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4 Useful Tax Deductions for Senior Citizens and Retirees 

Whenever we reach the age of retirement, we need to be more careful with our finances than when we were still employed, whether it was by someone else or if we had our own business. When it comes to tax planning, there are several deductions that senior citizens and retirees alike should be aware of, as they could take advantage of these deductions and reduce their tax bills. Some of these useful deductions include medical and dental expenses, charitable contributions, retirement plan contributions, and selling your house.  

Regardless of our age, medical and dental expenses are a part of our everyday life, as we need to get general check-ups, treatments for common or serious conditions, and nobody is immune to the occasional dental cavity. However, we all reach an age on which we must be more mindful of our health and paying a visit to our doctor becomes more and more common. Even when this means that we will be spending more on medical bills, we are able to take advantage of this tax deduction on our income. For 2019, the IRS allows taxpayers who itemize their deductions to include the total of our medical bills that exceed 10% of our adjusted gross income. 

For many retirees and senior citizens, this is the perfect time to give back to their communities, and it is quite common for them to support different local, state, national, and even worldwide organizations. This brings many benefits, as you are able to lend a helping hand to those who need it the most while being able to reduce your tax bill quite a bit. Just as it happens with medical and dental expenses, in order to take advantage of this charitable contribution deduction, we need to itemize our deductions instead of choosing the standard deduction. Also, we need to remember that all our cash contributions must remain below 60% of our adjusted gross income in order to qualify for the deduction.  

Part of preparing for the future includes making contributions to a retirement plan that will allow us to be financially stable when we are ready to enjoy our golden days. Whether we decide to open a traditional IRA, a Roth IRA, or a 401(k) plan, we are able to make tax-deductible contributions to those accounts. Depending on our age, we will have different contribution limits, but those over 50 have higher limits than those who haven’t reached that age yet. Just remember that you’ll pay taxes on the contributions that you make, but whenever you start withdrawing money from these accounts, interests and income generated are tax-free. 

Selling our house and moving to a smaller place once our children have moved to their own place makes a lot of sense, as it can help us reduce the amount of work needed to keep our house clean and tidy, as well as reducing the expenses of having such a property. Even when it might be hard for some to make this decision, we should remember that the profit we get from the sale is completely tax-free, and if we lived there for a long time, we probably have substantial equity, which means we should earn a large profit. Just make sure you have lived there for at least 2 out of the 5 years before the sale, and that your profit doesn’t exceed $250,000 for single taxpayers and $500,000 if you’re married filing jointly so that the profit can remain non-taxable.  

Aspects to Keep in Mind About the Different Types of Car Taxes

Whenever we are buying, leasing, or owning a car, we are subject to different types of taxes that depend on both state and local laws, as well as the type of vehicle we own. The state on which our car is registered or where it is used can also determine the taxes we would owe. Therefore, it is important to understand how car taxes work, as it would help us become more aware of any tax balance that would be generated. This is what you need to know about the different types of car taxes and how it might apply to you.  

To begin with, we should be aware that there are two different types of car taxes we might have to pay when we lease, buy, or own a car. The most common type of tax we might have to pay when we purchase a car, whether new or used, is a sales tax. These taxes may vary from one state to another, having a 7.5% sales tax in the state of California, with local governments being able to charge an additional tax of up to 2.5% on top of the state sales tax.  

The second type of car tax we are likely to owe is the property tax, which is charged about half of the states, but California is not one of them. California used to charge this property tax on vehicles, but in 1935 this system was replaced with the annual registration fee. Whether we are subject to a state property tax or a registration fee, we should keep in mind them both are based on the current value of our vehicles, and in the case of California, car owners are subject to a 1.75% rate.  

If we want to calculate the amount of sales tax we will be subject to, we need to consider how several factors might affect the ending balance. Your vehicle’s purchase price will definitely affect the total sales tax we would have to pay, but there are other factors to consider, including the category of the vehicle. Also, we need to remember that every city and municipality can charge additional sales taxes, so it’s always best to consult with our car dealer before actually purchasing a vehicle.  

When it comes to calculating the property taxes that we owe for our car, the rules for assessing the value of our car will be determined by the state or municipality that charges this tax. In the case of California, the Department of Motor Vehicles is in charge of determining such rules and of assessing the value of your car, too. There is an online tool available for car owners to request an estimate of their property tax and registration fee, and you can consult this on their official website.  

What You Need to Know About Taxes on Micro-investment Earnings 

It is not uncommon to come across ads for apps like Stash, Acorn, Rize, and Robinhood, promising significant earnings resulting from small investments. This makes investing look easy and attractive, as we all might be looking for ways to get extra cash and increase our income. However, those who are new to the world of investments, and micro-investments in particular, need to be aware of the extra paperwork that might be needed for their earnings. There are several forms you might be needing, depending on how much you earned and what you did with those earnings. Here are some of the most common ones.  

