Uncategorized

These Are Some of the Tax Deductions Corporations Can Take Advantage Of 

Being a business corporation comes with many advantages, including several tax deductions that the IRS allows for expenses that are needed to keep our operations going. There are different types of expenses that can be deductible, including current expenses and capital expenses. Current expenses are the expenses needed to keep our corporation fully operational, while capital expenses refer to investments made in order to generate income for our business. So, if your business is a corporation, or you were thinking about incorporating your business, these are some of the tax deductions you can take advantage of.  

For every business and corporation that is looking for tax-deductible expenses, operating expenses are customary. These expenses include all those on which businesses rely on to make sure their day to day operations are not interrupted. Some of the most common operating expenses corporations must cover include payroll, office supplies, rent, accounting services, insurance policies, legal fees, and utility costs.  

Corporations are also allowed to deduct all the employee-related expenses they need to cover, which turns out to be a great benefit for both employers and staff members. This is because such deductions can allow businesses to give more perks and benefits to their employees. Some of the most common employee expenses include health benefits, salaries, performance bonuses, sick leave, and vacations. Also, any work-related travel expenses for employees like travel or use of their personal vehicle for business matters are deductible as well.  

When we are in charge of a business, we must make sure we take care of everything and everyone and having an insurance policy that offers the protection we need is essential. However, covering insurance premiums can become one of the biggest expenses for corporations. Luckily, insurance expenses can be tax deductible, which works as a great incentive for businesses to purchase comprehensible and extensive coverage. Insurance premiums for theft and fire damage, liability and worker’s compensation, even malpractice or errors and omissions insurance premiums can qualify for tax deductions.  

Every corporation is different, but many need to cover travel expenses whenever they are visiting a client, looking to expand their business, or attending conferences and trade shows. Regardless of our travels being local or long distance, the expenses generated also qualify for corporate tax deductions. Whether we are traveling by air, by train, or land, we can deduct these expenses. Also, meals and gratitude expenses qualify for these deductions, too.  

If you have any questions regarding tax-deductible corporate expenses, don’t hesitate and get in touch with us. We’ll be more than happy to give you the guidance and assistance that you need for your business.  

 

Even When Filing Season Is Over, Tax Scams Are Still A Real Danger 

With the summer being so close, one of the last things on our minds would be tax season, since most of us took care of our income tax report a couple of months ago, and don’t plan to start working on next year’s later this year. However, scammers are not known for taking vacation breaks, and they are still active, trying to surprise unsuspecting taxpayers. This is why we must remain alert and be on the lookout for any suspicious email, letter, or phone call we might receive.  

One of the scams the IRS is warning taxpayers is what they have called the SSN hustle, a new variation of already known scam practices. This refers to situations on which scammers call taxpayers and tell them their Social Security Number will be suspended, deactivated, or deleted because of a number of reasons. Fraudsters try to catch taxpayers off guard, having them give out personally identifiable information like SSN or bank account numbers.  

In some cases, these calls are performed by automated systems that will make taxpayers call a particular number and provide their Social Security Number and other information in order to avoid severe consequences. The message taxpayers may hear will state that their SSN has been “suspended for suspicion of illegal activity”, urging them to get in touch in order to avoid having their assets or benefits frozen or deleted.  

According to the IRS, phone call tax scams are a real threat to taxpayers, so you should remember that SSNs do not expire or need to be confirmed or reactivated. Besides, when we have an outstanding tax balance, this wouldn’t affect your SSN. If you happen to receive a phone call that sounds like a scam, remember you can report the number to the IRS on their website 

Another common scam we need to be aware of is one known as the Fax Tax Agency Scam. During the last couple of years, many taxpayers have become more informed regarding phone call tax scams, and now know that the IRS will never demand an immediate payment over the phone. Scammers know this, and they have developed other ways to trick taxpayers into sharing personal and sensitive information.  

Now, scammers will first mail or fax a tax bill signed by the “Bureau of Tax Enforcement”, which is a completely fake agency. They will say there is a balanced owed to the IRS, and that immediate payment is required before legal action is taken against the taxpayer. These documents may use the IRS logos and emulate their formats in order to look more convincing. Therefore, you shouldn’t engage or provide any kind of information, and contact the IRS directly instead.  

