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Roth IRAs: Put Your Child’s Summer Earnings to Work

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Roth IRAs: Put Your Child’s Summer Earnings to Work

With plentiful opportunities for teen employment, this year now is the perfect time to consider opening a Roth IRA for your minor child. Here’s what you need to know.

What is a Roth IRA?

A Roth IRA is a type of IRA that allows you to make after-tax contributions rather than pre-tax contributions, as you would with your own IRA or your employer’s 401(k). While a regular IRA and a Roth IRA are similar in many ways, it is critical that the account be set up as a Roth IRA when it is created.

A Roth IRA follows the same rules as a traditional IRA, with the following exceptions:

  • Contributions to a Roth IRA are not deductible.
  • Qualified distributions are tax-free if you meet the requirements.
  • There is no age limit for making regular contributions to traditional or Roth IRAs in 2020 and later.
  • You can leave money in your Roth IRA for as long as you live; however, the account or annuity must be set up as a Roth IRA.

Roth IRAs for Minors

Minors are generally not allowed to open brokerage accounts in their own names until they reach the age of 18. As a result, an adult must act as custodian. A Roth IRA for minors is also known as a custodial account Roth IRA or a Roth IRA for Kids. The benefits are the same regardless of the name.

Here’s how it works:

The custodian opens and maintains control of the minor child’s Roth IRA, as well as decisions about contributions, investments, and distributions. The custodian also receives account statements.

As custodians, parents must remember that the account belongs to the minor child even though they control and maintain it. As a result, the funds in the account must be used to benefit the minor. When a minor reaches the age of 18, or 21, depending on the state, assets must be transferred to a new account in their name.

Earned Income. A minor can only contribute to a Roth IRA if they have earned income from a summer or after-school job, or earnings from self-employment such as babysitting, pet sitting, or lawn mowing. As a reminder, self-employment earnings of $400 or more may be subject to self-employment taxes such as Medicare and Social Security.

Most teenagers will not be required to file a tax return; however, they should keep a written log of hours worked in case the IRS contacts them with questions later.

Contributions. For 2022, the maximum Roth IRA contribution is the lesser of $6,000 or the total earned income of the child. If your child earns $3,000 this year, the maximum contribution is $3,000 (rather than $6,000). Parents may contribute to their child’s account as long as the total contribution amount (child and parent) does not exceed your child’s earned income for the year. Using the previous example, if the child earned $3,000 but only wanted to contribute $1,500 to their Roth IRA, the parent could contribute another $1,500.

Even if your child only makes a one-time investment today, the sooner they begin saving, the more time their money has to grow because of the power of compounding.

 

Information Regarding Custodial Roth IRA Accounts?

Even though your teen may not see the benefit of making a contribution to a retirement account right away, they will appreciate it later. Please don’t hesitate to get in touch with us if you have any questions about Roth IRAs for minors. You can reach us at admin@fas-accountingsolutions.com or call us at 713-855-8035.

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Reasons why you need Bookkeeping Service for your Small Business

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cubes that spell out the reasons why you need bookkeeping service for your small business

A small business owner thinking about the reasons why she needs a bookkeeper for her small businessReasons why you need Bookkeeping Service for your Small Business

Small business owners have a lot on their plates. So, it can be easy to feel overwhelmed when you realize bookkeeping is another task on your list. However, there are a few reasons why every business owner should know a little bit about bookkeeping. Here we enumerate the reasons why you need a Bookkeeping Service for your Small Business.

You’ll have a better understanding of how your business is doing. If you’re not tracking your income and expenses, then you’ll have no idea if your company is profitable. But, if you’re keeping track of your day-to-day transactions, you’ll be able to get an idea of where your money is coming from and going to.

You’ll be able to handle taxes more easily. Once tax season comes around, you won’t have to stress about finding all of the receipts that prove how much money you made or spent throughout the year. Plus, having good records will help ensure that you don’t miss any deductions that could save you money at tax time.

