To File or Not to File?

Filing taxes

Everyone has to file a tax return, right? Actually, no…there are situations where a person may not have to file taxes. It depends on age, income level, where income comes from and what status you are filing under.

Let’s take a look at some of the guidelines provided by the IRS.

Thresholds For Income

Anyone who makes under the minimum income line does not have to file taxes. You are entitled to one standard deduction and an exemption, unless you are being named as a dependent on another person’s tax return that year. Anything over that rate is subject to a tax and you have to file a proper return.

The amount of those deductions and exemptions are changed every year to keep up with changing inflation rates. You can see those rates at the IRS website. The amount will be partially decided by whether you are filing as a single taxpayer or in a joint filing with a spouse.

Age Specific Exemptions

The rules for tax filings changes when you hit the age of 65. You may be subject to a higher income bracket before you are required to file, especially if you are receiving social security benefits.

Keep in mind that social security benefits are taxable if you are receiving an income from another source in addition to that monthly allotment. So make sure it is being factored into your final calculations when ascertaining whether you need to file a return.

ACA Status

The Affordable Care Act has opened up an insurance marketplace with benefits that offset the cost of health care for many Americans. At the end of the year, people who used the Marketplace are required to report it on their taxes, which includes providing information given from a special form issued in the mail along with W-2’s.

If you have used the Marketplace you will have to file a tax return.

Filing Rules For Dependents

Dependents are not able to name themselves as a deduction because they are being named on someone else’s return. Income they earn over $6,300 has to be reported on a return. If they are not employed but earning dividends on investment accounts or interest on bank accounts they are required to report it once it hits $1,500 per year.

Why You Should File Anyway

There are several instances where you can get out of filing a return. But do you really want to? Many Americans learn later on that they could have gotten a refund if they had only filed. You may want to consider filing a return even if it isn’t necessary. You never know what you could get.

Find out more at AATAS.

Trust Accounting Services

Trust Accounting Services

Allowing someone else to deal with your money requires a lot of trust. But that said, many people are nervous to meet with an accountant. Here is our four-step sequence for learning to trust your accountant.

1. Identify Your Fears

Ask yourself: What am I really worried about regarding my accountant?

Everyone’s answer will be different. You might realize your nervousness actually lies elsewhere in your business. You find some actual specific pain points with your finances: taxes! paying employees! spending! Or you might just find, you simply don’t like your accountant.

This last point is certainly a valid concern. Not all accountants are created equal. Maybe you a hard time communicating with your current accountant. If that is the case, find yourself a new accountant that you’re more comfortable with.

2. Take a look at your recent numbers

In step one, you clarified your emotions. Now, you’re going to get a numerical perspective.

Find key numbers for the last three to five years — yearly tax returns are a good place to start — and write the answers to these four questions:

  1. How much income did both my business and I receive?
  2. What the total expenses both my business and I accrued?
  3. How much did we each pay in taxes?
  4. How much did we each earn in profits?

Continue on to step three.

3. Speak with your Accountant

It is now time to speak with one or more accountants. Start by visiting your current accountant. If all you receive from that visit is bluster and jargon, find an accountant you can trust.

With whichever accountant you meet, focus your meeting on these three questions:

  1. What are the answers to the four fundamental questions above?
  2. How can I be more involved in my own finances?
  3. How can I trust you as my accountant?

The answers will speak volumes. You can expect a clear breakdown of the basic numbers and what they mean, practical tips on how to prepare for key parts of the financial year, and a walk through of the accountant’s process.

4. Commit to Trust and Understanding

Much of the hesitation for working with an accountant stems from a lack of understanding. Many people don’t understand what they are paying their accountant to do.

Learn more about your personal finances and learn more about your accountant’s process. As your understanding increases your trust will too. Then you’ll finally be able to get some sleep at night.

Non-Profit 990 Tax Returns

Non-Profit 990 Tax Returns

If you’re running a non-profit organization, you might have a lot of questions about tax-exemptions, IRS regulations, and what you are — and are not — required to file. Many non-profits are exempt from paying federal taxes, but contrary to popular belief, not all of them are.

