Tax Talk: What School Expenses Are Tax-Deductible?

Tax Talk - What School Expenses Are Tax-Deductible
College students are faced with seemingly endless school expenses associated with higher education, from paying tuition to paying for campus parking permits. A question that often comes up around tax season is which of these school expenses are tax-deductible, and how can students receive the best tax return possible?

As your local Cedar City, UT accounting firm, we have helped plenty of Southern Utah University students as well as other college students—and parents who claim them as dependents—with their tax preparations. Below is a breakdown of what college expenses can be deducted from taxes, what tax credits and tax deductions students are eligible for, and other college-related tax answers.

What School Expenses College Students Can Deduct From Taxes?

When it comes to saving on your college-related expenses, you might be surprised how much can be deducted from your owed taxes to help you have a better tax return.

  • Educational supplies – There are qualified educational expenses that you can deduct from your taxes, ranging from your textbooks to necessary equipment like your transportation.
  • Student loan interest – For those who have an adjusted gross income under $80,000 for single filers—AGI of $160,000 for married filing jointly—you can deduct the interest you have paid on your student loans.
  • Room and board – In some cases, the amount you spend on room and board for college can be deducted from your taxes.
  • 529 plans – Adding money to a 529 saving plan is tax-free, so you can pay for your college expenses with your 529 plan to help save on taxes.

Some professions require continuing education, even after you are finished with your college days. Depending on your expenses, you may be eligible for an employer-required education tax deduction.

Tax Credits College Students Should Use

There are a couple of tax credits that are available to college students that allow you to save on your taxes.

  • American Opportunity Tax Credit (AOTC) – In the first four years of college, you can claim the American Opportunity tax credit. This credit provides you with a $2,500 credit, and if your tax liability goes to zero dollars thanks to this credit, the IRS will refund 40% of the credit, up to $1,000. You will need to have at least $4,000 in college expenses claimed to receive the full AOTC credit.
  • Lifetime Learning Tax Credit (LLTC) – Once the time limit on the AOTC has run out, you can still claim the Lifetime Learning tax credit. For this educational credit, there is no limit on the years you can claim it. With the LLTC, you can reduce your taxes by $2,000.

There are other eligibility criteria that may apply to you, such as if your parents are claiming you as a dependent, and other concerns. Utilizing our accounting services to prepare your taxes can help ensure that you are receiving the correct deductions and tax credits.

When College Students Should File A Nonresident Tax Return

While some college students stay in-state for their higher education, plenty of other students take the opportunity to start their adult lives outside of their home state. This move also usually necessitates at least a part-time job, where the out-of-state student earns income while attending college.

However, in most cases, these out-of-state students are still legal residents of their home state. Because of their state residency status, these students will need to file nonresident state tax returns in the state their university is located as well as file resident state taxes in their home state.

For those who live in states that don’t collect income taxes—i.e., Wyoming, Nevada, Alaska, Washington, Florida, Texas, and South Dakota—you don’t need to file a resident tax return or a nonresident tax return. But for all other out-of-state college students, you will need to file a nonresident tax return, resident tax return, and federal tax return.

Work With AA Tax & Accounting Services To File Your College Taxes

With all these expenses, some college students don’t want to add the expense of paying for quality tax preparation services. However, not all tax returns are that straightforward, which can leave students missing out on deductions that can increase their tax return.

Instead of gambling that one-size-fits-all tax software can prepare your taxes properly, you can use an experienced accountant who knows what questions to ask and information that is needed to help you save on your taxes and boost your return amount.

When you are ready to take care of your taxes with an experienced tax professional, feel free to contact us today to set up your appointment.

Don’t Bank On Doing A Tax Extension, Let Our Accountant Help You Out

Don't Bank On Doing A Tax Extension, Let Our Accountant Help You Out
Tax season is already in full swing, and some Americans have already filed their tax returns. However, often the early tax filers have simple taxes that are easy to complete. If you have complex tax circumstances, you may be tempted to file for a tax extension to buy you more time.

The problem is, a tax extension isn’t always the answer to tax issues. Instead, working with a reliable tax preparer can help get your taxes filed on time and penalty-free.

Tax Extensions Can Drag Out Tax Preparation Issues

Filing for a tax extension allows you to have until October 15 to finish filing your taxes. That can sound pretty good, considering that it gives you an extra six months to complete your tax preparations and filing. But there are several downsides to filing a tax extension.

