Category: Accounting

Understanding Why Tax Planning Is A Vital Step For Small Businesses

Though the deadline for filing your taxes may be months away, most small business experts agree: the two best times to get a jump on tax planning are “now” and “all the time.”

We know that isn’t always easy for an overworked, enterprising small business owner, but it’s crucial to your company’s growth and success to make tax planning and strategizing a year-round effort.

Tax planning will help you:

• Reduce the amount of your taxable income,
• Lower your tax rate,
• Utilize all available tax credits and deductions.

If you’ve put off tax planning for the majority of the calendar year, you still have time to research your options and make changes that will lead to the best-case tax scenario for your business. You can also resolve to start the new year with a tax-planning strategy that kicks in on day one.

MISTAKES HAPPEN

We get it—you wear a lot of hats while operating your business, and you didn’t plan on “tax planner” being one of them. You have marketing, staff management, product development, customer service, and accounting to worry about. Isn’t that enough?

Not if working in your business takes away from working on your business!

Here’s the deal, though. The solution to failing to plan all year isn’t found in embracing every aggressive year-end tax strategy you’ve heard or read about. Some common mistakes or miscalculations business owners might make include:

• Spending money at the end of the year to reduce tax bills. Remember, spending a buck doesn’t mean a dollar saved come tax time. While many tax deductions are great to take advantage of, wastefully spending money to get or increase them is never a good idea. An exception: when you know you have large purchases coming up at the beginning of the new year and it would benefit you tax-wise by buying them now to take the deduction in your current tax year.
• Accelerating expenses into the current year. If the numbers show next year may be a better one for profits, you’ll want to offset the greater amount of income. Just like in the example above, it literally pays to thoughtfully plan big expenses.
• Choosing the accrual basis when the cash basis makes more sense (or vice versa). Most end-of-year aggressive tax strategies benefit cash-basis taxpayers. Not understanding what your tax reporting designation is can have a huge impact on whether or not you’ll save on taxes by making large purchases now.

 

Making Smart Year-End Decisions

There’s a good reason financial experts say small business owners need to make tax planning a year-round effort: you’ll be better equipped to make smart decisions that help you minimize tax liabilities and you’ll make wiser business choices. That’s why as one year ends it’s so critical to immediately start the new one by getting your financial records up-to-date, analyzing your profits and losses, and determining ways to put more money in your bank account. Along the way you’ll find that the stress of small business taxes is lessened, which, in turn, helps you make better business judgments.

BONUS TIP: do a strategic tax planning session during your 4th quarter since you’ll have a good idea of where the year is going to end up and then implement a strong plan to roll over to the new year.

Still worried about handling this aspect of your business? A bookkeeper, accountant, and/or CPA can play a starring role in showing you how easy it can be to implement tax-saving strategies that will serve you well come tax time. You’ll learn that a good tax plan requires things like:

• Reviewing and analyzing the books.
• Contributing the maximum allowable amount to retirement accounts.
• Designating deductions as they occur, not right before tax time.
• Tracking carryover tax deductions such as capital and net operating losses.

 

Year-end tax strategies that could save you money

Here are several ideas that could help reduce your 2020 federal income tax burden. It’s a good idea to consult your Ameriprise financial advisor and tax professional for personalized advice.

Maximize qualified retirement plan contributions

Consider putting as much money as you can into your 401(k), 403(b) or other qualified retirement plan account. Doing so will reduce your taxable income on a dollar-for-dollar basis and will increase your retirement savings. At a minimum, contribute at least the amount your employer will match.

The contribution deadline for 401(k) and 403(b) accounts is Dec. 31, 2020. The contribution limit is $19,000. If you are age 50 or over, you can contribute an additional $6,000.

Deduct medical expenses

If you itemize your tax deductions, you may be able to deduct eligible medical expenses that exceed 10% of your adjusted gross income. There is a wide range of deductible medical expenses — visit the IRS website for details.

Use stock losses to offset capital gains

While no one likes investment losses, you may be able use them to generate a positive result: a lower tax bill for a given calendar year.

The U.S. tax code requires that losses first offset gains of the same type. For example, short-term losses will first offset short-term gains.

Because of the higher tax rate for short-term gains, focusing on short-term losses can have a more substantial effect on your tax savings than long-term losses — especially if you are in a higher federal tax bracket.

If you didn’t have capital gains this year, you can use up to $3,000 in capital losses to reduce ordinary income. You can carry over any remaining net capital loss to future tax years until you use the loss.

Consider charitable giving

As a strategy to increase itemized deductions above the standard deduction and receive a deduction from charitable giving, consider transferring a larger amount into a donor-advised fund to gift over future years. Donations are generally disbursed through the fund per your recommendations, and your contribution to the fund is generally fully deductible the year it’s made.

Another way to implement this tax planning strategy is by bunching smaller annual charitable donations into a larger donation every other year or every few years so you can itemize tax deductions.

 

Estate Tax

To give or not to give? The estate tax is once again becoming a hot button issue even with the lifetime exemption currently set at more than $11.5 million per person. The question is whether any gift given now that uses up the exemption will be grandfathered if there is a future change to the exemption amount. The IRS has issued favorable proposed regulations so no claw-back is expected.