 

Do You Need to Amend Your Tax Return? Here’s What You Should Do 

Tax season ended a couple of months ago, and many of us have started to think ahead and prepare for next year’s taxes instead. However, we might want to go back to our tax return and make sure we submitted everything properly and without errors. Even when the IRS processes and corrects and math error they might come across, we shouldn’t wait for them to make their adjustments and double check our income tax report. This is what you need to do in order to submit an amended tax return.  

First of all, we need to understand which scenarios would require us to submit an amended tax return to the IRS. The most common scenarios that require amending our tax return include filing our taxes using the wrong filing status, claiming credits or deductions that we were not eligible for, and forgetting to claim a credit or deduction to which we were actually entitled. If we find ourselves in any of these situations, we need to submit an amended tax return.  

We shouldn’t have to worry about this too much, though, since the process of submitting an amended tax return is quite simple. The IRS has made available a specific form we need to fill especially in these situations. This is Form 1040X Amended U.S. Individual Income Tax Return, which you can find in the IRS website. You will find the instructions to follow, and in most cases, supporting information might be needed from you. So, make sure you have every paper and document you need before proceeding.  

One of the most common concerns for taxpayers who submitted their income tax return with an error is being subject to an IRS audit. However, we need to remember that they use software that is designed to spot any red flags on tax returns but amended tax returns are reviewed by IRS agents personally. Therefore, the chances of being subject to an audit might be slightly higher.  

Nonetheless, when we submit an amended tax return because of an accuracy situation, we shouldn’t really worry about being audited. Say you forgot to report investment income as part of your original income tax return, and then submit an amendment to correct this error. The IRS would see this but wouldn’t really subject you to an audit. On the other hand, if we didn’t include taxable income and didn’t submit an amended tax return, the IRS might flag you and an audit would happen.  

Whichever the case may be, we recommend going over your income tax return and making sure everything is correct and complete. If you have any questions about it, contact your tax advisor and go over the report together. Otherwise, we might find out we had a pending balance once the IRS notifies us, which would make us subject to penalty fees and interest charges.  

You Can Save On Taxes and Health Care Costs Thanks to Health Savings Accounts 

When the time for retirement comes, we must be prepared to cover our everyday expenses but without the same income as we used to have. One of the biggest challenges that we face during retirement is covering our health care expenses. According to the Center for Retirement Research, the average retiree spends around $4,000 a year on health care costs. Besides, one in five retirees ends up spending half of their Social Security income on health care expenses, too. However, thanks to Health Savings Accounts, or HSAs, we can prepare to cover medical expenses when we retire while we lower our tax bill at the same time. Here’s how an HSA works. 

To begin with, we need to understand what exactly an HSA is, how it works, and how we can benefit from one in order to decide whether we should open one or not. A Health Savings Account is basically a retirement fund account that is designed to help you cover healthcare expenses. Just like traditional IRA and 401(k) accounts, contributions made to an HSA are tax deductible. Yet, one of the most convenient characteristics of HSA accounts is that the withdrawals we make that go toward medical expenses are tax deductible too.  

There are some requirements we need to meet first in order to be eligible for a Health Savings Account, and we should be aware of them, too. For example, we cannot open an HSA unless we are enrolled in a high-deductible healthcare plan. This means that, as of 2019, we need a deductible of at least $1,350 for individuals and $2,700 for families. Also, we need a maximum out-of-pocket limit of $6,750 for individuals or $13,500 for families. In addition, HSAs come with a yearly contribution limit; $3,500 for individuals or $7,000 for families. Keep in mind that you can contribute an additional $1,000 per year as long as you are age 55 or older.  

As we mentioned above, one of the advantages that come from having a Health Savings Account is that, whenever we use the funds to cover medical expenses, such costs can be tax deductible, just as our contributions. Since the vast majority of retirees will need to cover health care expenses at some point during retirement, it makes sense to have separate savings account specifically for those expenses. Yet, it is important to mention that we are not obliged to use these savings on health care only. However, if we use our withdrawals for another purpose, such withdrawals might be subject to income tax, and we would have to cover a 20% penalty fee.  