  • Still need to pay taxes on April 15 – While the IRS will accept an extension on the actual filing of your taxes, if you owe taxes, you will need to pay them on April 15. Some people ask how they can know how much to pay if their taxes are incomplete, and the answer is—you can’t know exactly. But that doesn’t matter to the IRS, penalties will still be applied for nonpayment or late payment.
  • Married couples don’t receive extra time for filing changes – If you are a married couple, you will not have extra time to change your filing status from joint filing to married filing jointly. You will still need to have your status determined by April 15.
  • IRA contributions cut off is the same – April 15 is still the cut off for contributions to a Roth IRA and traditional IRA. Filing for a tax extension doesn’t change this deadline.
  • Can’t recharacterize your IRA contribution – Thanks to the Tax Cuts and Jobs Act, you can no longer recharacterize your IRA contribution even if you file for an extension.

Also, in the unlikely event that you find that you don’t need to file a tax return, by filing for an extension, you may leave the IRS confused. They may require you to file a tax return anyway since you filed for an extension.

Change Your Tax Season With Our Tax Preparation Service

Rather than dealing with the issues that crop up with tax extensions or trying to manage your tax return on your own, you can rely on our tax preparation services to drastically improve your upcoming tax season.

Help You Be More Organized

Working with our accountant can help take the disorganization and stress of tax season off of your plate. Instead of trying to organize what you might need on your own, you can work with our accountant to know exactly what paperwork is needed to file your taxes properly.

Find All Applicable Deductions And Credits

Tax law is constantly changing, and it can be nearly impossible for the average taxpayer to stay on top of these changes. Rather than trying to tackle tax law on your own, you can rely on our accountant.

With the help of Adrian, you can feel confident that he will find all the tax credits and tax deductions that are applicable to your taxes. That way, you will never overpay on your taxes and may receive a hefty return instead!

Determine Taxes Owed

Depending on your tax bracket and other factors, you may end up needing to pay taxes. However, you don’t have to resign yourself to paying high taxes with the help of our accountant when it comes to your tax preparation.

There are a number of saving strategies that our accountant can help you use to assist in keeping more of your income. During your consultation, he will be able to provide you with tailored insights.

File Federal And State Tax Returns

After your taxes are completed, our accountant will take care of filing both the federal and state tax returns. If there are any errors in the filing, our accounting firm will take care of it with the IRS, so you don’t need to stress.

Assist In Planning For Future Tax Savings

Once your taxes are filed, our accountant can help you prepare for the next tax season. Along with advising you on what to do with your tax return, he can advise you about tax-free contributions, upcoming credits you may qualify for, and more.

For expert accounting help with your tax return, you can count on AA Tax and Accounting Services. Our accountant can get your taxes in order and properly filed with no need for an extension. To work with our accountant, please contact us today to schedule your consultation.

Tax Talk: Deductions On Out-Of-Pocket Classroom Expenses For Teachers

Tax Talk - Deductions On Out-Of-Pocket Classroom Expenses For Teachers
Teachers often don’t have the supplies they need without providing for them out-of-pocket, as public schools are chronically underfunded. In fact, according to information from the U.S. Department of Education, 94% of teachers in public schools to buy supplies for their classrooms.

To help reduce the burden on teachers at tax time, there is a special tax deduction for teachers called the Educator Expense Deduction. With the help of our accountant at AA Tax and Accounting Services, you can be sure to secure this deduction on your upcoming taxes this year.

Meet The Educator Expense Tax Deduction

While there are many ways that a tax consultant can help you save on your taxes, there is a specific tax deduction called the Educator Expense Tax Deduction. This tax deduction has strict requirements to claim it—like all deductions—which are:

  • Claimants need to work in a school that serves children in kindergarten through grade 12.
  • You will need to complete 900 hours of logged work over the course of the school year.
  • That work needs to be as a teacher’s aide, principal, teacher, school counselor, or instructor.

The requirements may be a bit strict, but at least it is easy to know quickly who is and is not eligible for the tax deduction. Though, to be clear, these educators are not eligible for the Educator Expense Tax Deduction:

  • Pre-school aids and teachers
  • Homeschool instructors
  • College and graduate professors and instructors

What Are Qualified Expenses For An Educator

However, just because you are a qualified educator under the definition of the Educator Expense Tax Deduction, that doesn’t mean that everything is fair game. The kinds of items that are eligible for expense deduction are:

  • School supplies
  • Athletic equipment bought by PE teachers
  • Books
  • Computer software and equipment
  • Items appropriate for student classroom use

Also, it is important that you only count expenses that have not been reimbursed. If you have bought these items and had your school district, union, or others reimburse your expenses, then you can’t claim the Educator Expense Tax Deduction.

