Tax Archives - The Balance Sheet, Inc.

Lessons You Can Learn from these Top Three Tax Questions

May 1, 2019 By The Balance Sheet

Tax Lessons

We live and we learn. Mostly we learn by making mistakes. However, no one wants to learn about taxes that way. Instead, you can learn from these commonly asked tax questions.

1. How long do I need to keep tax records?

According to the IRS, keep your tax records for three years. That is the period of time they usually are able to examine during an audit. Unless the IRS suspects fraud. Then they can look back seven years. Maxine at The Balance Sheet says to keep business returns for up to FIVE years and personal returns up to SEVEN.

2. Are my Social Security benefits taxable?

Possibly. Especially if a substantial amount of your income is from other sources. If this is your only source of income or the major source, then your benefits probably are not taxable.

If you are filing as an individual (either single or married filing separately) and your combined income is between $25,000 and $34,000, up to 50% of your SS benefits may be taxed. If your combined income is more than $34,000, up to 85% of your SS benefits may be taxed.

If you file married filing jointly and your combined income is between $32,000 and $44,000, up to 50% of your SS benefits may be taxed. If your combined income is more than $44,000, up to 85% of your SS benefits may be taxed.

The Social Security Administration defines your combined income as:

Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits
= Your “combined income“

3. Should I hire a tax consultant to prepare my taxes?

The answer may be yes if the following statements are true about you:

A. You are not a numbers person.

If you have struggled every year to file your tax return, then yes you should. If computing the numbers makes you worry you might be getting in over your head, turn this over to someone who enjoys the work. You could also save yourself from getting into trouble.

B. You got married, divorced, had a child, or lost a spouse.

If this is true for you, then you may need help finding the best filing status for you. Your tax situation is probably different from your friends, neighbors, and work colleagues. You will need a professional to help you sort it. Also, some credits and deductions expire.

C. You started a business.

This takes expert knowledge. Someone needs to teach you how to swim before you jump into the water alone. It is not very much like filing your personal tax return.

These are only three tax questions answered. To learn more, consult a professional tax consultant. In West Palm Beach, Florida, you can call The Balance Sheet at (561) 501-3080 or visit us at www.taxaccountingbookkeeping.com.

Ways a CAA (Certified Acceptance Agent) Can Help a Foreign Employee

April 28, 2019 By The Balance Sheet

A Certified Acceptance Agent is a person, business or organization authorized by the Internal Revenue Service to assist individuals who do not qualify to receive a Social Security Number but need to be able to pay income tax. These individuals are often foreign employees working in the United States. A CAA helps them be able to work legally here by helping them get the necessary tax documents filed, and secure an ITIN (Individual Tax Identification Number).

Here are 4 ways a CAA can help you:

1. Obtain an ITIN

As a foreign employee working for a United States Company, you are required to file a United States Federal Income Tax Return and possibly a State Income Tax Return. To do so you must have an ITIN. If you do not have and ITIN, a CAA (certified acceptance agent) can help you obtain one. This involves filing a form W-7, Application for IRS Individual Taxpayer Identification Number. The CAA can prepare your application and can certify your records to ensure your application is processed correctly and completely the first time.

2. Authenticate your identity for the IRS

As part of the process for obtaining your ITIN, your identification papers will need to be reviewed and authenticated. The CAA knows exactly what documents you need and can certify them as authentic. Also, an added benefit of using a CAA is that you can send certified copies of documents, instead of originals. With an AA (acceptance agent) you will still need to send your original documents with your application.

3. Submit your supporting documentation

The IRS needs to know who youare, where you are from and about your family as well. You need to provide documentationthat the IRS deems acceptable to prove who you are and where you are from. If the IRS does not accept your documentation, you will not be issued an ITIN. A CAA is authorized by the IRS to examine your documents and submit a Certificate of Accuracy (COA) along with your documents. The IRS will accept this as proof.

4. File a tax return

The documentsyou need to providewill vary depending on several factors. Filing a tax return can be stressful and complicated. Errors on your tax return can delay a refund or even put you at risk for an audit. Many CAAs also prepare tax returns.We recommend you get help from a CAA.

