actively play on the fear and unknown of the virus and EIPs.

2. Fake Charities

Frequently, criminals exploit natural disasters and other situations, such as the current COVID-19 pandemic, by setting up fake charities. These schemes normally start with unsolicited contact by telephone, text, social media, e-mail, or in-person using various tactics.

Bogus websites use names similar to legitimate charities to trick people into sending money or providing personal financial information. Fraudsters may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN) if requested, which can be used to verify their legitimacy. You can find legitimate and qualified charities with the search tool on www.irs.gov.

3. Threatening Impersonator Phone Calls

IRS impersonation scams come in many forms. A common example is a criminal claiming to be with the IRS makes a threatening phone call and attempts to instill fear and urgency in the potential victim. The IRS will never threaten a taxpayer or surprise them with a demand for immediate payment.

Phone scams or "vishing" (voice phishing) pose a major threat. Scam phone calls— including those threatening arrest, deportation or license revocation if the victim doesn't pay a bogus tax bill— are reported year-round. These calls often are “robocalls” (text-to-speech recorded messages with instructions for returning the call).

4. Social Media Scams

Taxpayers should protect themselves against social media scams, which frequently use events like COVID-19 to trick people. Social media enables anyone to share information with anyone else on the Internet.

Scammers use that information as ammunition for a wide variety of scams. These include emails where scammers impersonate someone's family, friends, or co-workers.

Social media scams have also led to tax-related ID theft. The basic idea is to try to convince a potential victim that they are dealing with a person close to them that they trust via email, text, or social media messaging. Using personal information, a scammer may email a victim with a link on something of interest to the recipient that contains malware intended to commit more crimes.

5. EIP or Refund Theft

The IRS has made great strides against refund fraud and theft lately, but they remain an ongoing threat. Criminals this year also turned their attention to stealing EIPs provided under the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts. For instance, the IRS recently warned nursing homes and other care facilities that EIPs generally belong to the recipients, not the organizations providing the care.

6. Senior Fraud

Seniors are more likely to be targeted and victimized by scammers than other segments of society. Anecdotal evidence indicates that elder fraud goes down substantially when the service provider knows a trusted friend or family member is taking an interest in the senior's affairs.

Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, this gives scammers another weapon. Phishing scams linked to COVID-19 have been a major threat this filing season. Seniors must be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.

7. Scams Targeting Non-English Speakers

Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a robocall but are sometimes made by a real person.

Con artists may have some of the taxpayer's information, including their address, the last four digits of their Social Security number or other personal details, making the phone calls seem legitimate. This includes the common impersonation scam where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats.

8. Unscrupulous Return Preparers

Most tax professionals provide an honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they later regret. Taxpayers should avoid so-called "ghost" preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds.

Ghost preparers don't sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare the return, but not digitally sign as the paid preparer.

Unscrupulous preparers may also promise funds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC), and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before examining the taxpayer's records or charge fees based on a percentage of the refund.

9. Offer in Compromise Mills

Be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for "pennies on the dollar" through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under the law to qualify for reducing their tax bill.

But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt. These scams are commonly called OIC mills.

They cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they're unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year to reduce their tax debt, not everyone qualifies. In Fiscal Year 2019 (FY2019), the IRS accepted only 18,000 of the 54,000 OICs submitted by taxpayers.

10. Fake Payments With Repayment Demands

Criminals are always finding new ways to trick taxpayers into believing their scam, including putting a bogus refund into the taxpayer's actual bank account. How it works: A con artist steals or obtains a taxpayer's data and bank account information. The scammer then files a bogus tax return and has the refund deposited into the taxpayer's checking or savings account.

Once the direct deposit hits the taxpayer's bank account, the fraudster places a call to them, posing as an IRS employee. The caller says that there's been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is then told to buy specific gift cards for the amount of the refund.

11. Payroll and HR Scams

Tax professionals, employers, and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information, called Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two common types of these scams are the gift card scam and the direct deposit scam.

In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. With the direct deposit scheme, the fraudster may have access to the victim's email account. They may also impersonate the potential victim to have the organization change the employee's direct deposit information to reroute their deposit to an account the fraudster controls.