Bookkeeping will help make budgeting easier. Having good records will help you understand where all of your money goes so that you can create a realistic budget that works for your company.

 

Bookkeeping is crucial for small business success

Bookkeeping service providers make it easy to track the money your company makes and spends. For example, if you have an online flower shop, you can use bookkeepers to track the sales of your flowers. You can also use them to track the cost of your supplies, like vases and bouquet holders. Bookkeeping services will also help you track expenses like rent and employee wages. If you want to know at a glance how much money you’re spending on each area of your business, bookkeepers are a great way to do that.

By keeping those records organized, bookkeepers make it easy for you to analyze the data they contain. If you notice that the amount you spend on rent is steadily rising from month to month, you’ll be able to take action immediately before it becomes a problem for your business. If you notice that the number of roses sold is decreasing steadily from year to year, it might be time for a change-up in strategy. The best thing about bookkeepers is that they give you more time and energy to grow your small business even more!

 

Ways Bookkeeping Services help Small Businesses

Now that you are aware of why bookkeeping is important for your small business, let’s take a look at the ways bookkeeping services can help you:

  1. Making financial decisions
  2. Organizes your records
  3. Provides accurate financial records
  4. Tax filing
  5. Budgeting
  6. Getting Investors/loans
  7. Saves you time

 

Making financial decisions

Bookkeeping Service for Small Business: Reason #1

Making Financial Decisions

Bookkeeping service for small businesses allows owners to get a clear picture of their finances.

You don’t have to be an expert in accounting or finance to maintain a basic understanding of your company’s financial records and draw insights from them. And as long as you have access to all the information you need, making decisions about your company’s future becomes less intimidating. You’ll be able to look at your financial data and determine if the decision you’re considering makes sense for your business.

Here are some small business financial decisions that bookkeeping service providers can help with:

  • Loan Applications
  • Employee Hiring
  • Grant Applications

The list goes on and on but the bottom line is that bookkeeping service providers can help you make informed decisions regarding your business. For example, you may be wondering whether your company is financially in a position to hire employees. A bookkeeping service provider can help you determine that by looking at the specific numbers and making sure they’re accurate.

 

Bookkeeping Service for Small Business: Reason #2

Organize your Records

Regardless of what’s going on in your company, the organization of your financial records is key. When the time comes to budget, apply for loans or grants, or see if you’re turning a profit, bookkeeping allows you to find the information you need quickly.

With bookkeeping, you have an organized system that enables you to record financial transactions as they happen. This means there are no outstanding expenses and you can track how much money is coming in and going out at any given time, which can help you be more proactive about where your money is going.

 

Bookkeeping Service for Small Business: Reason #3

Provides accurate financial records

The decisions you make in business are only as good as the information you have available. By having organized information, you can create accurate financial records. Those records allow you to perform a variety of tasks.

You can manage your investments and loans. You can analyze the profitability of your products or services and make adjustments for the better. You can manage your inventory and pay your bills on time. You can also review costs and expenses to stay within budget and use the data to plan for future growth.

Organized information is vital to the success of any business, whether you’re a one-person consulting firm or a large manufacturing plant.

 

reasons why your small business needs a bookkeeping service - tax filing

Bookkeeping Service for Small Business: Reason #4

Tax Filing

Taxes are a pain in the butt. And they’re even more of a pain if you own a business. But we’re here to help. And by help, we mean to give you one less thing to worry about as an entrepreneur.

If you’ve been manually filing your taxes (or if you’ve just been putting it off), we have some good news for you: setting up bookkeeping is the first step toward not only tax filing, but also getting paid faster and getting paid more.

We know what you’re thinking: “Uh, yeah, but bookkeeping sounds like a nightmare.” We get it! That’s why bookkeeping service providers make it easy for you to track expenses and income, send invoices, and pay your employees and contractors.