Are you still wondering how a Certified Acceptance Agent can help you? Contact us for a free consultation at (561) 501-3080.

Did You Lose Deductions in 2018?

April 25, 2019 By The Balance Sheet

The 2017 Tax Cuts and Job Acts legislation changed a number of items for 2018 taxes. You may be surprised as you prepare your 2018 Taxes how these changes affect your return.

Since the standard deduction was increased, and certain other itemized deductions removed or limited, itemizing your deductions may not be in your best interest. You will want to consult with a tax professional for help this year.

The Standard Deduction Increase

The standard deduction has nearly doubled for all those filing.

For married filing jointly (and for surviving spouses) the standard deduction is $24,000.
For heads of household, it is $18,000.
For unmarried individuals (other than surviving spouses or heads of household), the standard deduction is $12,000.
And for married filing separately, it is the same – $12,000.

It will only make sense to itemize your deductions, if they are more than the amounts listed above for your filing status and qualify for itemization in 2018.

What deductions were removed for 2018 Taxes?

Here’s a list of what deductions were eliminated:

Personal exemption deductions for yourself, your spouse, and your dependents.

Itemized deductions:
- Personal Casualty and Theft Losses (unless incurred in a federally-declared disaster area)
- Employee business expenses
- Tax preparation fees
- Investment expenses, including investment management fees
- Employment related educational expenses
- Job search expenses
- Hobby losses
- Safe deposit box fees
- Investment expenses from pass-through entities

What 2018 tax deductions have been limited?

Besides removing the items listed above, some other deductions were limited to a certain amount.

Taxes for Real Estate, and State and Local Tax deductions or Sales Tax. As of 2018, the amount of state and local tax deductions that an individual can claim for the year maxes out at $10,000.

Home Mortgage Interest deductions. Note that you can still deduct the interest of a home equity loan or line of credit that was used to buy, build, or substantially improve your home – provided your home secures the loan. Otherwise, it doesn’t qualify.

For example, if you took out a home equity loan for personal expenses like paying off debt, that would not qualify for an interest deduction. A home equity loan on your main home used to purchase a vacation home would also not qualify. However, if you purchase a second home and the mortgage is secured by that second home, and if it doesn’t exceed the limited combined amount listed below, it would qualify.

For homes purchased after 2018, there’s a lower dollar amount that qualifies for this tax deduction. You can only deduct interest on the first $750,000 of qualified residence loans, or $350,000 for married filing separately. Moreover, these limits apply to the combined amounts for all qualified loans (ones used to buy, build, or substantially improve your home). You can only apply this deduction to a main and a second home, a third home would not qualify. The limit above applies to both residences combined.

If the combined loan amounts for first and second homes exceed the limitation, then you’d be able only to deduct a percentage of your combined interest.

It’s worth highlighting again, that the maximum loan amount for itemizing is now $750,000, down from $1,000,000.

A good note is that the limitation on itemized deductions for certain high-income taxpayers has been removed. So, if you are one of the lucky few who can optimize their itemized deductions, there’s no limit on what you can claim.

You need professional help for your 2018 Taxes

If you’re lucky, you’ve been consulting with a tax professional throughout 2018 in order to optimize your tax return this season. Even if you haven’t, especially if you haven’t, you will benefit from a professional’s help. They’ll be able to sort out your taxes for last year, finding your best strategy, and then they should be able to help you strategize for a better 2019 tax year.

Contact us if you’d like to learn what we can do for you by either calling ((561) 842-1304 or by filling out the online form off to the right of this post.

What To Expect With The New Tax Law Reform

April 20, 2019 By The Balance Sheet

The New Tax Cuts and Jobs Act is now law and goes into effect this tax season. There are several changes which may affect you in several ways.

1. Your tax rates may be lowered

The new tax law keeps the same structure of seven individual tax brackets as the previous tax law, but most brackets are now at lower rates. The rate for the lowest bracket remains 10%, but most people will pay less. However, these tax rates expire after 2025 and will then revert to previous rates.

2. The Child Tax Credit increases

This credit increases from $1,000 to $2,000. Parents that do not earn enough to need to pay tax can still claim this credit up to $1,400.
Parents can use 529 savings plans to pay tuition at private and religious K-12 schools.