If your organization is tax exempt, does that mean you aren’t required to file a yearly return? Not necessarily. And if you do need to file, you probably wonder which forms should you use and when they are due. For clarification, always speak to an accountant or CPA; they can ensure you have the proper structure to maintain tax-exempt status. However, here are some of the basic requirements when it comes to non-profits and the IRS.

Do You Need to File?

As a rule, the vast majority of non-profit organizations are still required to file yearly tax returns. Why? Because although most of them are tax-exempt and don’t pay federal taxes, they are still required to provide certain information to the IRS to keep that tax-exempt status in force. This informational return is filed using IRS form 990.

About Form 990

It’s vital that non-profit organizations file IRS form 990 on a yearly basis. This form helps the IRS verify and evaluate the operations of any non-profit, ensuring the laws governing these organizations are being followed. Form 990 includes important data about the organization’s finances, mission, and the programs they support.

There are different variations of form 990. They include plain 990, 990-EZ and 990-N. Which version you should are required to file depends on gross monetary receivables and what year you are filing. Most tax-exempt organizations should file form 990, with some exemptions such as state institutions and churches. Every private foundation classified as a 501(c)(3) should also file a 990, as should 527 political organizations.

Which 990 Should I File?

If you aren’t sure which form 900 you should be filing, the IRS can provide some guidance. However, here are some of the basics:

  • For private foundations, use form 999-PF
  • If your gross receipts are over $50,000, use form 990 or 990-EZ
  • If your gross receipts are under $50,000, file 990-N (e-Postcard)

Could I Be Exempt?

As stated above, most non-profit, tax-exempt organizations are still required to submit annual tax returns, at least for evaluation purposes. But generally speaking, the following types of non-profits are not required to file:

  • Government operations
  • State programs that provide essential services
  • Subsidiaries of other non-profit groups (usually, the return will be submitted by the parent organization)
  • Religious organizations like churches, missions or missionary organizations, and religious schools

While these are the basics, any non-profit should check with their accountant and/or the IRS to ensure they are filing all necessary paperwork and doing so with complete accuracy. For the sake of public trust and information, non-profit organizations are actually required by law to make their IRS Form 990 available for public view during business hours.

When to File Form 990

When your return is due will depend on the taxable year of your organization. Your form must be submitted by the 15th day of the 5th month after the close of your tax year. So if you are following the calendar year ending December 31st, you’d need to file your 990 by May 15th.

If you file your form 990 every single year, you can avoid certain IRS fees and extra paperwork. On the other hand, if you do not file for 3 consecutive years, your tax-exempt status will be rescinded by the IRS. In fact, thousands of non-profit organizations lose their tax exemption every year because they haven’t filed their 990. There is no appeal process if this happens to you, meaning you’ll likely to be required to pay income tax.

Don’t Leave Your Tax-Exempt Status to Chance

If you’re running a non-profit organization, the last thing you want to do is risk having to give much-needed funds to the government in taxes. This is why is so important to make sure you know the laws and follow them precisely. The IRS has provided instructions for form 990. However, for clarification and practical knowledge, it’s always best to consult a qualified tax professional who is well-versed in the tax requirements for charitable organizations.

Filing Your Tax Return When You’re a First-Time Homeowner

Filing Your Tax Return When You're a First-Time Homeowner

Buying a home is likely the most significant investment you’ll ever make. Not only are you paying hundreds of thousands of dollars, but your home is the place where you’ll make the most meaningful memories of your life.

As a first-time homeowner, you might also be aware that there are some tax implications when you buy a home. Let’s take a look at some of those, so you know what to expect when you file your year-end tax return.