Therefore, we need to carefully consider whether an HSA would be the best option for us and take it from there. If we think this kind of retirement account will outweigh the benefits of a traditional IRA or 401(k), we should open one and start saving as soon as possible. But if we are not sure this is the best way to go, maybe a Health Savings Account isn’t the right choice for us.  

 

Standard vs. Itemized Deductions: Which Should You Choose? 

At this time of the year, forgetting about our income tax report might be tempting, leaving the stress for either the end of the year or for when the due date to file gets closer. However, we should always keep in mind our tax duties, as it will help us have a much simpler and easier tax season. One of the most common questions we get is whether taxpayers should opt for the standard or the itemized deduction, which often cause a bit of confusion among our clients. Here are some aspects to consider regarding each type of deduction and some of the advantages and disadvantages they bring.  

To begin with, we should understand what the standard deduction is and how it works. To put it simply, the standard deduction is a reduction in your adjusted gross income for a fixed amount, and without any kind of proof required. This means that, if we opt for this deduction, the only aspect that will determine the amount is the filing status we choose: 

  • Single:                                    $12,000  
  • Married, filing jointly:         $24,000 
  • Married, filing separately:  $12,000 
  • Head of household:             $18,000 

When we decide on the standard deduction, it might help us make the tax preparation process quite fast and easy, and this is why many taxpayers decide to request this deduction instead of the itemized deduction. Besides, another advantage of choosing the standard deduction is that it tends to get bigger every year or every two years, so we might want to compare the standard and the itemized deduction before we choose one.  

On the other hand, opting for an itemized deduction might be more beneficial for some people, which is why we should always calculate both, and see which one is higher. Itemized deductions are expenses that the IRS allows to be decreased from your taxable income. There are many different deductions we can add, including medical expenses, education expenses, home office expenses, and the list goes on and on. Even when not all of them might be eligible for you, we recommend consulting with your tax professional in order to understand which may be useful for you.   

One of the greatest advantages of opting to apply for the itemized deduction is that it might add up to an amount much higher than that of the standard deduction, since the more you can deduct, the less you would end up paying in taxes. Another advantage is that, as we mentioned above, there are many different deductions you can take advantage of, and with a bit of planning, you could make the majority of your expenses deductible, reducing your taxable income even more. 

If you are not sure of which deduction would work better for you, remember that a tax advisor can offer the guidance that you need in order to make the best decision. 

What You Need to Know About Deducting Your Medical Expenses 

Medical expenses can represent a significant portion of our yearly income, with the average American spending almost $10,000 a year on health care. This might sound like quite a financial burden since there aren’t many options available when we need to cover medical charges. However, medical expenses can be deducted from our income tax report, which can give us a hand when the time to file our taxes arrives. Here’s what you need to know about deducting your medical expenses.  

The very first aspect we need to understand when it comes to deducting your medical expenses is the deduction value that the IRS allows. Starting this year, taxpayers will be able to deduct the medical expenses that exceed 10% of their adjusted gross income. The AGI consists of your taxable income minus any adjustments like deductions or contributions. If your AGI equals $56,000, and you spent $9,500 in health care expenses, you’d be able to deduct the expenses that exceed $5,600, which equals $3,900 in this scenario.  

Another important aspect we need to be aware of is the types of medical expenses that can qualify as deductions, and which ones can’t. There are several expenses that the IRS allows to be deducted as medical expenses, including: 

  • Preventive care 
  • Treatment 
  • Surgeries 
  • Dental and vision care 
  • Visits to psychologists and psychiatrists 
  • Prescription medications and appliances 
  • Travel expenses for medical care 

On the other hand, there are other health-related expenses that do not qualify for deductions, such as cosmetic procedures, non-prescription drugs with exception of insulin, general health products like toothpaste and vitamins, as well as medical expenses that may be reimbursed, whether by your employer or your insurance company.  

If you want to apply for the deduction of your medical expenses for this year, you need to learn the process of claiming such deduction. To begin with, you need to choose an itemized deduction instead of a standard deduction. Keep in mind that you can only opt for an itemized deduction when it will exceed the standard deduction, so remember to consult with your tax prepared beforehand. In order to itemize your deduction, you will need to use Form 1040 and attach the Schedule A form, on which you will report the total you paid for medical expenses during the year and your adjusted gross income.  