How To Claim The Educator Expense Tax Deduction

Once tax season rolls around, and you are looking to claim the Educator Expense Tax Deduction, there are some things you need to do to properly claim this deduction.

Track your expenses – It is important that you keep all your receipts and records of what you bought for your classroom. You may want to file them all together to ensure that the receipts don’t get lost.

Married teachers can file together – At most, the Educator Expense Tax Deduction allows for a single teacher to deduct a maximum of $250. However, if you and your spouse are both teachers and are filing jointly, you can claim a combined $500 deduction.

Work with an accountant – With claiming all the deductions you deserve and managing other tax filing issues, it can help to work with an experienced Cedar City accountant to ensure you have the easiest tax season possible.

Iron County School District Educators Can Find Tax Help With Us

For Iron County School District educators looking for a reliable accountant in Cedar City, look no further than AA Tax and Accounting Services. Along with our regular accounting services, our firm can prepare and file your taxes with a close eye on what deductions, credits, and other tax-saving measures can be implemented to help you save.

If you are ready to tackle your taxes with expert assistance, please contact us today to set up an appointment. We look forward to helping you have the best tax return possible.

Why A Bookkeeper Is More Beneficial Than Bookkeeping Software

Why A Bookkeeper Is More Beneficial Than Bookkeeping Software
There are a million and one tasks that require the attention of a business owner. Arguably, the bookkeeping is one of the more important tasks. Yet, many small business owners are not experienced in managing their bookkeeping, especially with the careful tracking needed for business accounting.

Bookkeeping software seems like a natural solution, but it may not be the best answer to your accounting issues as a small business owner. Instead, choosing a bookkeeping service can free up your time, save you money in the short- and long-term, and many other benefits.

Outsourced Bookkeeping Is More Affordable

It may seem counter intuitive, but outsourcing your bookkeeping can be far more affordable than simply purchasing bookkeeping software to take care of it yourself.

For one thing, there are many different levels of bookkeeping software. The pricing of bookkeeping software can vary widely, but if you opt for more affordable bookkeeping software, you may not have all the features you need. This restriction can leave you without the proper financial tools to manage your business properly.

By outsourcing your bookkeeping to your local Cedar City accountant, you can relax, knowing that our accountant has the best bookkeeping tools available. That way, you don’t have to invest in software that may not be what you ultimately need.

Free Up Your Valuable Time

The time you spend taking care of your company’s bookkeeping may be better spent on some other aspect of your business. From marketing to providing services or products, there are other tasks that take up the time of a small business owner.

But if you are spending hours reconciling bank accounts, balancing the general ledger, chasing down accounts receivable, and other common bookkeeping tasks, you won’t have the time you need to effectively run your company. Even with bookkeeping software, you still have to take care of the bookkeeping yourself, even if some of the processes are streamlined.

Instead, you can leave your bookkeeping in the hands of our qualified accountant and focus your attention on tasks that need your attention more.

Enjoy Human Oversight

As long as there is nothing egregiously incorrect with your bookkeeping, your average bookkeeping software will not recognize the issue. However, there are a number of errors that can slip by software that has no other human oversight than your own. With no one else to review your bookkeeping, expensive mistakes can be made.

By opting to outsource your bookkeeping, you can be reassured knowing that an experienced accountant is reviewing your accounts, and an accounting firm will often have multiple check system to catch any errors.

Accurate Financial Reports

Part of the importance of keeping up with your bookkeeping is that these records help to create an accurate picture concerning the status of your business. But, if you haven’t updated your bookkeeping software with the latest information, you won’t be able to have an accurate overview until you do.

Also, not all bookkeeping software is able to generate the financial reports you are looking for when you review your business. Depending on your needs, our accountant should be able to create the financial reports you need to assess the viability of your company.

Better Employee Payroll And Benefits Tracking

One of the highest predictors of employee satisfaction is being paid on time. However, getting payroll completed on time can be difficult if you have other tasks that require your attention. Even with bookkeeping software, you will still need to input employee hours, ensure that pay rates are correct, review tax withholding’s, and double-check benefits accrual.

As payroll is often every other week, it is easy for this task to sneak up on a busy company owner. Instead of having upset employees due to late paychecks, using our payroll services, you can ensure that your employees are paid on time, and the associated benefits are accurately tracked.

Easier When Tax Season Arrives

Making sure that all your financial records and bookkeeping is successfully transferred to your accountant during tax season can be a massive hassle. It can become even worse if your bookkeeping software is not compatible with what your accountant uses.