Tax Implications of Buying a Home

  • Your Down Payment: Your down payment isn’t tax deductible. However, if you use some of your retirement plan to make this payment, you should let your plan administrator know. If you’re under age 59 1/2 and a first-time buyer, you can avoid early retirement withdrawal penalties.
  • Remodels and Repairs: Once you buy home, it probably won’t be long before you face your first repair or remodeling project. These costs are not tax deductible, but keep a file of your receipts along with photos of any construction you do on your home. Why? Because things like a water heater, new roof, kitchen remodel, new windows, or home additions can be classified as capital expenditures, which may reduce your capital gains tax when you sell the home. Note that repairs like plumbing, maintenance, cleaning, or painting are not capital expenditures.
  • Closing Costs: Unfortunately, the closing costs you pay when you buy a home are not tax deductible. But take a close look at your escrow settlement statement, where you might find some things like property taxes and fees for loan origination (also called “points”). These items may be tax deductible. Also keep documentation of the closing costs you pay when you refinance, as these can reduce your capital gains when you sell. Any points you pay for a loan refinance are eligible for amortization over the life of the loan, and you can deduct them on your tax return.
  • Mortgage Interest: The interest you pay on your mortgage and property tax escrow over the year are deductible on Schedule A — your itemized deduction. Your lender should be sending you form 1098 sometime in January, letting you know how much mortgage interest you paid. If your property taxes are paid through an impound account by your lender, your property taxes will show here, too.
  • Private Party Financing: Let’s say your parents helped you with your down payment, and you’re repaying them. If there’s interest on these payments, you can deduct it, but only if their “loan” note is secured by your property.
  • Private Mortgage Insurance: In 2017, private mortgage insurance (what you’ll pay if you put less than 20% down on your home, until you reach an 80/20 loan-to-value ratio) will no longer be tax deductible.

If you bought a home this year, it’s important to consider all the tax implications when filing your tax return. As home or business ownership can complicate your tax profile, it may be best to let a CPA or certified tax preparer help you get the most accurate filing — and the biggest return.

How an Accountant Can Help You Plan for the Future of Your Business

How an Accountant Can Help You Plan for the Future of Your Business

When most people think of accounting, they think about daily tasks like accounts receivable and payables. They might also consider things like like tax filings and bank reconciliations. However, working with an accountant can also help business owners plan for and achieve future growth. Here are some of the different ways your accountant can help you ensure a prosperous future.

Budget Forecasting and Reporting

With your accountant, set some goals for the next year. Your accountant can then use charts, graphs, and different data to track your progress and compare past and current periods. You’ll need to determine how costs compare with sales volume, and what future events (a change in season or market conditions, for example) are likely to impact those numbers. All of this information will help drive sound decision-making, ensuring you make the right decisions at the right time.

Key Performance Indicators

Your accountant can help you determine what key performance indicators (KPIs) your business should be looking at. Some of these might be inventory turnover, cost per customer acquisition, market share, revenue growth, profit margins, or any number of things. Using these KPIs, your accountant can help you measure and estimate your business’ performance over time.

Cash Flow Projections

Understanding your KPIs is also vital to planning and managing cash flow. Will you have the means to buy new equipment, provide employee perks, or extend discounts to your best clients? Everything from hiring employees, to developing new products, to changing locations will also impact your cash flow. Let your accountant keep track of it all and give you the results of that analysis — before you make important decisions.

Business Valuation

In order to get financing or bring investors onboard, you’ll need to have an accurate picture of your business valuation. Only an experienced financial pro can help you valuate your business properly, and provide the documentation to back up those numbers. Business moves fast, and opportunities can pass you by if you don’t have a constant, accurate picture of how much your business is worth.

Tax Liability

Every business decision you make has the potential to impact your tax liability. Your accountant will have a constant pulse on tax codes, both federal and local. Since you’re busy running your business, there is no need to stress yourself out trying to keep up with the frequent changes in tax codes and regulations. He or she can inform you how each business decision will affect how much you’ll owe the government — and that knowledge is important to your future growth.

Entity Restructuring

As your business grows, you’ll likely need to change the way it’s structured. This is helpful in mitigating your personal liability and reducing your tax bill. Only a qualified accountant or attorney can help you ensure the proper business structure.