12. Ransomware

Ransomware is malware targeting human and technical weaknesses to infect a potential victim's computer, network, or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user.

Once it’s downloaded, it tracks keystrokes and other computer activity. It looks for and locks critical or sensitive data with its encryption. In some cases, entire computer networks can be adversely affected.

Victims generally aren't aware of the attack until they try to access their data or they receive a ransom request in the form of a pop-up window. The criminals don't want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.

Caution your accounting clients to stay vigilant against these 12 scams on the IRS Dirty Dozen list.

The post IRS Issues Annual Dirty Dozen Tax Scams Amidst Pandemic appeared first on MoneyThumb.

The article is written by Riley Adams, a CPA who works as a senior financial analyst at Google. He also runs a personal finance site called Young and the Invested. Below is the brunt of the questions and answers from the article. Follow this link to read the full article at Kiplinger.

"April 15 has become synonymous with the tax-filing day ... but not this year. Due to coronavirus concerns, the IRS has decided to give taxpayers until July 15 to safely complete their returns and file them. The announcement, made on March 20 via Twitter by Treasury Secretary Steven Mnuchin, doesn't have all the blanks filled in yet. But this is what we know so far:"

Q: My taxes are already done, and I know that I owe money. I should just wait until July 15 to file and send in my payment then, right?

A: If you have already completed your tax return, you should still send in your return as soon as possible but can delay submitting payment until the new July 15 deadline. By filing your completed 1040 earlier, you will have more time to make and plan for the potential financial moves necessary to arrange your payment. It also allows the IRS to review your tax return and agree to your tax liability. In the event you made an erroneous tax deduction, claimed a tax credit you should not have, or made some other arithmetic mistake, you will have more time to prepare in the event the IRS disagrees with the information stated on your return.

A: If you expect a refund, filing your tax return sooner is always better, because this puts more money in your pocket sooner. Waiting to file until the deadline provides an interest-free loan to the federal government and limits your ability to have access to your money. In current circumstances, the federal government would want you to file your return immediately in order to claim this refund. Doing so would provide more potential money to circulate in the economy and guard against an impending economic recession.

Q: Could this July 15 filing delay have any impact on me receiving my refund on time?

A: Much like any circumstance were waiting until the last minute could cause a rush and stress available resources, waiting until this new July 15 filing deadline could result in delays for receiving your tax refund. If you believe you will be owed a tax refund and you can prepare your own tax return or use tax software to help you, you are encouraged to do so immediately.

Q: In the past, I've heard you should file as early as possible if you're worried about scammers stealing your identity and claiming your refund. Is that still true?

A: Sadly, by delaying the deadline, this could result in greater potential for identity fraud. By allowing scammers more time to file a return and claim a refund on your behalf, the opportunity to defraud you of your refund is greater. As a result, filing as soon as possible is always recommended because even if you owe taxes, you will have until July 15 to submit payment.

In the event you expect a refund, the safest way to file your tax return is by e-filing your 2019 tax return and then opting to have your refund directly deposited into your bank account. This will get you your refund sooner and safer, assuming the provided info is correct. By e-filing, the IRS can process electronic tax returns and refunds much faster than it can handle paper returns and sending checks through the mail.

Q: I may need even more time than July 15. Can I file for an extension? If so, will the extension date be Oct. 15, or will it be even later?

A: At this time, it would appear that an extension to Oct. 15 is available per the IRS website. However, no specific guidance has been given since this announcement about any changes to an extension beyond July 15 to the usual Oct. 15 deadline. As a result, it may remain in place as of this writing, though this situation is rapidly evolving, and it could change at any moment. It might be best to view July 15 as the official deadline and prepare accordingly.

Q: Will the due date for my state tax return be delayed too?

A: In alignment with the decision to defer filing and paying your federal income taxes, many states have issued automatic extensions as well. They have done this in the hope of providing financial relief to Americans during the coronavirus pandemic. You will need to verify whether your state has made such accommodations by checking this list or checking directly with your state’s tax agency on their website.