Rather than go through all that stress, you can leave your tax preparation and filing in the hands of the accountant who is already taking care of your bookkeeping. That way, you won’t face the same kind of stress that other business owners who DIY their bookkeeping.

Greater Security With Outsourced Bookkeeping

How confident do you feel about storing all your financial information on your home computer or laptop? Considering the ease at which computers are infected with spyware and malware, it is a gamble to use bookkeeping software on unprotected devices.

At an accounting firm, the best security is used to protect client information. Also, as these computers are not used recreationally, there is a far lower chance that they could be potentially infected.

Have An Experienced Accountant On Your Side In Cedar City

If you would like to work with our accountant, and see how our bookkeeping services can improve your business, feel free to contact us. We look forward to helping you optimize your company’s finances.

Tax Talk: 8 Changes For Your 2020 Taxes

Tax Talk: 8 Changes For Your 2020 Taxes
Every year when you prepare your taxes for filing, there are changes to the tax law that should be taken into account. Without accounting for change, you may end up surprised by a tax bill you weren’t expecting.

As your local Cedar City tax accountant, AA Tax and Accounting Services is here to give you a heads up on eight of the tax law changes that you should be aware of when it comes to your 2020 taxes.

1. Changes To Tax Brackets For 2020

To help account for inflation, the Internal Revenue Service (IRS) has made adjustments to the 2020 income tax brackets. Below are the updated tax brackets:

Rate Single Filer Married Filing Jointly Head of Household
10% $0-$9,875 $0 – $19,750 $0 – $14,100
12% $9876 – $40,125 $19,751 – $80,250 $14,101 – $53,700
22% $40,126 – $85,525 $80,251 – $171,050 $53,701 – $85,500
24% $85,526 – $163,300 $171,051 – $326,600 $85,501 – $163,300
32% $163,301 -$ 207,350 $326,601 – $414,700 $163,301 – $207,350
35% $207,351 – $518,400 $414,701 – $622,050 $207,351 – $518,400
37% $518,401 and up $622,050 and up $518,401 and up

2. Expand Tax Exemption For Gift And Estate

Previously, people could gift—or hand down to descendants—up to $5.49 million, tax exempt. However, in 2020, that exemption amount has been expanded considerably. Now, the estate and lifetime gift tax exemption has been expanded to $11.58 million per individual.

This tax exemption does not include the annual gift exclusion, which is not included toward your lifetime gift tax exemption. For the annual gift exclusion, you can give $15,000.

3. Increase 401(k) Contributions Limits

For the first time in years, you can increase your contributions to your 401(k) retirement plan as well as your individual retirement accounts (IRAs). Naturally, these contributions can be deductible on your upcoming taxes. As it stands, your retirement plan contribution limits look like this:

  • IRA contributions – $6,000 limit
  • Catch-up IRA contributions for individuals 50 years old or older – An additional $1,000
  • 401(k) contribution – $19,000 limit
  • Catch-up 401(k) contributions for individuals 50 years old or older – An additional $6,000

4. Remove Individual Mandate Penalty

With the Affordable Care Act, there was a penalty applied if you did not have health insurance, don’t qualify for an exemption or the correct level of coverage. This tax penalty was often called the individual mandate penalty.

With the Tax Cuts and Jobs Act of 2017, this penalty was set to be eliminated, but that penalty removal didn’t come in until the upcoming tax season in 2020. So, if you did not have health insurance during 2019, you won’t be penalized for it on your taxes.

5. No Alimony Deduction Or Income

Another effect of the Tax Cuts and Jobs Act was to eliminate the alimony tax deduction in 2019. That means, should you have gotten divorced in 2019 and need to pay alimony, you will not be able to deduct the amount you pay from your taxes.

It also impacts the party that receives the alimony. They will no longer be able to count the alimony payments as part of their income.

6. Greater Health Saving Account Contribution Limits

If you have a health savings account (HSA), you can increase your contributions a bit more and help reduce your tax burden. The slight changes are reflected below and only apply to these plans:

  • HSA self-only – $3,500 limit
  • HSA family – $7,000 limit

7. Deductions For Medical Expense Higher

For those individuals who itemize their taxes, you may find it harder to do that while preparing to file your 2019 taxes. For two years, deducting dental and medical expenses was only possible after they passed the threshold of 7.5% of your adjusted gross income (AGI).

However, when you go to file your 2019 taxes, your dental and medical expenses will only be eligible to be deducted if they surpass 10% of your AGI. This change can make it more difficult to itemize your taxes, as well as the fact that the standard deduction has risen again.