Don’t Risk It

The future of your business hangs in the balance of every decision you make. An accountant can provide you with much more than daily financial help. He or she can be an invaluable partner in planning for the growth and expansion of your business. When your future is at stake, you have every reason to bring an accountant on board to help you plan for success.

3 Things You Didn’t Know Were A Tax Write Off

3 Things You Didn't Know Were A Tax Write Off

The U.S. tax system isn’t the easiest thing to navigate and it is unlikely to change any time soon, despite presidential promises.

But there are interesting ways you can save money by finding if you can use any of these three odd tax deductions. They aren’t illegal or even shady loopholes, but it could surprise you to find that they may apply to you and save you some money on your taxes.

Your Health Can Be Tax Deductible

There are actually several ways your health can be tax deductible. Some ways you may not have considered are:

  • Installing a pool for medical purposes – Before going wild and using your scoliosis as a reason to get a free pool courtesy of the IRS, pump the breaks. While a man was able to deduct the installation of his in-ground pool, it was strictly for medical purposes. So no pool parties along with your medical needs.
  • Quit smoking – You may qualify for a tax write off for using a smoking cessation program, quitting aids, etc. Feel free to check with your accountant if your method qualifies.
  • Get in shape – If your doctor has recommended you get in shape and indicated your life may be in danger if you do not, you could get the course your doctor recommends you follow written off at tax time.

Write Off Rent/Mortgage When Applicable

If you run a business, you know that business taxes are a difficult matter. But if you run one from your home, you may be able to deduct some of your rent or mortgage from your taxes as a business expense.

However, there are fairly stringent rules set down by the IRS governing deducting business expenses. Some basic requirements to deduct rent as a business expense are:

  • Area only used for business – This part of your house has to be set specifically set aside for your business. So like the pool, it cannot serve any other purpose.
  • Conduct business regularly there – The part of your home (whether attached to the house or a structure on the property) has to be regularly used as a place where you do business, not an additional rented office or coffee shop.
  • Importance of activity – You may need to prove that you cannot perform your work elsewhere and that it is a key part of your business

On the plus side, if you can prove your home business deduction, things like utilities, repairs, insurance and depreciation can also be written off.

Deduction For Childcare Cost

Want to volunteer for a charity but can’t afford childcare as you work for the charity? One woman successfully filed the costs of her babysitter’s cost as a donation to the charity she was helping.

As she wasn’t compensated in any way and had records to prove the time she had spent correlated with the costs, she managed to get the costs written off!

To make sure you get all your bases covered, be sure to contact us at AA Tax and Accounting Services and be secure in the knowledge that the experts are on the job.

Businesses That Got Creative With Their Charitable Tax Write-offs

Businesses That Got Creative With Their Charitable Tax Write-offs

As you know, whether you’re an individual or business, you can lessen your tax liability by giving to charitable organizations during the year. However, giving to charity doesn’t necessarily mean giving out your credit card number or writing a check. Many businesses are getting more creative with their charitable giving, and are still getting the tax write-offs to which they’re entitled.

Business Giving Gets Creative

For example, Excel Rainman, a small company which offers spreadsheet outsourcing services and training, donates training videos they produce for Microsoft Excel. They give them to nonprofit organizations to help them understand their spreadsheet data and improve their skills. For write-off purposes, it’s worth $100 per user.

Another small company, The O’Hara Project, a New Jersey marketing firm, gives pro-bono public relations services to a local non-profit to help them get the word out.

Larger companies might also get creative with how they give money to charities. For example, tech giant Apple matches the donations employees make, up to $10,000 per employee, per year (they employ more than 80,000 people). Plus, for every hour an employee volunteers, Apple gives $25 to that non-profit organization.