Worst Case Scenario

The worst case scenario is that you do not take advantage of the current lifetime exemption amount and then it is reduced in 2021 to $5 million or to $3.5 million. In that case, you will have forfeited the ability to give away the difference between the current amount and the future amount, which can be more than $6 million or $8 million, depending on the future exemption amount.

Best Case Scenario

The best case scenario is that the current exemption amount is not reduced and you have the ability to use it in future years.

Tax Planning Strategy

If you have not done so already, and are comfortable surrendering control of assets to the next generation, it might be a good idea to take advantage of the $11.58 million per individual lifetime exemption in 2020, or $23.16 million for a married couple. The prevailing view is that the current lifetime exemption amount is as good as it gets and using it up before it’s gone might be your best bet regardless who wins in November.

 

Here are 5 tax planning ideas to consider before the end of 2020:

1. Realize capital losses OR capital gains on stock while substantially preserving your investment position. If you expect significant capital gains, realizing offsetting losses in your portfolio could be beneficial. Alternatively, taxpayers in a low-income year can maximize the 0% capital gains rate by recognizing capital gains and resetting their basis. It’s best to consult with an investment advisor if considering this strategy.
2. Defer bonuses. Do you have a large bonus you’re expecting to receive before the end of the year? It may be advantageous to arrange with your employer to defer year-end bonuses until early 2020. Some businesses are still able to claim the bonus expense for 2020, while the recipient can defer the income tax impact.
3. Consider bunching itemized deductions. With the higher standard deduction of $12,200, $18,350, or$24,400 based on your filing status, receiving a benefit for your itemized deductions may be complicated. You may be able to save taxes by applying a “bunching” strategy of deferring or accelerating the payment of medical expenses, charitable and other itemized deductions in a certain year.
4. Setting up a retirement plan. Retirement plans, including a solo 401(k) or a typical 401(k), need to be established by December 31, 2020 for contributions to count for this tax year. While contributions are often not due until the tax filing deadline in the following year, the plan setup needs to be done within the year you want it to be in place.
5. Consider Roth IRA conversions. Depending on your financial circumstances and tax bracket, a Roth IRA may be a more valuable retirement saving vehicle compared to a traditional IRA. A Roth conversion would allow an investor to convert money in a traditional IRA to a Roth IRA. Conversions must be made before year-end to count for that specific tax year. Also, don’t leave this to the last minute as custodians often won’t be able to process these requests within the last couple weeks of the year.

Can A Tax Preparer Save Me Money?

As the old adage goes, there are two things that you cannot escape in life – death and taxes. Filing your tax returns is never easy since it means going through a mass of cancelled checks, bills, receipts, and other financial documents. This could overwhelm you and you should, therefore, consider hiring a tax preparer to do the job. You actually save money when you hire a tax preparer. So, are you asking yourself, “how can a Tax preparer save me money?” There are several ways through which this is possible.

You will save money because the tax preparer will ensure there is deduction maximization. If you use a computer software program, there is a risk that you may not find all possible deductions that are relevant to your situation. A tax preparer, on the other hand, asks targeted questions and this ensure that deductions that might have been missed are made.

A tax preparer will have the relevant training and experience to know the tax credits that you are eligible for. If you do not make a claim for a tax credit, it is not the responsibility of the government to tell you that you are entitled to them. You need not worry about tax preparer fees because these can be deducted on the following year.

Hiring a tax preparer saves you money because you will get future help if you find yourself in a sticky situation tax resolution services are necessary. If you have problems with tax penalties or back taxes, a tax preparer who understands your taxes will help you deal with the Internal Revenue Service (IRS). The case will take a much shorter period with the tax preparer who handled your case as opposed to a tax attorney or an accountant who is seeing your tax filing for the first time.

If you are wondering, “can a tax preparer save me money?” another way through which this is possible is that you can get a preparer who does tax preparations online. More and more people are turning to online tax preparer because of the convenience and anonymity this offers. Online rates are lower because of the intense competition.

The tax law changes with every budget reading and you need a tax preparer because he/she will be up to date with the latest changes. Hiring a pro ensures that you take full advantage of any new law and you do not get into the bad books of the IRS. As the old adage goes, ignorance is no defense.

A professional will have the time to double check for mistakes. Were you to do the tax preparation yourself, there is a risk that you might miss some things. Tax preparations errors are more common than most people thing. These errors could be costly. A good tax preparer will use a software program for the tax preparation and will then check this manually.

 

Saving money by saving the tax preparer’s time

I found a tax preparer using these tax tips. After checking the accountant’s credentials and a free consultation phone call, I set up an appointment.

But my work isn’t done. I could show up with a stack of papers and a shoebox full of receipts, if I want to pay for the time he’ll need to sort through the mess. My tax preparer knows this all too well, which is why he provided a guide to speed up the preparation process — ways to save him time that will save me money. I’ve expanded on that list using other sources, and came up with the following 8 documents, numbers, and data to organize, locate, or calculate before you meet with your tax preparer:

• A copy of last year’s tax return, including the state return, if applicable.
• Original W-2s, 1099s, 1098s, and K-1s (make copies for your records).
• Birth dates for you, your spouse, and your dependents.
• Do you want your refund deposited directly into a bank account? Have your bank account routing number and account number.
• Do you pay for childcare? Provide the Social Security or Employer Identification Number for all child care providers for Form 2441.
• Did you sell shares of stock or a mutual fund? Have the following: Date acquired, number of shares acquired, purchase price, and sales commissions and fees, adjusted by reinvented dividends and stock splits.
• Did you invest? Bring a copy of your broker’s year-end tax report that shows interest, dividend earnings, and proceeds from sales of securities. Also bring copies of any booklets they mailed you, which can include information on income from government obligations that can be used to prepare state tax returns.
• Did you earn interest at a bank or credit union? List each bank and the amount earned.