8. New Tax Filing Form For Senior Citizens

After a lot of talk of creating a simpler tax filing system, the Bipartisan Budget Act of 2018 has lead to the creation of the Form 1040-SR. This form is created for senior citizens to help simplify their tax returns. The main requirements to use this form to file your taxes are:

  • Have to be 65 years old or older
  • Must take the standard deduction (no itemization option)

You can check out a draft of the new Form 1040-SR on the IRS website and see what it will be like to file this form.

Let AA Tax And Accounting Services Help You File 2020 Taxes

Filing your taxes on your own can be complicated, and when you use tax software, you are always left with the nagging worry that something has been overlooked. To have the human touch and insight involved when it comes to your 2020 tax filing, you can count on our accountant.

If you would like to have our accountant’s help in preparing and filing your 2020 taxes, feel free to contact us today to schedule your appointment.

How To Improve Cash Flow To Your Business

Improve Cash Flow To Your Business
It is well-known that little over half of all startup businesses make it into their fifth year of operation. While there are a variety of factors that cause these companies to shut their doors, one of the main issues is problems with their cash flow.

If you want to protect your business, it is essential to always be on the lookout for how the cash flow to your company can be improved. From staying on top of creditors to assessing the viability of a business loan, our accountant here at AA Tax & Accounting Services is here to help.

Keep Tidy Financial Records

Without accurate and tidy financial records, it is next to impossible to improve your business’ cash flow. Accurate records will show you what is doing well and what services or products are not performing as expected.

Also, by tracking the cash flow within your company, it is easier to ensure that all is accounted for at the end of the day. With poorly kept financial records, embezzlement and petty theft are far easier. If you don’t have time to keep up with your financial records, outsourcing your bookkeeping can keep your records in better order.

Review Accounts Receivable

Hopefully, you are up-to-date on your accounts payable. If not, you may want to contact your creditors and set up a payment plan that will allow you to generate cash flow as you repay them.

However, an area where many small businesses struggle is their accounts receivable. It can be awkward to contact debtors and remind them that you require them to pay for your services or products. But, if you are not proactive in pursuing your accounts receivable, then you may find your business underwater before long.

If there is a chance that the business relationship can be preserved, it is better not to take your debtors to court. But, if you would prefer to end any business with a particular debtor and have no expectation of payment otherwise, then pursuing court-ordered repayment may be the best course of action.

Reconsider Revenue Recognition Strategy

Your company’s revenue recognition strategy can impact both your taxes and cash flow. If your current revenue recognition strategy doesn’t work for your business, then it may show greater profits than you actually have in-hand. These skewed profits can cause your tax burden to be greater without the cash to help alleviate what you will owe to the IRS.

For instance, say you provide a software service to a client. Maybe your current strategy is on sales-basis, which recognized revenue the moment you and your client agreed to a contract. But for a long-term project, it may make more sense to switch to percentage-of-completion.

Consider A Business Loan

If you need more time to improve your business’ cash flow, a business loan may be just the thing you need to get you through a hard patch. Shopping around for different business loan rates can help you find the best loan possible and help your company make it through a tough spot.

However, this measure is just a stop-gap. If things aren’t improved elsewhere in your business, you may end up both out-of-business and in further debt. By working with an accountant, you can identify the areas of your company where improvements can be made to improve your cash flow.

Negotiate With Suppliers

When you first agreed to your current deal with your suppliers, you may have been at a disadvantage, especially if you were a new company. Other factors, such as market changes, can allow you to work out a better deal with your suppliers.

Either way, it is worth your time to reach out and see if you can get a more favorable deal on your company supplies. Also, you may want to reach out to other companies that may be to supply your needs and receive bids from them.

Let AA Tax & Accounting Services Help Your Business Improve Cash Flow

What changes your business can make to improve cash flow is highly dependent on your company’s circumstances. While the advice in this post is helpful, our accountant can provide far more personalized advice on how you can improve the cash flow to your business.

If you would like to consult with our accountant for personalized insight regarding improving your business cash flow or other accounting needs, please contact us today to set up an appointment.

Holiday Season In Cedar City Utah

The end of the year is both a busy and joyful time of the year. And, as you prepare for your 2019 tax filing with your local Cedar City accountant, be sure to take some breaks to enjoy what the holiday season has to offer here in our beautiful part of Utah.

Enjoy The Seasonal Holiday Markets

If you have been putting off your holiday shopping or you are just looking for the perfect stocking stuffers, then you are in luck. There are a number of seasonally-themed holiday markets for you to enjoy the unique and artisanal goods available.