The Perks of Your Generosity

While very few would give to charities for the sole purpose of tax write-offs, donations your resources definitely has its worldly rewards. You know you can reduce your taxable income, but here are some of the particulars:

  • Tax deductions: You may be able to claim a 15-35% reduction to your taxable income.
  • Immediate savings: Even if you didn’t make your donation until December 31, you can still claim it on that year’s taxes. It doesn’t even matter if the organization doesn’t cash your check until the next year. For credit card donations, you can claim the deduction for the year you made the donation — you don’t have to wait until you pay the credit card company.
  • Deduct up to 50%: Sure, there are some limits on what you can claim (you can’t give 100% of your income away and owe zero taxes). However, you can deduct an amount that equals up to 50% of your income. And if you give more than that, you can carry over the extra for up to 5 years.
  • Giving goods: Say you have aging computers you’ll no longer use. Giving them to charity is just as good as giving money. If your company has owned the items for at least a year, you can claim their fair market value as a tax write-off, just like you would a cash donation. And in the case of property that appreciates in value, you can claim a deduction for today’s value…even if it’s worth significantly more than what you paid.
  • The feel-good factor: Businesses that give to charity, especially if they involve employees, build positive morale. They gain community respect, and form ties that go well beyond the financial perks. And who knows…while working with charities to arrange your giving program, you might make some great connections that serve both parties in the future.

When giving goods, services, or money to a non-profit, just be sure you keep good records and get an official receipt from that organization. Give those records to your accountant or CPA, and they can help you figure out how to get the most out of your donation. And don’t be afraid to think outside the box when it comes to donating. You may not always have the cash on hand to give, but you can always find a way to contribute.

How The Trump Administration Plans To Alter Business Taxes

How The Trump Administration Plans To Alter Business Taxes

News from the White House has financial speculators wondering just how President Donald Trump, and his administration, plan to change business taxes. As the short press release on the subject may be unclear, here’s what you need to know about the proposed business tax changes.

Business Tax Reform

Since the official press release announcing the Trump administration’s plan to reform the tax law and simplify it, there have been many articles written on the subject. To simplify and clarify the matter, the Trump administration proposed business tax cuts are:

  • Cut for self-employed: 15 percent tax on pass-through businesses, which 95 percent of business in the U.S. are listed as.
  • Corporation cuts: Corporate taxes to be cut to 15 percent as well, down from the federal 35 percent.
  • Import and export changes: Trump has proposed that there be no border-adjustment tax, which will mean imports are taxed and exports will not be. However, the GOP isn’t quite on board with this proposal yet.

Tax Reforms That Could Affect Businesses

While these taxes may or may not affect your business, they have the capability to have fringe effects on some businesses.

  • Overseas money: A one-time reparation tax rate will allow businesses to bring in overseas money with it being taxed at a lower rate. There are no hard numbers for this potential tax change.
  • Estate tax: Also proposed is the elimination of the estate tax, so that all property can pass to inheritors with no taxation.

Individual Tax Changes Can Affect Business Taxes

Should changes occur and the pass-through business taxes get lowered, this can affect your individual taxes. Here are the individual tax changes that could affect your future filings.

  • Double deduction: The Trump administration wants to double the standard deduction, which could save self-employed individuals a bundle when it come to tax time, as well as other people.
  • Three income brackets: Currently there are 7 income brackets. The proposal is to change to 3 income brackets: 10 percent, 25 percent, and 35 percent. However, the incomes associated with the new brackets has not been clarified.
  • Alternative minimum tax: A large change would be the repeal of the alternative minimum tax. Instead of making tax payers do their taxes twice (once with standard deduction and once with itemized) and having to take the highest tax rate, there would be no minimum tax that has to be paid.

Wait On Tax Plan-Based Changes

While it can be tempting to want to get ahead and anticipate the market, these changes are not set in stone yet. So before you go from considering restructuring your business to actually doing so, wait and see that these reforms get passed.

Then when the new tax laws are passed, they will likely have undergone revisions from the original proposal. We are here to help both now and when those changes come about.

5 Ways Your Charitable Donations Can Help You Financially

5 Ways Your Charitable Donations Can Help You Financially

Most people are aware that giving money to charity is usually tax deductible. When you file your yearly return (individual or business) you can save by donating a portion of your income to your favorite cause. Let’s take a look at 5 ways your financial health could benefit from charitable giving.