 

Consider before hiring a tax professional:

Advantages

Filing Your Own Taxes Can Be Incredibly Time-Consuming

In 2007, the IRS estimated that the average person spent 24.2 hours completing their tax returns, a number that I had easily surpassed when attempting to handle my own taxes. For those who had to file a Schedule C for business or a Schedule E for rental properties, this number quickly jumped to 52.2 hours.

To put this number into perspective, if you assume that the average person’s time is worth $25 an hour, that is a cost of up to $1,305 dollars. Money and time that could be saved, invested, or in my case, put towards the down payment on a new car. A tax professional will be able to work quickly and efficiently and save you not only time but a headache that is sure to follow.

Tax Preparation Fees Can Be Deductible

Assuming you itemize, any fees you incur while preparing for your taxes can be deducted on Form 1040 as long as the sum of your miscellaneous deductions you are claiming here is greater than 2% of your adjusted gross income.

Difficulty

Filing a tax return cannot only be complicated and confusing but is also constantly changing. The Federal tax code is adjusted each year making it nearly impossible for the average taxpayer to be fully aware of all changes that may apply to them. If you must claim any of the following, as I had to, it is especially advised that you speak with a tax professional as these scenarios will instantly complicate your tax return:

• You own, sold or started a business
• Have many investment losses or gains
• Capital asset transactions
• Real estate transactions
• Change in marital status
• Your income and residence are not in the same state or country
• Trust Fund Transactions
• Completing a Schedule for Self-Employment Income

 

Deciding Point: The Complexity of Your Finances

As a general rule, the more complicated your tax situation is, the more advantageous it might be for you to bring in a tax professional. What constitutes complexity? If you have any of the following situations:

• You own a business. Whether your business is a full-time endeavor or simply a sideline, there are some special rules that you may want to discuss with a tax pro. For example, if your business purchased equipment, there are several ways to write off the cost; the best way to do this depends on your current tax situation as well as your prospects for the future. You can, of course, handle many of these situations with appropriate tax software (TurboTax Home & Business, for example, will help you prepare a Schedule C for a sole proprietorship), but you won’t get personal advice.
• You had a major life event this year. For example, if you sold a business, went through a divorce, bought or sold a home, or had any other major life change, a tax preparer can alert you to the relevant rules you’ll have to follow and the breaks to which you may be entitled
• You want to itemize. Again, software lets you feed this information into the mix, but a tax preparer can provide strategic advice about deductions you’re entitled to, the substantiation you need, and other matters that could help you reduce your tax bill while avoiding problems with the IRS.

 

How do you find the best tax preparer for your needs? Consider these points as you search.

• Credentials and Expertise – You want someone who is registered with the IRS and has a Preparer Tax Identification Number (PTIN). Anyone who fills out your returns for a fee is legally required to have one.CPAs, EAs, and tax attorneys will undergo different levels of tax training, but that does not necessarily mean they have filed any returns. Even if they have, their expertise may be in different areas, and they may be more familiar with deductions in a specific area (such as the self-employed or very active investors). You want a preparer with expertise in returns for your field.Ask about their credentials and professional memberships such as the National Association of Tax Professionals and the National Association of Enrolled Agents. If you don’t feel comfortable with their answers, keep searching.Finally, make sure your preparer is familiar with state tax issues as well as federal ones. If you live and work in different states, that is a non-trivial issue.
• Costs – Fees will vary by area of the country, complexity of the tax return, expertise of the preparer, and your level of organization. The stereotypical shoebox full of crumpled receipts will earn you a higher bill – as it should.Generally, greater expertise commands a higher fee, but this is not always true. Chain preparers can be unusually expensive, and CPAs/EAs can be a bargain. Comparison-shopping often pays off.Avoid anyone who tells you the fee will be a percentage of the return or promises you a higher return without even looking at your records.
• Reviews – Check online reviews, the Better Business Bureau, and professional organizations for feedback and complaints. If anyone you trust has had personal experience with the preparer, ask him or her for an honest assessment.
• Experience – Choose a preparer with both longevity and experience in your field. You want to be confident they will be available in case there are issues with the return.

How to Choose the Right Payroll Outsourcing Vendor to suit your Requirements

We were recently quoted in an article on Human Resources Director about the things that business owners should consider when thinking about payroll outsourcing and choosing a vendor.

Looking to free up your team’s time for more strategic and value-adding work? It might be time to consider outsourcing your payroll function.  After years of lagging behind the US and Europe – where payroll outsourcing has been a mature market for some time – BPO analyst firm NelsonHall predicted in 2016 that the payroll outsourcing sector in Asia-Pacific is expected to grow at twice the rate of the total global market, valuing it at $1.2bn by 2020.