3. Your standard deduction nearly doubles

The standard deduction increases for all filing statuses. For singles, it increases from $6,350 to $12,000. For heads of household, it increases from $9,350 to $18,000. For married filing jointly, it increases from $12,700 to $24,000. Or, you can still itemize your deductions instead of taking the standard deduction. But you will probably find this will not save you money. An estimated 94% of taxpayers are expected to take the standard deduction next tax season.

4. Some of your itemized deductions are now eliminated

Personal exemptions are eliminated. Previously, taxpayers could subtract $4,150 from income declared for each person claimed. That is gone until 2026.
Moving expenses are also gone, except for active duty military.
The deduction for alimony payers is also gone. However, beginning January 2019 those with prior agreements are grandfathered in.
Some other itemized deductions have also been eliminated.
But charitable contributions, student loan interest, and retirement savings are still deductible.
Itemized deductions for taxes including state and local taxes are now capped at $10,000.
The deduction for mortgage interest is now limited to the first $750,000 of the mortgage loan.

5. Elder Care

There is a $500 credit for each non-child dependent to help families who care for elderly parents or other dependents.

6. The Health Insurance mandate is eliminated

This part of the Affordable Care Act that requires you to buy health insurance or pay a penalty is gone beginning in 2019.

This is a summary of the changes in tax law, but if you want to know more about how they affect you, our knowledgeable accountants can help. Call us today at (561) 501-3080!

Learn the Truth About the 2018 Home Office Tax Deduction Options

April 6, 2019 By The Balance Sheet

Tax Deduction

In 2018, you have a choice of methods to calculate the tax deduction for your home business use. You can use the Regular Method or the Safe Harbor Method for home office deduction. This is sometimes called the Simplified Option Method. The Regular Method has the requirements of allocation, calculation, and substantiation that are burdensome and complicated for small business owners. The IRS intends the Safe Harbor Method to ease this burden.

Here are the main points of the Safe Harbor Method:

There is a standard deduction of $5 per square foot of your home used for business.
You are limited to 300 square feet.
You cannot claim home depreciation.
You cannot later recapture depreciation for the years you used the Safe Harbor Method.

Let’s talk about selecting a method.

You can choose either method in any taxable year.
You can change the method you use in subsequent years.
Once you choose a method, you cannot change it later in the same taxable year.
If you use the Safe Harbor Method one year and then in a later year you use the Regular Method, you must use the appropriate optional depreciation table.

To help you choose between these two methods, here are the pros and cons for each.

The Regular Method

Pros

The square footage in your home used for business is not limited.
A percentage of your allowable expenses can be deducted.
Depreciation of the portion of your home you use for business is allowed.
Recapture of depreciation on gain is allowed when you sell your home.
The deduction amount that exceeds the gross income of the business can be carried over.
Loss carryover from the use of the Regular Method in the previous year may be claimed if the gross income test is met.

Cons

The burden of documentation is very heavy for many small businesses. All records of actual expenses must be kept and maintained.
Filing your tax return will be more complicated. You will need Schedule A and a business schedule; either Schedule C or Schedule F.

The Safe Harbor Method

Pros

Filing your tax return is simplified. A standard deduction of $5 per square foot is claimed in lieu of a Schedule A.
You can still claim home-related itemized deductions in full on Schedule A.

Cons

300 square feet is the limit you can claim for business use.
This method may yield a smaller deduction than the Regular Method.
You cannot use this option for more than one home in a taxable year.
You may not claim a depreciation deduction.
No recapture of depreciation when you sell your home for those years you used the Safe Harbor Method.
The amount of deduction that exceeds the gross income of the business cannot be carried over.
If you used the Regular Method in the previous year, loss carryover cannot be claimed.

Other aspects of these two methods are similar to each other. To learn more about how to calculate your tax deduction for your home business, contact a tax consultant. In West Palm Beach, Florida, you can call The Balance Sheet at (561) 501-3080 or visit us at www.taxaccountingbookkeeping.com.