How Helping Charities Can Help You

  1. Tax deductions
    As you probably know, tax deductible gift to charity can reduce your taxable income. These reductions range from from 15% to 35%, depending on your tax bracket. As your bracket goes up, you may gain better tax incentives for your contributions.
  2. Most contributions qualify
    While certain types of charity organizations will not qualify for a tax deduction when you give, most of them will. Foreign governments and charities are exempt from deductions, as are certain private foundations. Giving money to a needy individual is awesome, but not tax deductible. If you aren’t sure if your contribution will provide tax benefits, be sure to ask.
  3. De-junking can mean deduction
    Most people think about cash donations being associated with tax deductions, but material donations also count. Think of organizations like Goodwill or the Salvation Army. If you’ve owned property for at least a year and donate it to a charity, the value of that deduction is usually the same as that property’s fair market value. It makes an even better deal for you if the property donated has appreciated over the time you’ve owned it, since market value would be more than what you paid. Keep in mind that items are only deductible if they are in “good condition or better.” Just make sure to ask for a receipt for your donations.
  4. High limits
    The IRS does place limits on the deductions you can take for charitable giving, but those limits are pretty high. The more you give, the more you can deduct, up to 50% of your contribution base. So for example, if your adjusted gross income is $90,000 in a given year, your deductions would be capped at $45,000. Your individual limits may be lower (20-30%), depending on your situation. But if you donate more than your eligible limit in one year, you can carry the excess over for up to 5 years.
  5. Immediate application
    Any donations you make can be applied to the year in which they are given. So even if you mail a check at the end of December 2017, and the check isn’t cashed for 3 months, you can still take that deduction in 2017. The same rules apply to credit card contributions. You can claim the deduction in the year your credit card was charged, even if you don’t pay back the credit card company for another year.

When making charitable donations, be sure you keep good records and always ask for receipts. The IRS will not allow a deduction for separate contributions of $250 or more without documentation from the charity (you cannot use a canceled check). When you’re ready to give, look for tax-exempt or 501(c) organizations such as churches, charitable hospitals, publicly-supported foundations, or certain private foundations that distribute donations to public charities. Provide your accountant or CPA with documentation of all your contributions to claim any applicable deductions.

Considerations to Review Before Restructuring Your Business Entities

Considerations to Review Before Restructuring Your Business Entities

If you’re starting a business or growing your existing one, sooner or later the issue of restructuring is bound to come up. The right structure is important to ensure the most favorable tax, legal, and practical benefits. It’s a big step, however, so there are a lot of things to think about before you actually embark on the process. It’s important to also get some advice from an attorney or CPA who can help you determine the pros and cons of the different structures in your unique situation.

What to Think About Before Restructuring

If you aren’t familiar with the process of restructuring or don’t know if should be set up differently than you are, here are some things you should consider.

    Some common reasons for business restructuring include a change in ownership or management, financial goals such as profitability and cash flow, internal reorganization, and growth.
    The type of structure you change to will depend on a lot of factors. This is where you really need the advice of a professional who can help you find the right fit. Your new structure will influence important things like tax liabilities, employee/employer status, personal liability, control, cost of doing business, and more.
    What are your goals for 3 years down the road? For 10 years? You need to plan your business structure accordingly, so it can help you meet your business and financial goals.
    Most people cite financial reasons for examining their current business structure and looking into a change. A big part of that is your tax liability (including capital gains), as different structures have their own pros, cons, and legal guidelines when it comes to taxes.
    Taxes aren’t the only financial liabilities you should consider before restructuring. Personal liability should also come into play. If you’re a sole proprietor, for example, you could find yourself liable for any and all damages in the event you are sued. If you set up your business accordingly, you can avoid being taken for everything you have when a client, partner, or other entity files a lawsuit. Your legal structure provides a measure of protection for everything you or your business owns.

Get the Right Advice

If you’ve been wondering if your business entities are set up correctly, you probably have reason to look into a change. While some companies offer “kits” that provide paperwork and limited guidance, nothing can replace the qualified help from professional dedicated to your success. When it comes to the complicated world of entity restructuring, that relationship can prove immensely valuable.

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