Zac Ma, Sales Director, HRO, SEA at Links International, told HRD that more and more organisations, especially in Asia, are beginning to recognise the importance of utilising their HR resources as a strategic business partner and are starting to see value in outsourcing administrative tasks like payroll. “They are also beginning to realise that very often there are actually tangible ROI benefits to it,” he said.

Firstly, and perhaps most importantly, Scott Thomson, chief operating officer, Links International, explained to HRD that the payroll outsourcing provider must be up to date with legislative changes. “This should be pretty much standard today,” he said. “Most service providers will have the resources to keep up to date with any changes and to communicate that to clients.”

Ma said it’s important to understand whether the vendor is delivering payroll service as its core service or whether it’s a complementary offering. “This makes a difference simply because expertise is required. Use the analogy of going to a shirt tailoring shop to get custom shoes – the quality of advice and service might be questionable.”

 

Find payroll software

Overview

If you decide to run payroll yourself, you need payroll software to report to HM Revenue and Customs (HMRC)

HMRC-recognised software

HMRC tests payroll software to check it can report PAYE information online and in real time (RTI).

You can choose from free payroll software (if you have fewer than 10 employees) and paid-for software that has been tested and recognised by HMRC.

You should consider which features you need. For example, some software will not let you:

produce payslips

record pension deductions

make pension payments

pay different people over different periods (for example both weekly and monthly)

send an Employer Payment Summary (EPS) report or Earlier Year Update (EYU) to HMRC

 

How To Choose The Best Payroll Service For Your Business

If there is anything that can be more painful than going through the monotonous and tiresome process of payroll management, it is to mess up with it. Even if you manage to keep the mistakes to minimum, doing your payroll in-house can still cost you. The valuable time and efforts you spend on calculating the money that you have to give away could instead be spent on making money! This is the reason why so many SMEs are turning to outsourced payroll services.

The apparently simple process of getting your employees paid is actually a complex procedure. It is much more than keeping track of their work days and preparing a few checks. It can be overwhelming for small business owners who are not well acquainted with accounting and payroll processing.

Why Payroll Outsourcing Is a Wise Choice For Small Businesses?

The dilemma of whether to keep payroll in-house or go for payroll system outsourcing can be really confusing. “If a small business owner has a good background in accounting and is willing to research all the laws, remember all the deadlines, and has a very simple payroll, then they could consider doing the payroll themselves,” said Clare Wherley, CPA and co-founder of accounting firm Lassus-Wherley.

How to Choose The Best Payroll Service: What to Look For?

The reason to outsource payroll is strong and reasonable. Payroll consultant India or payroll services India vary in cost, however their pricing structure is quite standard. Most of the online payroll services charge their clients a monthly flat rate, based on the services used and number of employees.

According to Ken Darrow, editor of Payroll for Dummies, and group marketing manager at Intuit Payroll, “There’s three things that payroll should do for you. It pays employees on time, it pays your payroll taxes on time, and it actually files your payroll tax forms on time. You want to do all three of those to be compliant with the law, and you also better do the last two or you’ll get fined.”

 

How to Select Payroll Software for Your Small Business

Are you pulling out your hair over payroll? Doing your own payroll, even for just one employee, has many pitfalls for the small business owner. There’s a lot to know, and keeping up with many federal, state, and local payroll tax regulations is a pain. In addition, you have deadlines to meet, for payments and reports to all these agencies

Payroll is your business responsibility. Having a payroll service doesn’t relieve you (the business owner) from the responsibility for paying employees, withholding, reporting, and paying federal and state tax agencies. No matter who you hire, your business is ultimately at fault if something isn’t done or isn’t done correctly.

What Are Payroll Services?

There are two kinds of payroll services: online services and (for lack of a better term) personal services. The online services may be apps or online-based. The personal services are a business owned by an individual who may do payroll online or who may be local.

How Much Does an Online Payroll Service Cost?

The first thing business owners ask when looking for a payroll service is: “How much does it cost?” While cost is important, other factors are just as important.

Setup, training, and dashboard: The system should be easy to set up. You should have a dashboard to guide you through processes and to allow you to check on activities like filings and paycheck deposits. Training should be simple, with good videos to help you work through the various processes. What level of payroll knowledge do they assume you have? Most business owners have little knowledge, so your service should provide detailed basic knowledge of payroll terms, paychecks, and filings

 

Outsourcing Payroll: The Pro’s and Con’s

Outsourcing Payroll: The Pro’s and Con’s

Payroll commonly refers to a company’s records of its employees’ salaries and wages, bonuses, and withheld taxes. It is a specialised function that requires specialised and trained staff. For decades, it was seen as a simple accounting function but it is no longer the case. It is now a specialist occupation on its own

What is employer’s duty when it comes to payroll?

The business of employing people in the UK is regulated by government legislation designed to protect employees. Under these legislations, employers are entitled to provide a regular financial reward for their work. This amount is specified in their contract of employment.

The government department that is in charge of collection of taxes is Her Majesty’s Revenue and Customs (HMRC). The job of paying employees is handled by the payroll department of a company and you, as a payroll administrator will need a range of skills and knowledge to do the job rightly. You must be aware of the need to get things done on time and to do them correctly and accurately.