And if you’re going to work with an accountant on taxes? Great! Bookkeeping records are essential for that process too—which means less time spent sorting through papers and receipts, and more time doing what actually matters to your business.

 

Bookkeeping Service for Small Business: Reason #5

Budgeting

You know what they say: if you fail to plan, you plan to fail. When it comes to budgeting and financial planning for your small business, you need a clear picture of how your business is performing.

Without that picture, you’re shooting in the dark—and not only that, but you’re likely to run out of money and go under right when you were expecting a flourishing year. Ouch!

The best way to make sure that doesn’t happen is by having good books that you get by having a good bookkeeper. Period.

When your books are organized, accurate, and up-to-date, it’s much easier for you to review what happened in the past and make a plan for the future. You can see exactly how much money was coming in throughout the year, which lets you see what’s going on with your sales trends. You can see how much money was going out—and to whom—so you can tell if your suppliers increased their prices or if there are other cost-saving measures you could be implementing. When it’s time to create a budget for the next year, all of that information is readily available so you can work on accuracy instead of guessing whether or not your numbers make sense (or even add up).

 

Bookkeeping Service for Small Business: Reason #6

Getting Investors/Loans

Businesses need funding to succeed, and that can come from a variety of places: owner’s equity, grants, business loans, or investors. But when you’re looking for an investor to back your company, they need up-to-date information about your business in order to make a decision about whether or not they want to invest in you.

Bookkeeping records help potential investors see the success of your company. If you don’t have those records readily available, you won’t be able to get a clear picture of what’s going on with your business. Investors want to see your books! They want accurate and accessible information if they’re going to consider putting money into your venture.

If bookkeeping isn’t part of your business plan, it should be. Up-to-date bookkeeping records are essential to the success of any small business! Don’t let yourself miss out on an opportunity because you don’t have the data at your fingertips when it matters most!

 

Bookkeeping Service for Small Business: Reason #7

Bookkeeping Service saves you time

Bookkeeping is an essential part of business, but that doesn’t mean it has to be painful. If you’re feeling stressed out by the tedium of keeping track of your company’s finances and want to find a way to create more balance in your life, consider hiring a professional bookkeeper.

It’s easy to assume that you should keep your recordkeeping in-house to maintain control over the process, but it takes time and attention away from other aspects of your business. Hiring a professional bookkeeper means that someone else will take care of all those boring details for you. They’ll make sure it’s all done accurately, so you can spend more time focusing on what matters most to you.

You don’t have to do everything yourself! Getting some help with your bookkeeping will bring peace to your life and balance back into your workweek.

Are you ready to grow your business further by focusing on driving its growth instead of the books? Well then send us a message today!

Let our experienced bookkeepers manage your bookkeeping for you!

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Introduction to Tax Planning: The Basics

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tax planning written on top of an alarm clockIntroduction to Tax Planning: The Basics

Tax planning means examining your financial situation with the goal of reducing tax liability. A tax plan works to ensure that each financial element of a plan works together to reduce your total tax bill as much as possible. Through tax planning, you can make contributions to retirement plans and investments that have the best impact on reducing your tax bill each year. Since retirement plans and investments can have a large effect on taxes owed, it’s important to consider these elements when you’re creating a tax plan. Tax planning also includes thinking about how businesses should arrange their income and expenses each year to create a lower total tax bill for the business overall.

 

Primary objectives of Tax Planning

Tax planning means taking all appropriate steps to reduce your tax liability while reducing the impact of taxes on your overall financial picture. It’s about ensuring that you follow the letter of the law, as well as its spirit. It’s about being proactive–about ensuring that when it’s time to pay your taxes, you’ve taken every available precaution to minimize your outlay and maximize your return. Tax planning applies to both individuals and businesses. In fact, tax planning is essential for any business owner or investor who wants to remain profitable and free from legal entanglements.