One of the most common forms we should expect regarding our earnings from micro-investment apps is Form 1099-MISC. We will need this form if we earned any kind of cash bonuses or awards from any micro-investment app totaling $600 or more. These earnings will be taxed as income, so keep that in mind. We should also remember that this form has a different deadline than that of our income taxes, being January 31st of next year, so prepare beforehand and avoid missing the date.  

Another form you should be aware of is Form 1099-B, which you will receive in case you sold any of your investments during the tax year. This is because, every time you sell investments, you need to pay taxes on the profit, which is called capital gains. On the other hand, if you sell investments that represent a loss, you need to report such losses to the IRS. However, this might reduce your taxable income, and the tax rate may vary, depending on how long you had a given investment.  

If we have experience with investments, or if we were really lucky, our investments might do so well that a portion of them could be shared with other investors. If such was the case, we should be expecting to receive Form 1099-DIV for all investment dividend earnings that we withdraw. For these cases, the tax rate we may owe would depend on the level of our income and on how long we held such investment. We should also expect Form 1099-INT if we earned interests of more than $10 through any institution, including micro-investment apps.  

Even when the tax implications that come from micro-investments might sound too complex for us, we should not feel intimidated or confused by them. The amount of taxes that we would owe to the IRS depends greatly on our tax profile, and the chances of our investment earnings pushing us to a higher tax bracket are bare. Instead of being afraid, we should consult our finances and investment earnings with a professional tax consultant that can guide us through the process and helps us stay compliant with IRS rules and regulations.  

 

How to File the Taxes of My Kids When They Are Taking a Summer Job 

It comes the time in every kid’s life when they are old enough to start taking casual jobs, from the classic lawn mowing gigs to more formal summer jobs at fast-food restaurants or local businesses. This might give parents a great sense of satisfaction as they see their kids growing up and becoming responsible members of a community. However, this also raises the question of who will be in charge of filing their income taxes on the money they make during this job. If you are asking yourself this question, these are some aspects to keep in mind.  

To begin with, we need to remember that, as it is stated in IRS Publication 929, Tax Rules for Children and Dependents, our kids are the ones responsible for filing their own income taxes using standard Form 1040, as well as paying for any penalties or interests they may accrue. However, if our kids are not able to file their own income taxes for any reason, then the parents or guardians become legally responsible for filing their kids’ taxes. Parents and guardians are also able to sign the return if the kid isn’t able to, but we must include the words “By (signature), parent (or guardian) for minor child”.  

Now, there are some situations on which our children will need to file their federal income tax return, and we should make sure we go over these situations with them as clearly as possible. Otherwise, they would be failing to file, and this could lead to IRS penalties and interests. These include:  

  • Your kid has more than $1,100 of unearned income. 
  • Your kid’s gross income exceeds the greater of $1,1000 or earned income of up to $11,650 plus $350. 
  • Your kid’s earned income is more than $12,200. 
  • Your kid owes other taxes, such as the self-employment tax or the alternative minimum tax. 

Many parents tend to ask us if it isn’t easier for them to simply report the income of their kids as part of their own return, which is a very good question. As a parent or guardian, you can choose to report your kid’s income as part of your own return by including Form 8814 Parents’ Election To Report Child’s Interest and Dividends. However, this only applies if your child will be under age 19 as of December 31st, 2019, or if they will be a full-time student under age 24 by that same time, and their only income is generated by interests and dividends.  

If your kid has taken a summer job this year and you are not sure about how to report their income tax, don’t hesitate and give us a call. It is never too early to get a professional giving the assistance that you need in this kind of situations.  

If You Are a Business Owner, These Are the Taxes Your Company Must Pay 

Having our own business comes with many different challenges and responsibilities and making sure we overcome all of them while remaining compliant with all our requirements can be tough at first. However, if we took the time to work on a business plan, we might already have a clear idea of the steps we need to take. Part of these responsibilities includes paying our company’s taxes, whether we need to do this quarterly or annually. These are some of the taxes you need to be aware of when you start or own a business.  

Income taxes. To begin with, every business must pay taxes on the profit they generate, which corresponds to their total income minus deductible expenses. Small business owners, partners in corporations, and owners of S-Corps can pay these taxes through their personal income tax returns. However, sole proprietors and members of single-member LLC’s need to file a Schedule C and include it in their personal return.  

Sales tax. Depending on the state our business operates, our company might be subject to paying sales taxes on the products and services we sell, which may also vary from one state to another. Nonetheless, companies in most states are required to collect sales taxes and pay them to the department of revenue of each state. These taxes also include the items and services we offer online, which may be required for specific types of online stores.  