Employees are entitled to receive their pay on or before the due date. You must always meet the deadline. Failure to pay your staff on time could cause financial difficulties for the employee, undermine their confidence in their employer and thus demoralise them at work.

There are also deadlines for making payments to HMRC, the courts, pension providers and other external bodies. Failure to pay these on time may result in financial penalties and high-interest charges.

How to Find a Good Tax Adviser

Many unlicensed tax preparers with questionable credentials set up shop during income-tax season. Some disappear after the April 15 filing date, leaving you to deal with the IRS if there’s a problem with your return. The IRS recently cracked down on such rogue tax preparers by, among other things, contacting those whose returns have frequently shown to have errors. Plus, it is instituting stricter rules for anyone who charges a fee to prepare a tax return. See the IRS’s fact sheets about the new requirements for tax-return preparers. Most of the new rules do not take effect until the 2011 tax season, so taxpayers still need to be vigilant when hiring a tax preparer or adviser this year

One good approach is to look for an enrolled agent. Enrolled agents are tax experts who must pass a rigorous test, meet annual continuing-education requirements, and who are licensed to represent clients in front of the IRS. Enrolled agents can prepare your income-tax return, and some provide tax-planning advice. You can also contact an enrolled agent if you need help after receiving a penalty letter from the IRS.

Enrolled agents work in a variety of settings: Some have their own firms, some work for tax-preparation chains, and some are also certified public accountants or certified financial planners. You can find an enrolled agent through the National Association of Enrolled Agents, at www.naea.org. They usually charge by the tax form to prepare a return (so the more complicated your return, the more you’ll pay) and by the hour for tax planning.

If you’re looking for help with financial planning as well as taxes, CPAs who are also personal financial specialists (CPA/PFS) can help integrate tax planning with investing, retirement-planning and estate issues

 

MAJOR DIFFERENCES BETWEEN TAX FILING AND TAX PLANNING

Just like there’s a really, really big difference between tax avoidance (lessening tax liability and legal) and tax evasion (the deliberate under- or nonpayment of taxes and criminal), there’s a big distinction between tax planning and tax filing. Unfortunately, if you’re like most people, it’s a distinction you’re not all that familiar with

It’s a popular myth that there are over 70,000 pages in the tax code, but the true number is still well over 4,000 pages. Is it any wonder no business person has the time to read it? Luckily, tax pros like CPAs, accountants, and bookkeepers do stay current with new and updated tax codes, making them well prepared to help you understand these three major differences between planning and filing

Each of these taxes is based on different criteria and has distinct filing requirements. With income taxes, for example, partnerships, sole proprietorships, S-corps, and LLCs show their next profit on personal income tax forms. C-Corps, on the other hand, pay corporate taxes. And don’t forget about state, city, and county taxes!

Tax planning is more long-term.

Good tax planning looks far into the future and helps you better plan and benefit from existing tax rules. It’s a time-consuming process that requires a high level of knowledge and engagement. You may find it tedious work, but a good tax planner will always be excited about helping you save money on your next return

HOW A BOOKKEEPER HELPS WITH BOTH TAX PLANNING AND FILING

An experienced, qualified bookkeeper is your perfect year-round partner in tax planning and filing. Tasks like paying bills, invoicing customers, and entering transactions are done on a consistent basis. Employee payroll, bank reconciliations, and entry adjustments keep your business operating smoothly. And monthly Profit & Loss reports, Accounts Receivable (AR) and Accounts Payable (AP) aging schedules, and balance sheets get you geared up for tax time. Come tax time, all that information can be used to quickly and easily file your various federal, state, and local tax returns, including payroll, sales, and income tax. You’ll also get all the W2s and 1099s you’re required to issue.

 

Now that tax season has ended, it’s time to start thinking about your taxes

Think retirement

Some of the most generous tax-sheltering opportunities involve retirement plans. Workers with earnings usually can opt for a choice of programs, including 401(k)-style plans and Individual Retirement Accounts, of either the traditional or Roth varieties. What these accounts have in common is their ability to allow investment earnings to grow tax-sheltered until money is withdrawn

Think charities

It’s also natural to delay thinking about charitable contributions until the waning weeks of the calendar year, when a large amount of donations are made. But there are good reasons to spread your giving throughout the year.

Think bunching

Charity donations, like many other expenses, can be deducted on federal returns only by people who itemize. Yet tax reform increased the standard deduction, thereby reducing the number of taxpayers who would gain from itemizing

Think organization

Now that you have all your tax-related receipts and statements handy, make an effort to file them in a way that makes sense for you, then keep the process going as more paperwork comes in.

Think clutter

Now that you have your tax returns and other paperwork within reach, it’s time to decide what to keep.

 

Tax Planning For Small Business Owners

Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity.

Tax planning:

Tax Planning is the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability. Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits, and deductions that are legally available to you.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals

Maximizing Business Entertainment Expenses

Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines. In order to qualify as a deduction, a business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips

Important Business Automobile Deductions

If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.