  • Christmas Bazaar (Dec. 5) – Come by the Paiute Indian Tribe Gym from 2 pm – 7 pm for a special holiday market featuring local craftsmen and food vendors.
  • Holiday Market (Dec. 6-7) – For an admission price of $1 per person, you can come by the Frontier Homestead State Park Museum for a bustling holiday market. On Friday, this event will run from 11 am – 8 pm, and on Saturday it will go from 9 am to 3 pm.
  • Christmas at the Homestead (Dec. 1-6) – A Christmas staple in Cedar City is the Christmas at the Homestead event at the Frontier Homestead State Park. With an affordable admission of $2 per person or $5 per family, come immerse yourself in the festive spirit where you can enjoy crafts, have the kids meet Santa, listen to Christmas music, and more.
  • Christmas on the Farm (Dec. 7, 9, 14, 16) – Blend activities with some Christmas shopping when you go to Christmas on the Farm. From caroling hayrides to crafts and stories with Santa, there is plenty to do when you are done with the Farm Store. This event requires tickets, and costs $5 per person, though children under 1-year-old are free. Times vary depending on what day you want to go, so be sure to check the time as you go to buy your tickets from Nature Hills Farm.
  • Santa at the Farmers Market (Dec. 14) – At the year-round downtown farmers market, the whole family is welcome to browse, shop, as well as meet Santa and take photos with him. There will be plenty of craft vendors and food vendors, so drop by between 11 am – 1 pm to enjoy the fun.

Revel In Christmas Performances

If you are looking for music, plays, and other performances to help you get into the holiday spirit, then Cedar City is the place to be. The month of December is packed with performances you can enjoy!

  • TubaChristmas (Dec. 7) – If you ever wanted to belt out your favorite Christmas carols with tuba players, then don’t miss TubaChristmas, held outside the Old Rock Church. This event is free and will be from 1 pm to 2 pm.
  • Handel’s Messiah (Dec. 8) – Come to the 79th Ceder City performance of Handel’s Messiah, performed by the Orchestra of Southern Utah & Chorale. This night of glorious music will be held at the Heritage Center Theater and is free of admission, though you will need to pick up a ticket from the box office.
  • Moscow Ballet: Great Russian Nutcracker (Dec. 10) – At the Heritage Center Theater, catch the one-night performance of Moscow Ballet’s Great Russian Nutcracker at 7:30 pm. Become immersed in music and magic as this classic Christmas tale is performed. Tickets are $30 for adults and $15 for students, with no children under 6 years old allowed.
  • White Christmas the Musical (Dec. 12-14) – Put on by Iron Stage Theatrical, come enjoy White Christmas the Musical at the Cedar High School Auditorium. With a performance at 2 pm then one at 7 pm, the whole family can enjoy this performance. Ticket prices are $5 for children and $10 for adults with a $35 family pass available.
  • In Jubilo Christmas Concert (Dec. 12) – Free of admission, this concert will be held at the Heritage Center Theater at 7 pm.
  • Master Signers Christmas Concert (Dec. 15) – Free of admission, this concert will be held at the Heritage Center Theater at 7 pm.
  • Red Rock Singers Christmas Concert (Dec. 18) – Free of admission, this concert will be held at the Thorley Recital Hall at 7:30 pm.
  • A Christmas Carol on the Air (Dec. 19-20) – Done in the style of an old-fashioned radio show, A Christmas Carol on the Air, tells the classic Christmas Story by Charles Dickens. Starting at 7 pm at the Heritage Center Theater, tickets for children, veterans, and students are $10, and adults are $15.

If you have any tax or accounting needs you would like to get in order before the end of the year, you can always work with our accountant. Be sure to contact us to set up an appointment to ensure that you go into the new year with your finances on track.

Tax Talk: Do I Need To Claim Plasma Donations On My Taxes?

Tax Talk - Do I Need To Claim Plasma Donations On My Taxes

Here in Cedar City, UT, there are plenty of people who donate plasma for a little extra income and think nothing about how it may impact their taxes. You may have even been told by tax preparer from one of the big box tax return companies that your plasma donation wasn’t considered taxable income. However, that may not be the case.

Rather than trusting a random tax preparer—who likely doesn’t have the education and experience to answer tough tax questions, your local Cedar City accountant is here to help with your plasma donation questions.

Your Plasma Donation May Be Taxable

First, we should address the reasons why many people believe that their plasma donation earnings are tax-exempt.

It’s a donation, and you don’t tax donations. Calling it a plasma donation is something of a misnomer, as you generally aren’t compensated monetarily when you donate. When goods or services are sold, and you earn income, what you call that process doesn’t matter as much—you need to still follow the law.