Property tax. if our company owns buildings, land, or any other type of real estate, we will be subject to property taxes, which are paid to our local taxing authorities, such as the city or the county our property is located at. These taxes are determined based on the assessed value of our property, and even when a portion of these can be deductible, we need to consult with the IRS before assuming our property expenses are eligible for a deduction.  

Self-employment taxes. These correspond to Social Security and Medicare, and sole proprietors and partners must pay them based on their business’s income. This is because business owners, proprietors, and partners do not qualify as employees of their companies, which means that they cannot withhold these taxes that way. The only ones who would be exempt from self-employment taxes are the owners of corporations who work as employees. 

Payroll taxes. Companies are also required to pay taxes on employment or payroll corresponding to the earnings of our employees. These taxes must be paid to both the IRS and the Social Security Administration. Employment and payroll taxes are used to cover different types of taxes, including FICA taxes, unemployment, and workers compensation taxes on both federal and state levels. 

How to Pay and Deduct Property Taxes as Small Business Owners 

Just as individuals do, businesses have to pay taxes on any property they own, including land and buildings, and it might be a bit tricky for small business owners who have just started operations. However, understanding how to pay and deduct property taxes as small business owners will help us keep our company compliant while making our accounting and legal responsibilities more manageable. This is what you should know regarding property taxes if you or your company have just purchased a property or any real estate assets. 

As we mentioned above, businesses that own property or real estate are required to pay tax on such properties to the IRS. These taxes are called ad valorem because they depend on the value of the property, which means that the value is determined by a property assessor. We must remember, though, that the assessed value for tax purposes is not the same as the fair market value, which would then be determined by a business appraiser.  

When it comes to property taxes, these are assessed by different local entities, like towns, cities, counties, or villages, and they are used for local purposes such as building and improving roads, schools, and any infrastructure that the community needs. Therefore, the corresponding tax authority will register the properties owned by your business and send a tax bill showing the amount of tax you should cover year by year.  

You should keep in mind that some property expenses can be deductible, but the IRS has set different limitations that you need to be aware of. TO begin with, you will be able to make a deduction based on the assessed value of your property. In order to deduct a portion of your property taxes, expenses must be made for local benefit, including maintenance, repair, or interest charges. However, you need to consult your local taxing authority to make sure your company’s expenses will qualify.  

If you are thinking about buying or selling business property, you also need to keep in mind that during the year of the transaction, the tax bill would then be shared between the buyer and the seller. This will be determined by the period of time during which a real estate asset was owned by the seller and the period of time during which the buyer became the new owner.  

Property taxes for small business owners might be a bit trickier than we think but having the right tax professional by your side giving you the guidance you need will make this process much easier. If you are a business owner who wants to buy or sell a property for your company, get in touch with us and we will give you the assistance you deserve.  

4 Simple Steps for Small Businesses to File Their Federal Income Taxes 

One of the biggest responsibilities for business and corporations, regardless, is ensuring compliance when filing their income tax report. Since failing to do so, either by mistake or intentionally, can have severe consequences on any company, we need to make sure we are submitting our information accurately and in a timely matter. This might feel more difficult for small businesses for many different reasons, as they may not have enough experience or an assigned tax advisor to guide them. That’s why we have summarized four simple steps for small businesses to file their federal income taxes in an easy and efficient way.  

The very first step of the process must be gathering all our records, making sure we have every paper and every receipt that we need in order to accurately document our business expenses and earnings. In order to make this step even easier, we should consider using an expense-tracking software or keeping the record on a spreadsheet. This would allow us to have a digital backup of our receipts in case we need one, and we might also be able to import our information directly to our income tax report.  

Once we have put together all our expense and earnings information, we need to find the right form for our business, which will change depending on how we are operating our businesses. Many small businesses are run as a sole proprietorship, so they are able to report their income taxes by attaching a Schedule C form to their personal taxes. The IRS would also allow you to use Schedule C if you run your business as an LLC and you are the only owner. In the case that you ran your business as a corporation or you treated your LLC as one, then you would also need to file your taxes filling a separate Form 1120. 

After finding the right form for our business, we can move onto filling out the information required. If we are going to be filing Schedule C, we shouldn’t worry much, as it is a two-pages long form which lists all the possible expenses and deductions our business can claim. Form 1120 is quite similar, but this form requires more detailed information that might not always apply to small businesses. Besides, this form must be separate from your personal taxes, unlike Schedule C. 

Every business owner must pay a lot of attention to the different tax deadlines that might apply for their companies, depending on the organization structure and the tax form they will be submitting. Since Schedule C is part of the regular Form 1040 for personal taxes, the April deadline would not change. C-Corporations filling Form 1120 need to file their taxes on the 15th of the fourth month after the tax year closes, which would be April. S-Corporations filing Form 1120S need to submit their taxes on the 15th of the third month after the tax year closes, which would be March.  