 

Tax Tips for People Who Are Self-Employed

Estimate your business income

It’s absolutely essential that you find out where you stand tax-wise – before you start taking other tax planning steps. You don’t want to make expenditures, for example, in a year when you don’t need the deduction. If you expect to be in a higher tax bracket this year or next, you’ll want to take as many deductions as possible in the year you are subject to the highest tax rate

Time your income

You can’t postpone income simply by not cashing checks that come to you, or by telling customers not to pay you until after the end of the year. Income is generally taxable when it is available to you. However, you can time billing near the end of the year to your advantage. You certainly can sell assets at a gain before or after the end of the year, depending on your tax situation.

Time your expenditures

There’s always a surge in business equipment sales at the end of the year – and it’s not entirely because computers and printers are a popular holiday gift. If you buy business assets by December 31, you can start depreciating them this tax year. You may even be able to take a Section 179 deduction and expense the entire cost of the asset in one year.

Make the most of medical insurance deductions

You can deduct health insurance premiums for yourself, your spouse, and your dependents as an adjustment to income. This includes premiums for long-term care insurance. The policy does not need to be in the business name – it’s deductible even if it’s in your name.

Keep the form of your company simple

Unless you need to form a partnership or a corporation for some reason, stick with a Schedule C, Sole Proprietorship. It’s the simplest way to file, and there’s nothing you have to disband if you move on to something else. If you’re looking for legal protection, get liability insurance (and consult your lawyer).

Tips for Finding the Best Payroll Software

Congratulations! You’ve gotten to a point that many other small business owners have only hoped for — growth. But now you’re required to find a more robust payroll system.

Sure, when it was you and a couple of co-founders it was pretty easy to sort out payment. But now that you’re growing, it’s necessary to put a process to your operations, offload some of the tedious work you’ve been doing since the beginning, and free up your time and resources to focus on bigger issues at hand.

One smart way to do this is to invest in a payroll software platform that can take care of one of the most important parts of your business for you: paying your employees on time, every time.

Yet, as you know, it’s not nearly as easy as just cutting a check. From properly withholding taxes and reporting to the IRS to tracking PTO hours earned and much in between, there’s a lot to consider when deciding which payroll software system is right for you.

How to choose the best payroll software for your small business

Overall, the best thing that you can do is get a solid understanding of your business’ unique individual needs. As you dive into the capabilities and features of the many payroll systems out there, it can be easy to get swept up in thinking that you need fancy features that will actually go unused or forget an important need you have until it’s too late. So, above all else, know what you need (and what you don’t) and compare everything to that.

 

How to Find the Best Payroll Service

Payroll covers more than just making sure employees are paid. It also involves keeping compliant with laws and regulations, such as tax rules and the Affordable Care Act requirements. It includes workers’ compensation, benefits and more. Thus, while hiring a payroll service can seem like a big investment, it has the potential to save your small business time, trouble and money in the long run

Basics

It knows the rules. A payroll company should understand not only federal law, but also your state and local regulations, plus any rules specific to your industry

Extras

Workers’ compensation: Many services offer workers’ compensation insurance, which all businesses need by law. Some charge extra for this. Benefits: Many services offer benefits packages, such as employee discount deals and retirement plans. Mobile access: Most payroll services have mobile apps or mobile-friendly user portals so managers and employees can run payroll from a smartphone or tablet

Price

Basic fees range from $20 to $200 a month, depending on features offered, plus $1 to $10 per employee or paid contract worker per pay period. Sometimes payroll services bundle extras that drive up the cost while never being used by the client. Be sure you are not paying for things you don’t want or need.

Some services also charge additional fees, such as for setting up direct deposit or for mailing out paychecks themselves. Others charge for doing your end-of-year taxes. Some have a general annual fee. Be sure you ask about all fees over the course of a year, and what special tasks incur charges.

 

How to safely choose the absolute best payroll service for you and your employees

Payroll service companies can be a big help when it comes to calculating and filing your company’s payroll taxes, printing checks, and being available to answer important payroll-related questions. Industry-leading companies have streamlined processes and controls that lead to greater efficiency and fewer errors, which can save your company time and money.

When considering payroll service options, it is important to choose a reputable company because ultimately your business is responsible for paying the taxes, not your payroll company. That means you must do your homework to ensure the payroll company is compliant with regulatory standards and that your taxes are paid in full and on time.

Choosing a payroll company

One of the best ways to find potential payroll service providers is to ask other business owners or payroll professionals who they recommend and why. Hearing directly from a company’s customers is a great way to evaluate the company’s processes and service levels.

What services do you offer and what certifications do staff members hold?

It’s important to know what you’re looking for from a payroll company and whether those needs go beyond the basics. The company should have a CPA on staff, and other professional certifications (like Society of Human Resource Management or American Payroll Association) are a good sign of a quality organization.

Is the company bonded and insured?

Find out how much the company is insured for and request a certificate of insurance.

 

Your Ultimate Guide to Choosing the Best Payroll Provider

Save time

Automated services do so much of the work for you. They keep you up-to-date with continuous processing and insightful reports. Additionally, employee self-service features allow employees to do a lot of the onboarding and upkeep that an employer or payroll manager may have otherwise had to do.

Save money

Most payroll software systems cost less than hiring a full-time bookkeeper.

Reduce errors

Payroll software service reduces the opportunity for people to make manual errors. Payroll can get complicated. Be confident the automated service processes correct information and minimizes risk for things like tax noncompliance.