You can’t pay taxes on a bodily fluid or body part. This reason often floats into a discussion on whether or not plasma donations are taxable income. But let’s look at this a little differently. Say you donated your eggs or were a paid surrogate for someone.

While that was a very kind thing to do, both of these things come with compensation pay thousands of dollars, all of which are counted as taxable income. While plasma donation is on a smaller scale, it falls into the same category of bodily fluid/body part usage for monetary gain is taxable.

I didn’t receive a Form 1099-MISC, so I don’t have to pay taxes. Companies should send independent contractors 1099-MISC to assist with filing their tax returns. While not all plasma centers will send out a 1099-MISC, this lack on their part does not exempt you from paying your taxes. Instead, you will need to list your plasma donation earnings on Line 21 of your Schedule 1 Form 1040, or you can have our accountant help you with your tax preparations.

Also, the issue of paying taxes on plasma donation compensation has gone to trial before in the landmark case United States v. Garber. While the defendant Dorothy Garber was directly contracted and paid by companies for her plasma—due to the rare Rh antibodies in her plasma—the fact that she did not pay taxes and was found guilty of tax evasion can set a precedent.

With the precedent that plasma donation payments are taxable, you don’t want to be found on the wrong side of IRS tax law.

Pitfalls Of The Side Hustle Economy

Generally, most people make plasma donations to earn a little extra money each week to help supplement their main income. Having multiple side hustles is becoming more common, from providing freelance services, driving for rideshare companies, and donating plasma. Problem is, engaging in multiple side gigs can make your taxes far trickier.

When it comes to your plasma donation, you may be able to simply input your earnings on Line 21 and call it good. However, depending on how much you have earned, that may not be enough. As the United States allows for twice a week donations that can range from $30 to $50 a donation, you might rack up quite a bit if you are a regular plasma donator.

For an example of how your earnings can stack up, let’s say that your local plasma donation center pays $30 per donation, and you donate twice a week. So, that’s $60 a week. In one month, you can earn an extra $240. If you donate every week for all 52 weeks of the year, you can earn $3,120 from plasma donation alone.

These numbers are actually a little low for a regular plasma donator, as many plasma centers pay extra when you regularly donate, and sometimes have a special coupon rate for more money. However, that can leave you in a tough spot when it comes to your taxes.

When you make more than $400 from your side hustle, that income is considered self-employment income, and you will need to file a Schedule SE. There are also Medicare and Social Security taxes you will need to pay on self-employment income. So, if you are even a semi-regular plasma donator, you likely need to pay self-employment taxes.

Work With AA Tax & Accounting Services On Your 2019 Tax Return

As you can see, your plasma donations may make your tax return trickier to file properly. Rather than be audited by the IRS and have to pay penalties, you can have peace of mind when working with a trusted accountant who has the experience to help you navigate the complexities of taxes.

To work with our accountant on your 2019 tax return, feel free to contact us and set up your appointment. That way, this year, you can feel completely confident when it comes to your tax return.

Why Every Business Owner Needs To Think About Succession Planning

When business is booming, most business owners aren’t thinking about succession planning. Most owners are focused on the nearer future.

It is understandable, as engaging in succession planning is an admission of mortality and that one day, someone else will be running your business once you pass away.

Yet, if you want to ensure that your business continues on after you are no longer there to operate it, you will need to take care of your succession planning, which is best done by working with your trusted Cedar City accountant.

Potential Consequences Of Neglecting Succession Planning

If you aren’t quite sure that leaving succession planning until later is much of an issue, here are some of the potential consequences of not taking your planning seriously.

The company is vulnerable to disaster – Businesses of all sizes can be significantly impacted with a lack of succession planning. As the owner, you are usually the only one privy to important company details, from your accountant’s contact details to banking information. Without this kind of vital information, businesses can end up shuttered.

Business’ brand identity can become compromised – Often, successful businesses develop their branding and identity along with the overall purpose of the business. Yet, without clear succession planning, your successor may take the company in a completely different direction than what you would have hoped.

Lack of management preparation – Often, small business owners take on the majority of management tasks, with maybe one or two supervisors who assist. However, these supervisors likely don’t have all the needed information.

Say that you were preparing an entity restructuring for your business to help your company grow and not be heavily impacted by taxes. If something were to happen to you, there is no way for your supervisors or inheritor to know your plans or the direction you were hoping to move.

The intended heir may be cut out of the business – You may have been planning for one of your children or a trusted partner to take over your business when you pass on. But without clear succession planning, that future can be contested and may end with your intended heir being completely cut out of the business you grew.