If you want to know more about the different steps for small businesses to file their federal income, don’t hesitate and get in touch with us. We will be glad to give you all the assistance and guidance you and your company need.  

Deductible Business Expenses You Should Take Advantage Of 

As many of us are aware of, there are many business expenses that can be deducted from our taxes, whether we are self-employed, or we are owners of our own company. However, there are so many different types of expenses that business of any size make as part of their daily operations, that missing some deductions can happen at any time. Therefore, we are bringing an extensive list with plenty of deductible business expenses so that you can take advantage of them and use this to make your business grow and become more successful.  

To begin with, we need to keep in mind that we will come across two different types of business expenses, ordinary and necessary expenses. Ordinary expenses refer to all the expenses that other companies working on your field will make on a regular basis. Necessary expenses refer to all the payments we make that are needed in order to keep our operations going. This is a list of the most common fully deductible business expenses, including both ordinary and necessary expenses:

  • Accounting fees        • Advertising       Bank charges          Commissions          Consultation fees       
  • Professional education           Credit and collections         Delivery charges       Employee benefits 
  • Equipment rental         Insurance         Interests          Internet services           Legal fees 
  • Licenses         Maintenance          Office supplies        Training fees        Rent         Salaries 
  • Security          Software          Travel           Utilities 

 Other deductible expenses that we might not be aware of include gifts to customers or clients. Sometimes, a small detail to show appreciation can go a long way, helping us secure a long-lasting relationship with our clients or business partners. However, we need to keep in mind that gift expenses are only deductible for up to $25 per person. So, if you are buying $100 gifts, the remaining $75 will be out of your pocket, but if you buy $20 gifts, these would be fully deductible. Also, gifts you give to your employees also fall under this category with the same $25 limit still applying.  

Another commonly forgot business expense that can be deductible is that of meals and entertainment. These costs are usually deductible up to 50% of what you spend, as long as the meal or entertainment cost was business related. So, taking a client or our employees to dinner and paying for their meals qualify for a business expense deduction, and you can even add the tip.  

Car and transportation expenses are also deductible, and these consist in the costs of gas and fees, for example, when we are going to our business or when we are meeting a client. The best way to make sure we are keeping track of our daily expenses is by having a log, whether on paper or using a smartphone app. This way, we will be able to have an accurate record that will come quite handy when it is time to file our taxes.  

In order to deduct your business expenses, you need to complete and file either Schedule C or Schedule C-EZ so that you can itemize your expenses and calculate how much income will be left after you have taken care of the deductions. If you want to get more information on business expenses and how to deduct them, get in touch with us and you will get all the assistance you need.  

These Are Some Self-Employment Tax Advantages of S Corporations 

Self-employment taxes tend to be one of the biggest challenges for freelancers, startups, and anybody working from home or on a business of their own and are usually subject to higher Social Security and Medicare taxes. However, one great way to deal with these taxes and make them more manageable is by setting your business as an S Corporation. This way, the IRS will look at your taxes from a different perspective, which could result in lowering the amount of taxes you would pay as self-employed.  

One of the most relevant advantages of filing as an S Corporation is that it can help us reduce the amount of FICA taxes that we pay, which include Social Security and Medicare taxes. When we file our taxes as self-employed, we must cover the entire amount of FICA taxes, yet when we are employees, our employers cover a part of that. When we file as S Corp, though, we can report a part of our annual gross revenue as a net profit as long as we take a portion of the AGR to cover our salary. This way, instead of paying the 15.3% of FICA taxes from our profits, only the part of our salary is subject to taxes, and the rest net profit will be taken as a distribution from the business.  

Working as an S Corp allows us to classify a portion of our income as our salary, and another portion as a distribution. As we mentioned above, the portion that is meant to cover our salary will still be subject to self-employment taxes, while the portion that qualifies under distribution will be subject to ordinary income tax. Therefore, this is a great way to lower our FICA taxes balance, which could end up representing a significant reduction.  

On the other hand, we must be cautious when we are filing as an S Corporation since this type of incorporation will make the IRS take a closer look at our income tax return. S Corps structures have been used to abuse the system and avoid self-employment tax, which will result in a more careful review. Therefore, we need to make sure we are designating a reasonable amount of our company’s income as our salary so that we don’t end up being subject to an IRS audit. For example, if our business is making an annual gross revenue of $50,000, a reasonable salary would be around $25,000 to $30,000. 

It is important to do our corresponding research before deciding to turn our company into an S Corporation, since there may be some additional costs we might not be aware of. For example, S Corps will require legal and accounting costs, both for the start-up and once we have our operations running. Also, some states require S Corps to cover additional taxes and fees, just like the case of California, where S Corps are required to cover tax of 1.5% on its income, with a minimal annual amount of $800.  

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.