6 Awesome Ways the 2018 Tax Cuts Will Save You Money

April 1, 2019 By The Balance Sheet

2018 Tax

You have heard a lot of chatter about how the Tax Cut and Jobs Act is supposed to help middle-class taxpayers. This is true. Most people in the U.S. will pay less to Uncle Sam. Here are 6 tax cut benefits that apply to you.

1. Your standard deduction is increased to almost double.

If you are single, your standard deduction was $6,350. Now it is $12,000. This deduction for married jointly filers increases from $12,700 to $24,000. This is temporary, the tax rates will return to 2017 levels in 2026.

2. The tax rate for most people is lower.

The tax rate for the lowest tax bracket will remain at 10%. But for everyone else, their tax rates will be lower. If you are single and earn up to $9,525 or married filing jointly and makeup to $19,050, your tax rate is only 10%.

The 7 tax brackets are:

Rate Individuals Married Filing Jointly

10% Up to $9,525 Up to $19,050

12% $9,526 to $38,700 $19,051 to $77,400

22% 38,701 to $82,500 $77,401 to $165,000

24% $82,501 to $157,500 $165,001 to $315,000

32% $157,501 to $200,000 $315,001 to $400,000

35% $200,001 to $500,000 $400,001 to $600,000

37% over $500,000 over $600,000

3. Non-home owners can deduct state and local taxes or sales tax

You can deduct property taxes and state and local or sales taxes. The total for all combined cannot be greater than $10,000.

4. The deduction for medical expenses is expanded.

You can now deduct medical expenses that are more than 7.5% of your adjusted gross income. That threshold is down from 10% for everyone, except seniors. Their threshold was already at 7.5%

5. You get a bigger child tax credit and a non-child dependent tax credit.

You get a credit of $2,000 per child plus $1,400 of the child tax credit may be refundable. Also, there is a $500 tax credit for each non-child dependent you claim. This can help if you are caring for elderly parents.

6. You can inherit up to $11.8 million tax-free.

The so-called “death tax” is still on the books, but now only applies to inheritances above that amount. For 2018 tax year, $11.8 million per person and changes to $11.40 million per person for 2019 tax year.

This is a quick summary of some of your tax cut benefits. To learn more, consult a professional tax accounting service. In West Palm Beach, Florida, you can call us at (561) 501-3080. We’re eager to hear from you.

The New Law Regarding Tax Cuts and Jobs Act for Corporations

October 29, 2018 By The Balance Sheet

Tax Cuts and Jobs Acts information for Corporations in 2018

There are new tax laws regarding corporations in the 2018 tax year. If you fall under any of the following situations, please reach out to a qualified tax professional to clarify your tax requirements.

You converted an S-Corp to a C-Corp.
You had a PSC (Personal Service Corporation).
Your corporation earned capital gains or paid out dividends.
You changed or should change your accounting methods.

If you have any questions on how these criteria may affect your 2018 taxes, please read the brochure below or contact us by using the online form to the right to discuss your unique situation. You can also call us at (561) 842-1304.

Tax_Cuts_and_Jobs_Act_-_Corporations_2018

A Charitable Contributions Guide for 2018

October 29, 2018 By The Balance Sheet

Information on what is and is not a charitable contribution in 2018

Do you have questions about what qualifies as a charitable contribution? If you answer with a yes to any of the following questions for this year, you may qualify for a tax break.

Did you volunteer for a charitable organization? If so, the expenses you incurred during your service, but not your time, are considered cash contributions and are deductible.
Did you contribute to a “donor-advised” fund? Check with your tax professional as this may or may not be deductible.
Did you donate used clothes or furniture to a charitable organization? If such items were in good to excellent condition they may qualify for a tax deduction. If they are well-used and of limited monetary value, they may not qualify.
Did you donate a vehicle? There are limits placed on how much you can deduct for vehicle donations.

If you have further questions on what sort of contributions qualify for tax deductions and how to keep proper records for them, please read our brochure below or contact us about your specific situation.

Charitable_Contributions_Guide_2018

What exactly should I do to avoid tax refund delays?

June 12, 2018 By The Balance Sheet

As a taxpayer, you may suffer from a tax refund delay for many reasons. These include computational errors, incomplete tax returns, and incorrect deposit information. You may also observe refund delays in case of social security number mismatches, early or late tax filing returns, and tax return amendments.