Rather than leave your company vulnerable to these potential consequences—and likely other problems—it is best to tackle your succession planning as soon as possible. You can always revise your plan later, but it is better to have it in place.

How AA Tax & Accounting Services Can Assist In Your Succession Planning

It is possible to take care of your business’ succession planning without the help of an experienced accountant. However, it is difficult to plan for every contingency and cover potential gaps without the help of an accountant. Luckily, you don’t have to take care of your succession planning on your own.

Here at AA Tax & Accounting Services, you can work with our accountant to set your business up for future success. He can help identify potential weaknesses and provide financial insights into how you can leave your company in the best shape possible.

If you are ready to take care of your succession planning with our accountant, feel free to contact us today to set up your consultation.

Tax Talk: Selling Property? Here’s What You Should Know About The Capital Gains Tax

As the price of real estate in Cedar City—and Southern Utah in general—have been going up, you may be thinking about selling your property to ride the housing market wave. But, as with all large sales and earning, you may be wondering if capital gains tax will be applied to your property sale.

Well, you are in luck since AA Tax & Accounting Services is here to tell you all about capital gains, how it applied to your real estate sales, and how to prevent paying capital gains tax.

What Is Capital Gains Tax

Capital gains are a form of income tax that is gained by profiting from the sale of an asset. These assets can vary from things like selling stocks, businesses, or in many instances, real estate.

  • Short-term capital gains – When you own an asset for under a year and make a profit from the sale of the asset, you will have short-term capital gains tax applied. The tax will be equal to your current income tax rate.
  • Long-term capital gains – When you own an asset for over a year and make a profit from the sale of the asset, long-term capital gains taxes are applied. However, the significant difference is that the tax rate can be set at 0%, 15%, or 20%. What rate you are taxed with will depend on your filing status and your current taxable income. As a rule, long-term capital gains are lower than short-term capital gains.

However, when it comes to selling houses, the capital gains rules can differ from what is listed above.

How To Exclude Taxable Capital Gains On Real Estate Sales

When it comes to selling real estate, capital gains tax can be applied a bit differently. At this time, the IRS allows a certain amount of capital gains tax exclusion, dependent on your filing status.

  • Single filers can exclude $250,000 of real estate capital gains tax.
  • Married, filing jointly couples can exclude $500,000 of real estate capital gains tax.

For an example of this exclusion, say a married couple bought a house 8 years ago for $210,000 and sold it for $750,000. The couple would have made $540,000 in profit, and $500,000 of that would be nontaxable. Only $40,000 would have capital gains tax applied.

When Capital Gains Exclusion Doesn’t Apply

While that sounds excellent, there are some things that can cause you to lose out on your capital gains real estate tax exclusion. These factors are:

  • The expatriate tax applies to your taxes.
  • Within the two years before the sale of this property, you have already claimed a real estate capital gains tax.
  • You obtained the home in a 1031 exchange within the last five years.
  • The home wasn’t your primary residence.
  • For at least two of the last five years, you did not live in the house.
  • You haven’t owned the home for more than two years.

If you aren’t sure if one of these exclusions will apply to your property sale, you can always work with your local Cedar City tax consultant.

Ways You Can Prevent Capital Gains Tax On Your Property Sale

There are legal ways you can prevent capital gains tax on your property sale, or at the very least, you can reduce how much you will need to pay.

Keep records on home improvement costs.

To help reduce the taxable income you made on the sale of your home, it is best if you keep good records of what you paid for home improvements.

For instance, say you paid $15,000 for a kitchen remodel. As long as you have the invoices and receipts to prove what you paid for, you should be able to subtract the cost of your improvements from your overall capital gain taxable earnings.

Spend two years in the house as a primary residence.

To prevent a large capital gains tax, you will need to live in your property for at least two years in a five-year period before selling the home. While you don’t need to live in your property for two years consecutively, it does need to be your primary residence for two of the five years prior to selling.

If you sell your property under one year of living in it can subject you to short-term capital gains tax, which is the more expensive form of capital gains tax.

Check if you can qualify for capital gains tax exclusion.

There are uncontrollable circumstances that come up in life, which may cause you to sell your property and lead you to have taxable capital gains. However, there are capital gains tax exclusions that may apply to your home’s sale.

You can check on the IRS website or consult with our tax accountant for advice tailored to your personal circumstances.

If you would like assistance preparing for your property sale and would like a personalized tax consultation with our accountant, feel free to contact us today to set up your appointment.

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