Four Changes to Expect on Your Taxes in 2020 

When it comes to taxes, there are only a few moments of calm for taxpayers, as taking a breath of relief after filing their taxes is only the sign of the work that needs to be done to start preparing for next year’s return. Because of the tax code changes that resulted from the Tax Cuts and Jobs Act, we need to be aware of how they will affect our income tax return when the time to file next year arrives. This way, we will be able to make the most out of our 2019 tax practices, maximizing our credits, deductions, and refunds.  

One of the biggest changes that took effect this year is the shared responsibility payment, also known as the individual mandate penalty. This payment applied to those who were required to have health insurance under the Affordable Care Act but were not able to get coverage nor qualify for an exemption, either. Because of the Tax Cuts and Jobs Act, the penalty will no longer be charged, so if you don’t have health insurance this year, you won’t have to worry about covering this payment along with your taxes. 

Another relevant change that we will notice next tax season that is also a result of the Tax Cuts and Jobs Act is the rise in the medical expense deduction threshold. In order to obtain this deduction, the total of medical and dental expenses must be 10% of our adjusted gross income, when it used to be 7.5%. As a result, it will be harder to qualify for this deduction. Thus, if we were thinking about applying for it, we need to plan it a bit better this year.  

The Tax Cuts and Jobs Act also caused the elimination of a quite useful deduction, which was the alimony deduction, taking effect in 2019. This means that alimony payments will no longer be deductible for any divorce or separation agreement being made or modified this year or in the future. As a result, spouses that pay alimony will not be able to write off these expenses, and spouses that receive alimony will not have to count such payments as part of their income next year.  

To end things on a better note, there is a change to the tax code that might be helpful for those with a retirement account. This year, the contribution that you make to those accounts, including 401(k)s and IRAs could be deductible on your income tax return for next year. These are the 2019 contribution limits:  

  • 401(k) base contribution: $19,000 (up from $18,500 last year) 
  • 401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000 (unchanged) 
  • IRA base contribution: $6,000 (up from $5,500) 
  • IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged) 

If you want to stay up to date with all the changes and updates to the tax code, don’t forget to get in touch with your tax advisor. They are the experts and can help you take advantage of all these changes and modifications.  

Following These Tax Tips Will Make Your Process Much Easier Next Year 

Everybody can use a hand when it is time to file your taxes. Luckily, we have plenty of time ahead of us, as tax season for 2018 just finished, so we’re in time to start preparing for next year’s season. In order to make the process much easier and simpler, we can start planning ahead and preparing for it in advance. This way, we’ll make sure we have everything in order, and that we are taking advantage of every single tool and resource taxpayers have available.  

Tax-advantaged accounts are a great way to maximize our deductions, and different accounts like 401(K)s, IRAs, and HSAs give us the opportunity to make tax-deductible contributions. This way, we can both enjoy the time when we reach retirement age and have significant tax savings. Before opening one of these accounts, consult with your tax advisor and make sure you understand how each of them works.  

Keeping our paperwork clean and tidy can sound like a monumental task to complete when we have the clock running against us. Therefore, we should always keep this in mind and maintain an organized and accurate document cabinet. Having all your employer forms, contracts, loan interests’ statements, and receipts in one place will make the process of filing your taxes feel like a walk in the park. Just remember to be consistent and keep a record system throughout the year.  

Luckily for taxpayers, the IRS has developed different tools and resources that can be of great help when making important tax decisions. Choosing between the standard and the itemized deduction, our filing status, and whether one of our children or even someone else qualifies as a dependent or not can get confusing. These tools and resources are planned to assist taxpayers to compare and contrast different tax-filing scenarios and then decide which would be more convenient.  

Waiting for the last moment is one of the worst decisions we can make at the time of filing our taxes. Thus, we should always take the time to get our paperwork ready, double check each form, and submit our taxes in a timely manner. The best way to make sure we don’t wait until it is too late is by hiring a tax advisor that can help you stay up to date with your paperwork and other documents. This way, your next tax season will go by smoothly and without much trouble.  