Access it anywhere.

Cloud-based payroll means you can access payroll information anytime, anywhere—not just at your desk.

Make a Payroll Checklist.

Before you go on your search for the perfect payroll provider, identify what’s on your company’s payroll checklist for software. Map out your organization’s needs first. That way, when you speak with payroll providers you know what questions to ask and which answers to look for. Then bring an open mind for options that you may not have thought of but could benefit your business. Understand your company first before you try to understand a payroll provider.

 

Choosing a Payroll Service Processor

Make sure it’s easy to process

Identify how you would like to process the payroll – online, via email, fax or phone. Online payroll service companies are the easiest and most popular to use. They automatically calculate regular rates per pay period, overtime rates, tax withholdings, net amounts, employer taxes, and holiday pay. The systems also apply necessary benefit deductions and track PTO/vacation/sick payments. It then makes payments to employees through direct deposit or check.

Multi-State Employer/Multi-State Tax Filing

If your company is a multi-state employer, it is important to make sure that your payroll service files tax reports and processes tax payments for all of the states that hold company employees. Otherwise, you will have to file reports and pay taxes manually, making it possible  to make mistakes such as missing a deadline. It also adds internal administrative costs. Keep in mind that the burden of company registrations with new states fall on the employers; however efficient payroll service systems can provide the necessary information for registration as well as the ability to follow up on missing information

Check Online and Mobile Access

Everything is accessible online these days. Most people don’t like receiving paper pay-stubs via snail mail anymore. The accessibility of paystubs and tax forms online at any point of time has become highly convenient. Most payroll services offer employee access to systems for reviewing payment information and downloading tax forms. Some payroll services even offer mobile apps for the convenience of employees as well as employers.

Benefit Bundle features:

Several payroll processors work with benefit companies to incorporate benefits in their services. Usually, a payroll and benefit bundle is good for both the employees and employers due to superior benefit plans for cheaper costs. Do some research on what benefits payroll services offer prior to signing the deal.

System Integration

Payroll services can integrate a variety of payroll related programs, such as accounting software, HR software, and time and attendance systems. It is important to keep in mind that some payroll systems can only integrate with certain programs. If integration is important for your company, research which programs integrate properly prior to choosing payroll services.

Tax Planning for Beginners: 6 Tax Strategy Concepts to Know

Tax planning is the analysis and arrangement of a person’s financial situation in order to maximize tax breaks and minimize tax liabilities in a legal and efficient manner.

Tax rules can be complicated, but taking some time to know and use them for your benefit can change how much you end up paying (or getting back) in April. Here are some key tax planning and tax strategy concepts to understand before you make your next money move.

Tax planning starts with understanding your tax bracket

You can’t really plan for the future if you don’t know where you are today. So the first tax planning tip is get a grip on what federal tax bracket you’re in.

The United States has a progressive tax system. That means people with higher taxable incomes are subject to higher tax rates. People with lower taxable incomes are subject to lower tax rates.

There are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

No matter which bracket you’re in, you probably won’t pay that rate on your entire income. There are two reasons:

You get to subtract tax deductions to determine your taxable income (that’s why your taxable income usually isn’t the same as your salary or total income).

You don’t just multiply your tax bracket by your taxable income. Instead, the government divides your taxable income into chunks and then taxes each chunk at the corresponding rate.

For example, let’s say you’re a single filer with $32,000 in taxable income. That puts you in the 12% tax bracket for the 2019 tax year. But do you pay 12% on all $32,000? No. Actually, you pay 10% on the first $9,700; then you pay 12% on the rest.  If you had $50,000 of taxable income, you’d pay 10% on that first $9,700 and 12% on the chunk of income between $9,701 and $39,475. And then you’d pay 22% on the rest.

The difference between tax deductions and tax credits

Tax deductions and tax credits may be the best part of preparing your tax return. Both reduce your tax bill, but in very different ways. Knowing the difference can create some very effective tax strategies that reduce your tax bill.

Tax deductions are specific expenses you’ve incurred that you can subtract from your taxable income. They reduce how much of your income is subject to taxes.

Tax credits are even better — they give you a dollar-for-dollar reduction in your tax bill. A tax credit valued at $1,000, for instance, lowers your tax bill by $1,000.

Taking the standard deduction vs. itemizing

Deciding whether to itemize or take the standard deduction is a big part of tax planning, because the choice can make a huge difference in your tax bill.

What is the standard deduction?

Basically, it’s a flat-dollar, no-questions-asked tax deduction. Taking the standard deduction makes tax prep go a lot faster, which is probably a big reason why many taxpayers do it instead of itemizing.

Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation. The standard deduction that you qualify for depends on your filing status, as the table below shows.

 

Tax planning tips to maximise your return

The end of the tax year will soon be upon us with 30 June just around the corner. Now’s a good time to take a look at both your expected taxable income (essentially your business’s assessable income, minus any allowable deductions) for the current financial year 2018-19; and your projected/expected taxable income for 2019-20, as they will help guide your tax planning strategy.