 

Importance of Tax Planning

In today’s financial climate of ultra-low bank interests and economic uncertainty, tax planning is a necessity for anyone who wants to see real returns on their investment. Tax planning is not justtax forms needed for tax planning about minimizing your tax burden. It’s also about maximizing your returns by taking inflation into account, as well as taxes, expenses, and so on.

For example, the property market has been showing strong signs of recovery over the last few years. However, this isn’t necessarily good news for all investors. There are currently a lot of government grants available for first-time homebuyers that can mean big savings on stamp duty and other associated costs. But keep in mind that these high capital gains taxes will eat up any profits you make in the long run. That’s why it’s important to get professional investment advice when looking at properties to purchase. Professional advisers can help you identify any additional costs or risks you might not have considered if left to your own devices—and they can help you figure out ways to take advantage of current grants and tax credits while still keeping your tax bill as low as possible.

 

Lower Tax Bills

Paying low taxes puts less strain on individuals and companies; working toward tax efficiency is the best way to hold assets and capital together. People living abroad may find assets that were tax-efficient in their home country taxable in their country of residence. Reviewing tax plans can reduce the tax bills, resulting in more improved financial stability.

 

Tax Payment Flexibility

Proper tax planning gives individuals and businesses more flexibility when paying taxes. This flexibility means payments can be made at the most appropriate times for personal and business finances. As a result, people are less likely to pay more taxes than necessary, giving them control over their finances. This makes it easier to budget effectively, which in turn leads to greater financial sustainability.

 

Tax Planning Advantages

  • Get a head start

Businesses operating under a trust can take advantage of tax planning to estimate distribution early enough in the year, saving the need to make decisions out of rush. Tax planning allows businesses to look at the available options and strategize according to the analyzed data.

  • Minimized Litigation

Avoiding or evading taxes is an action taken by people who find the tax rates too high. Tax planning helps taxpayers and the government resolve their differences by paying taxes properly, as the government seeks to collect taxes while the taxpayers look for ways to pay less. Thus, tax planning can save citizens and entities from legal troubles.

  • Seeing the Bigger Picture

Tax planning helps individuals and businesses map out their financial future. Business owners discover ways to change the business structure to increase profits. As a result, a business owner finds new investments and looks for untapped sources of revenue.

  • Economic Growth

Taxes pay for the projects that help our country grow and thrive, including development projects. A solid tax planning strategy is essential for any business, as well as personal finances. Some of the benefits of good tax planning include creating more money for your savings account, increasing your business’s stability, and avoiding bankruptcy because you can’t cover your bills and loan payments. The health of a country’s economy benefits both citizens and the entire country.

 

Tax Planning Types

  • Purposive Tax Planning

In this type of tax planning, you use intelligent strategies to take advantage of tax provisions to achieve a certain financial goal, such as changing your investment strategy or diversifying your business activities.

  • Permissive Tax Planning

Permissive tax planning involves taking advantage of various exemptions and deductions while following all the rules that apply to you.

  • Short-Range Tax Planning

Temporary tactics are implemented in this type of tax planning strategy. These temporary tactics are implemented at the end of the year to achieve certain specific tax objectives.

  • Long-Range Tax Planning

Polar to short-range tax planning, this type of strategy forms long-term tactics at the start of the year and the results of the formulated strategies are expected only in the long run.

 

Disadvantages of Tax Planning

Tax planning can be of great help in reducing your tax liability and increasing your savings. However, there are some downsides to tax planning that you should consider before investing your hard-earned money in tax-saving products.

Usually, tax planning results in the blocking of funds to purchase a particular investment product. This can impact short-term liquidity and flexibility. This can especially be a concern for senior citizens who need a certain amount of cash for daily needs and medical expenses.

At times, taxpayers tend to confuse tax planning with tax evasion and end up misinterpreting certain provisions. This may lead to an increase in their income tax liability or even attract penalties or interest charges.