These May Be the Reasons Why Your Tax Refund Was Smaller This Year 

This year’s tax season is over for the 103 million taxpayers that were able to file their taxes before the due date of April 15. However, many taxpayers are unhappy as they received a smaller tax refund than they had anticipated. According to the IRS, they paid a total of $220.7 billion in tax refunds as of April 5th, which is $6 billion less than last year. Thus, the average refund check amounts to $2,833, meaning $30 less than the average check from the previous year. Receiving this not so great news has caused confusion and stress to the millions of taxpayers that were counting on bigger checks.  

This is the first that taxpayers submitted their tax returns under the new Tax Cuts and Jobs Acts, which can help explain why their refunds didn’t work as they had during previous years. There are many different elements that can help us understand better what changed from last year. These include changes in your income or tax rate, changes on your state and local income tax rates, and possibly losing different tax cuts and deductions.  

There are different life events that could have come into play, resulting in a lower tax refund. For example, if you took an additional job that qualifies as a non-wage income. This is the highest self-employed tax rate, and that could have had an impact on your refund. Other changes could include: 

  • Selling investments 
  • Changing your filing status from last year’s 
  • Unemployment income being taxed 
  • Getting a significant raise with your W-4 Form staying the same 
  • Receiving Social Security benefits or Roth IRA distributions 

State and local income tax deductions also changed from the year before. This means that tax year 2018 had a new cap or limit on state and local property taxes, income taxes, and sales taxes. Therefore, if you live in a state with high income taxes and property value, your SALT deduction might have been smaller than the previous year, when there was no cap on this deduction.  

Besides the change in the SALT deduction, there are other deductions and credit that we might have missed this year. One example can be the $2,000 Child Tax Credit. If any of our children happened to turn 17 in 2018, or has an ITIN, they are no longer eligible for such credit. We might have qualified, however, to a smaller $500 Credit for Other Dependents, which still represents a $1,500 credit difference. Other examples of commonly-lost deductions and credits include: 

  • Having paid off our mortgage and not being able to deduct mortgage interests 
  • Not qualifying for the Earned Income Credit this year 
  • Having paid off a student loan and not being able to deduct loan’s interests 
  • Not being eligible for some of the education credits we got on previous years.  

If you feel that none of these examples apply to your case, don’t hesitate and get in touch with us. We will look into your particular situation and help you figure out what exactly happened that caused receiving a smaller tax refund this year.  

Paying Your Taxes Late? This Is What Could Happen 

It’s been a couple of days since the IRS tax filing date was due, which means that, if you forgot or didn’t have time to pay your taxes, you must start thinking about the consequences you might be facing. We should remind you that the longer you wait, the more severe the penalties will be, so try to find the time to pay your taxes to avoid a situation that will not be favorable for you. These are some of the consequences you might be facing if you didn’t pay your taxes on time.  

The very first aspect we must keep in mind is that, if we didn’t pay our taxes by the April due date, which was last Monday, we will be subject to interests and late fees. The IRS charges a failure-to-pay penalty that consists of 0.5 percent of your total balance per month. The maximum percentage that they can charge, though, is 25% of the total balance you owe. This is why it is important to cover our taxes due as soon as we have a chance.  

Besides the late payment penalties we will be subject to, we will also have to pay for interests. Interests are charged based on the federal short-term rate, plus 3 additional percentage points. We should remember that these are daily compounded interests, which begin on the day our tax payment was due. This means that your balance will increase rather quickly, so we should make sure we delay our payment the least time possible, or we will be subject to a much higher balance.  

For those who requested an extension, even when it might have been granted, such an extension doesn’t apply to our balance due. This extension only applies for submitting our income tax report, but if we are expecting to have a balance owed, we need to cover such balance by the April due date. In order to do so, we must fill out Form 4868 so we can pay an estimated amount. The advantage of doing so is that we don’t have to cover the full balance, and if we cover at least 90% of our due balance, we might be able to avoid the failure-to-pay penalty, which does give us extra time to pay the full amount.  

If we are going through financial hardship, the best way to go is to request a payment installment agreement with the IRS instead of simply failing to pay our balance. Besides the extra time and the convenience installment agreements provide, this also reduces the interests we pay, and the rate drops from 0.5% to 0.25% per month. This way, we will make sure we’re minimizing the penalties we are having to cover while still being able to pay out our balance, keeping us safe from much tougher situations, like having our property and bank accounts seized by the IRS.