The Balance Sheet, Inc.

Bookkeeping Company | Tax Service

Accountants In West Palm Beach

(561) 842-1304

5725 Corporate Way, Suite 205
West Palm Beach, FL 33407

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Lessons You Can Learn from these Top Three Tax Questions

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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.

Learn the Truth About the 2018 Home Office Tax Deduction Options

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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.

7 Tax Tips to Avoid an IRS Audit with Your Small Business

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tax filing, tax accounting, tax accountantBeing subject to an IRS audit can be a monumental challenge for your small business. In fact, the IRS has been getting more vigilant in their approach toward such businesses in recent years. However, there are ways to avoid an audit.

As you file your small business tax return this year, here are seven tax tips you can use to protect yourself against an IRS audit:

1. Use a good record-keeping system

A reliable record-keeping system is the key to not only save money but also maintain adequate tax documentation. Research what kind of documentation you need to gather and maintain for your tax needs. Ensure that you have processes in place to keep this support at tax time.

2. Decide on the best accounting method for your business

Businesses use one of two tax accounting methods: cash and accrual. Depending on the nature of your small business, its legal structure, and its credit situation, you may consider one of these accounting methods. Even if you happen to pick one not suited for your business at first, there are ways to resolve any discrepancy.

3.  Stay current on tax filing and file any past due returns

If there is an issue, and you’re current, your tax professional has a lot more options to help you resolve it. If you happen to have any past due tax returns related to your business, make sure to file them as soon as possible. This will help you avoid any penalties and interest and get on the right track with your taxes.

4. Clarify any unusual circumstances

If you or your business encounter any unusual circumstance (such as an inheritance) discuss it with your tax professional. They will likely ask all sorts of clarifying questions to determine whether or not you A) owe taxes on it and B) it is a reportable event.

5. Report all your business income

One of the things the IRS looks at in determining their audit cases is whether all income is reported. Make sure to obtain and maintain records of all your business income. Ensure that you have matched all your records and reported the right amount.

6. Review your tax return

There are many details that can fly under the radar during the tax review process. Make sure to carefully go over your tax return before submitting it. Even if you’re using a tax professional to help you file, ensure that you also review and understand your return before final submission.

7. When in doubt, use a tax professional

Filing your business’s tax return can be a complex process. If you have doubts as to how to undertake this process, consider consulting with a tax professional. They can help you better navigate the filing process and submit a more accurate return.

Are you wondering how to survive an IRS tax audit?

Contact us for a free consultation at (561) 842-1304.

Sources:

  • “Avoiding Problems.” Internal Revenue Service. Accessed January 08, 2018. https://www.irs.gov/businesses/small-businesses-self-employed/avoiding-problems.
  • “Six Tips to Avoid an IRS Audit.” Six Tips to Avoid an IRS Audit | NAEA. February 12, 2013. Accessed January 08, 2018. https://www.naea.org/newsroom/press-releases/six-tips-avoid-irs-audit.
  • “Visit the IRS Small Business Tax Center for All Your Tax Needs2 | Internal Revenue Service.” 2 | Internal Revenue Service. Accessed January 08, 2018. https://www.irs.gov/newsroom/visit-the-irs-small-business-tax-center-for-all-your-tax-needs2.

 

 

 

5 Tax Planning Strategies for Professional Service Providers | The Balance Sheet Inc

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tax services, tax consultant, tax preparation servicesAs a professional service provider, applying effective tax strategies can help you meet your financial goals. While you may feel too busy with the demands of your practice, it’s crucial that you take the time to plan your tax strategy.

Here are 5 top tax planning strategies that will help you accomplish your business and financial goals this year:

1. Maximize your deductions

If you’re claiming itemized deductions, you may be able to take advantage of the Net Operating Loss Carryover, if available. Keep in mind that the Net Operating Loss Carryover must be clearly shown on prior income tax returns and financial statements. You can claim your Net Operating Loss Carryover within three years of from the year in which the loss was incurred.

2.Leverage your tax credits

Tax credits are for things like energy, offering medical insurance, and more.  To fully leverage your tax credits, you need a knowledgeable tax professional to let you know what credits apply to your business. Feel free to contact us, we’re eager to help.

Corporate income losses from prior years may be used as credits against your income tax due. Losses can either carry back 2 prior years or carry forward for 20 years. Consult with your tax professional on the best strategy for you.

3.Get Charitable

If you’ve made charitable contributions to accredited institutions, you may be able to deduct these fully. However, in order to claim your charitable contributions, you may have to provide a Certificate of Donation. Any time a donation is over $250 a statement is required.

4.Mind your excess income tax payments

If you’ve overpaid your income tax, you may be able to apply that tax credit to the following year or receive a refund. Keep in mind the option to carry over is irrevocable.

5.Track your unappropriated retained earnings

Unappropriated retained earnings refer to the net income that has not been allocated as income to its shareholders or officers. They are usually distributed as dividends and taxable at that time. Timing of distribution can affect your tax bill.

Are you wondering about the best planning tax strategies for professional service providers? Contact us for a free consultation at (561) 842-1304.

Sources:

“Tax planning strategies.” BusinessWorld. Accessed August 26, 2017. http://www.bworldonline.com/content.php?section=Economy&title=tax-planning-strategies&id= 127590.

Hananel, Eric. “Tax Planning Strategies for Individuals in 2017.” Investopedia. January 10, 2017. Accessed August 26, 2017. http://www.investopedia.com/articles/taxes/011017/top-tax-planning-strategies-2017.asp.

PricewaterhouseCoopers. “Personal financial services.” PwC. Accessed August 26, 2017. https://www.pwc.com/us/en/private-company-services/personal-financial-services.html.

 

 

New Due Date for Form 1099-MISC Box 7 Use

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According to the 2016 General Instructions for Certain Information Returns:

  • New Due Date for Forms 1099-MISC Using Box 7 — January 31, 2017 is now the due date for filing Forms 1099-MISC when reporting nonemployee compensation payments in box 7. Otherwise, file on paper by February 28, 2017, or file electronically by March 31, 2017. (The due dates for furnishing payee statements remain the same.)
  • Electronic Filers must use the FIRE System. The IRS has included a “First Time Filers Quick Reference Guide” in Publication 1220 (page 2).
  • Extensions — A 30-day extension must be requested by the due date of the return. Under certain hardship conditions, an additional 30-day extension can be requested. For more information, go to https://www.irs.gov/pub/irs-pdf/i1099gi.pdf (page 6).

More detailed information is available at https://www.irs.gov/pub/irs-pdf/p1220.pdf.