However, there are ways you can avoid these delays. Here are just a few:

Keep copies of your prior tax records

Inaccuracies and incomplete information in returns cause many tax refund delays. Having and using information from prior years tax returns can help you minimize these as much as you can. Ideally, you should maintain copies of your prior tax records for at least three years.

Top 3 Tax Frauds

The IRS is carefully screening tax returns with an eye towards preventing fraud. There are three things they look at: earned income tax credit, child tax credit, and the American Opportunity Tax credit. When you file, there are due diligence questions that must all be answered.

If your return has any of these items, your return may be delayed because it’s under review.

Be well prepared

If you’re not well prepared to file your tax return, this will delay the filing of your taxes. Which will, in turn, delay when you receive your refund. You should strive to create a file of all necessary tax forms, such as W-2s, 1099s, and other mandatory forms. You should receive these from the related institutions and banks throughout the month of January.

If you have not received all the forms you need to file your taxes accurately and completely, you can attempt contacting your employers or the related institutions.

In addition, the IRS requires you to indicate whether you had an individual health insurance plan throughout the course of the year. You are also required to indicate if you qualify for an exemption or have received the premium tax credit.

E-filing

You can minimize the amount and extent of computing errors on your tax returns by electronically filing your taxes. Keep in mind that more than 90 percent of all tax returns are filed electronically nowadays, by using either tax software or a tax professional.

It is much easier for the e-filing software to spot and check for errors. Whereas paper returns may increase the likelihood of mistakes. Most tax professionals are required to file electronically.

Direct Deposit

You also have the option of having your refund check deposited directly into the bank account of your choice. This reduces the chances of your refund check getting lost, stolen, or undeliverable. However, you must double-check your bank’s routing number and account number to make sure your refund isn’t deposited in the wrong account.

Want to make taxes easier? Contact us for a free consultation.

Sources:

“Get Ready for Taxes: Plan Ahead for 2018 Filing Season to Avoid Refund Delays.” Internal Revenue Service. Accessed April 01, 2018. https://www.irs.gov/newsroom/get-ready-for-taxes-plan-ahead-for-2018-filing-season-to-avoid-refund-delays.

Guess What? Mileage rates increased in 2018

June 5, 2018 By The Balance Sheet

mileage rate 2018, standard mileage rate, IRS tax mileage allowance

As of December 2017, new 2018 optional standard mileage rates are in effect. These standard mileage rates help compute your business, medical, charitable or moving deductions. All you have to do is multiply them by the number of miles you’ve traveled to get the related deductible expenses. If you and your employees use your vehicle for personal and business use, make sure to keep accurate supporting records.

Effective as of January 1, 2018, these are the new mileage rates to take into account. They are related to your car, van, pickup or panel truck use:

For business miles driven, 54.5 cents per mile (or an increase from 53.5 cents in 2017)
For moving or medical purposes, 18 cents per mile (or an increase from 17 cents in 2017)
For charitable purposes, 14 cents per mile

Since your business’ employees may be using your vehicles for various purposes, it’s possible to use many rates on your tax return. You should keep in mind that the business rates depend on the results of an annual study of the fixed and variable costs of operating a vehicle.

Yet, there are limits to claiming your deduction. You either use the standard mileage rate or actual expenses, which include claiming the Section 179 deduction or any depreciation method.

Under Notice 2018-03, business employees driving their own vehicles are entitled to nontaxable reimbursements of their costs. The Fixed and Variable Rate Allowance (FAVR) plan is the most favorable or fair program for employees.

There are other methods available. These include:

The Cost per Mile (CPM) reimburses employees’ vehicle costs on a per-mile basis. This is on the condition that it adheres to IRS reporting requirements;
Car or vehicle allowance: This is a specific amount that employees can use over a certain time to cover the costs of employees’ use of their vehicles for business purposes. As an employer, this type of compensation program is easiest for you. Yet, allowances are taxable to your employees and constitute a tax burden for the latter.

It is uncertain whether these 2018 mileage rates will impact business owners. Yet, it is important to keep these in mind as you account for your employees’ mileage expenses.

Contact us for further details on how we can help you keep track of IRS changes.