Q: Can I wait until July 15 to make 2019 contributions to my IRA or HSA?

A: Yes. The IRS has confirmed that because the due date for filing federal income tax returns has been postponed to July 15, the deadline for making contributions to your health savings account or individual retirement accounts for 2019 is also extended to July 15, 2020.

Q: Do I still have to make an estimated tax payment for the first quarter of 2020 on April 15?

A: IRS Notice 2020-18 states that all estimated tax payments originally due on April 15 for the 2020 tax year do not need to be submitted until July 15. Further, there will be no penalties and interest assessed on these balances due.

Q: Clearly there are some details left to be worked out. How should I keep on top of things?

A: Watch major media outlets like Kiplinger, directly through the Treasury’s Press Releases page, or through the White House’s daily media briefings with the president and his staff.

Q: Has a push back Tax Day like this ever happened before?

A: It would appear no national deferment in the deadline has occurred before. However, large-scale natural disasters have delayed certain geographies from filing on the usual April 15 deadline in the past.

Hopefully, any questions you had about the extended tax deadline have been answered above, but if you find you still have concerns, leave us a comment below and we will do our level best to help find your answer. Also, The Rules of Thumb blog from MoneyThumb would really appreciate it if you shared this post on your social media page so your peers can have their questions about the extended July 15th tax deadline answered as well.

The post Questions About New Tax-Filing Deadline Answered by a CPA appeared first on MoneyThumb.

You would think the practice of borrowing money to pay taxes would be frowned upon, but the opposite is true. In fact, financial experts and the IRS itself suggest that business owners take out a small business loan if they don't have the ready cash to pay their taxes. Below are a few legitimate reasons why taking out a loan to pay your business taxes is a good idea from our friends at Fora Financial:

3 Reasons to Use a Business Loan to Pay Taxes

1. Interest Rates

The IRS treats the money you owe them like a loan and charges interest every day that your payment is overdue. Even worse, the interest on a tax debt is compounded daily until your balance is paid off, which means the amount you owe can grow quickly. Due to this, you should pay in full as quickly as possible to avoid expensive interest charges on your remaining balance.

Many alternative lenders offer business loans that can be used to cover your tax liability and at a far lower cost. And unlike interest accrued on an outstanding tax debt, interest on loan payments can sometimes be taken as deductions on your next tax bill.

2. Extra Fees

The Internal Revenue Service will take action if your bill is left unpaid; you’ll incur steep penalties. If you neglect to pay your bill, the IRS will impose an additional fee of half of one percent of your outstanding taxes due for every month that your payment is late. What’s worse, the late payment penalty is on top of accrued interest. To avoid this, apply for a business loan prior to tax season, so that you can avoid paying money in late fees.

3. Avoid Crippling Penalties

As a department of the Federal government, the IRS has the authority to dole out punishments for avoiding payment on your tax bill. The IRS may issue a tax lien, which gives them legal ownership of all your assets, including personal and business property.

A tax lien can have far-reaching implications for your business. It can affect everything from selling your business to obtaining credit. That is because the government will have first dibs on your firm’s assets if you default, which makes lending you money a much bigger risk.

If there is a tax lien on your business, you may not be able to obtain a business loan through a bank. You may, however, be able to borrow from alternative lenders that may be more willing to work with special situations.

Conclusion

If your business doesn’t have the funds to pay its tax bill, there are options other than to default. The nuclear option comes with far-reaching consequences, including damage to personal and business credit. Even if you decide to keep your business running, it may be crippled by the effects of your bankruptcy.

Using a business loan to pay taxes can help you avoid expensive interest payments and penalty fees. It can also prevent your operations from experiencing penal action from the IRS, such as tax liens. Consider seeking a business loan from alternative lenders, which are typically easier to obtain, and place fewer restrictions on how funds can be used.

If taking out a small business loan is looking like an option for you, MoneyThumb would like you to know we have a PDF financial file converter specifically designed for small businesses. This converter will help you get your financials in order for your chosen lender quickly and easily so getting a loan will be a breeze.

The post Should You Take Out a Business Loan to Pay Taxes? appeared first on MoneyThumb.