If you are expecting to have a higher income this financial year, compared to your projections/expectations for the next financial year, you can talk to your accountant to consider:

Prepaying some of your 2019-20 expenses (such as your rent, insurance or subscriptions to professional associations) in the 2018-19 financial year. Up to 12 months of the following year’s expenses can be deducted in the current tax year.

Taking advantage of the instant asset write-off, which enables you to immediately deduct assets you purchase for your business costing less than the associated threshold (whether the asset is purchased new or second-hand). This opportunity will be available until 30 June 2020. Thresholds have changed over the past few years so check the ATO website for full details.

Reviewing and postponing some of your invoicing for the current tax year, if appropriate.

Topping up your voluntary superannuation contributions.

Reviewing your debtors and writing off any unrecoverable debts.

If applicable, deducting any start-up expenses – such as obtaining legal or accounting advice on your business structure, and fees in relation to establishing the structure (eg. ASIC company registration fee).

 

Tax Tips That Could Save You Money This Year

Decide whether itemizing is still for you

The new law greatly increases the standard deduction to $24,400 for married couples filing jointly, $12,200 for single filers in 2019. It also places new limits on itemized deductions, including a $10,000 cap on property and state and local income tax deductions. Taking the standard deduction instead of itemizing may make tax preparation simpler, Navani says. At the same time, work closely with your tax specialist to make sure it’s the right choice, which will depend on factors ranging from your health expenses to charitable giving

Max out on your retirement plan

The new laws don’t change this advice: Think about increasing your contributions to your 401(k), IRA or other retirement plan to reach the maximum contribution amount.

Not only does this offer the possibility of increasing your retirement savings, but it will also potentially lower your taxable income. If you’ll be age 50 or older at any time during the calendar year, take advantage of “catch-up” contributions (an extra $6,000 for a 401(k) plan and an added $1,000 for an IRA1), Navani suggests. You generally have until December 31, 2019, to contribute to a 401(k) plan and until April 15, 2020, to contribute to an IRA for the 2019 tax year.

Consider converting your traditional IRA to a Roth IRA

Although there are income limits for contributing to a Roth IRA,2 anyone can convert all or a portion of their assets in a traditional IRA (or other eligible retirement plan) to a Roth IRA. Why might doing so make sense? Unlike with a traditional IRA, qualified distributions from a Roth IRA aren’t generally subject to federal income taxes, as long as the Roth IRA has been open at least five years and you have reached at least age 59½. However, you’ll be required to pay income taxes on the amount of your deductible contributions, as well as any associated earnings, when you convert from your traditional IRA to a Roth IRA—or, if you don’t convert, when you retire and take withdrawals from your traditional IRA.

Use stock losses to offset capital gains

Now may be a good time to consider selling certain underperforming investments in order to generate a capital loss before the end of the year—which could help offset the capital gains you realize when selling stocks that are performing well. In addition, you may generally deduct up to $3,000 ($1,500 if married and filing separately) of capital losses in excess of capital gains per year from your ordinary income. If your net capital losses exceed the yearly limit of $3,000 ($1,500 if married and filing a separate return), you can carry over the unused losses to the following year. Note that under the new law, investors will continue to pay long-term capital gains taxes at a rate of 0%, 15% or 20% (depending on their overall income) but with adjusted cutoffs. Married couples filing jointly and earning $78,750 or less ($39,375 for singles) will pay nothing. Married couples filing jointly earning between that and $488,850 (or that and $434,550 for singles) will pay 15%, while married couples filing jointly and earning more than $488,850 or more ($434,550 for singles) will pay 20%.3

 

best tips to prepare for tax-filing season

as the end of the year approaches, it’s a good idea to start thinking about how you’ll handle your federal tax return. Some taxpayers are still getting familiar with the Tax Cuts and Jobs Act of 2017, which has been in effect for only one tax season.

The new tax law capped state and local tax deductions at $10,000, doubled estate tax exemptions, put new limits on the deductibility of home equity debt, and changed the tax brackets. It’s a lot to keep track of, so taxpayers shouldn’t wait until the April 15 filing deadline nears to plot their best course.

The IRS starts accepting 2019 returns on Jan. 28, 2020. Even if your financial situation is simple and straightforward, it pays to make sure you’re up-to-date and doing all you can to reduce your tax bill.

 

Quick tips to make effective last-minute tax planning

Equity Linked Savings Scheme (ELSS): ELSS is a diversified equity mutual fund which has a majority of the corpus invested in equities. Returns from an ELSS fund reflect returns from the equity markets. Investment can be made in lump sum. If you plan in advance, you can take the SIP route with a lock-in period of three years. It is considered one of the best investments as it has the potential to give returns of around 15% (based on past returns) along with tax deduction  ..

Public provident fund (PPF): It is a savings scheme introduced by the Ministry of Finance (MoF) with tax benefits. The scheme is fully guaranteed by the Central Government and provides a fixed rate of return of around 8 per cent, which is fixed every quarter.

Employee provident fund (EPF): EPF is a retirement benefit scheme that is available to all salaried employees. The employer deducts a minimum of 12 per cent of basic salary plus Dearness Allowances (DA) of employee and deposits in the EPF or other recognised provident fund. This amount can be higher than 12% as per employee discretion. The interest rate on the EPF is 8.55 per cent and the entire PF balance (including interest) is tax-free if withdrawn after continuous service of ..