 

Bottom line

Tax planning can help you reduce the overall tax burden. However, it is important to know that you should stay within the limits of the tax laws while planning your taxes. This means you should not engage in any activity that helps you cut down your tax liability without paying heed to the fact that there are certain rules in place for tax planning.

One of the most popular ways to plan your taxes is by investing in different instruments. For example, there are several investment options available today such as stocks, mutual funds, bonds etc., where you can invest your money and earn returns on them. However, before investing in any of these instruments, you need to understand how they work and whether they can actually help you save taxes or not.

If you need expert help in planning your taxes, send us an email today and we’ll have our expert Enrolled Agent get in touch with you!

 

 

You still have time to make an IRA Contribution for 2021!

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IRA Contribution Form

You still have time to make an IRA Contribution for 2021!

Are you behind in your 2021 IRA Contributions? Don’t worry, you still have time to make an IRA contribution for 2021. If you haven’t contributed funds to an Individual Retirement Account (IRA) for the tax year 2021, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2022, due date (April 19 if you live in Maine or Massachusetts), not including extensions.

The good news is that you can make your 2021 IRA contribution at any point while the tax year is active. But before you do, we have a friendly reminder: make sure that you tell the trustee who holds your IRA account that the contribution is for 2021. This helps them report it correctly, and it ensures that the funds are added to your account in a timely manner.

You can contribute up to $6,000 of your earnings for tax year 2021 (up to $7,000 if you are age 50 or older) to an IRA, either a traditional IRA or a Roth IRA (if you qualify). You can choose to fund both, but your total contributions cannot be more than these amounts.

 

Traditional IRA

You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

This means that even if you don’t meet some of the qualifications for deducting an IRA contribution from your taxes, you still may be able to do so. For instance, if you have a high income and are covered by a pension plan at work, you may be able to deduct your contribution up to the amount of your total compensation.

The IRS website has more information on how to qualify for a tax-deductible IRA contribution.

 

Roth IRA

You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Roth IRAs are funded with after-tax dollars, so you cannot deduct your contributions from your taxes.

If you take out your money before age 59 1/2 (or before age 55 if you have changed jobs), you will have to pay taxes and penalties on that money unless you qualify for an exception (for example, if you are disabled or use the money to buy a first home).

A qualified distribution happens when:

  1. You take out your money after age 59 1/2
  2. You take out your money because of death or disability
  3. You take out your money to buy a first home for up to $10,000

Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans

To ensure you’re saving as much as possible, check out the newest updates each year.

 

Bottomline

You’ve probably heard it before, but saving for retirement should be an important part of anyone’s financial planning. It’s important to review your retirement goals each year and make sure you’re maximizing your savings.

Need help navigating your tax compliance this year? Hurry and send us a message today while you still have time to file your taxes!

Get in touch with us!

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Can I write off my crypto losses?

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trader losing a lot of crypto

Can I write off my crypto losses?

can i write off my crypto tax losses?

The swings in the value of cryptocurrency over time have made it hard for traders to figure out at what point they should sell and incur a taxable event. Even if you lost money on your crypto investments this year, the IRS allows you to use those losses to reduce your crypto tax liability or even get a refund. And if you’re looking to be more active in the crypto space next year and turn those losses into gains, there are still some options available to you.

If you’re an unsavvy investor and are sitting on a heavy loss in crypto, don’t worry. The IRS allows investors to claim deductions on cryptocurrency losses that can lessen your tax liabilities or even result in a tax refund. There are also investment strategies you can use throughout the year to maximize your losses and get the most out of your crypto investments. Now, the question is… Can I write off my crypto losses?

 

 

Is reporting crypto losses necessary?

Yes, you need to report your cryptocurrency losses to the IRS, which is required to ensure honest reporting and proper tax liability. The IRS classifies cryptocurrency as a capital asset; every taxable event, including your crypto losses, must be reported on Form 8949. Here are some samples of common taxable crypto events:

  • Selling crypto in exchange for cash
  • Trading one cryptocurrency for another cryptocurrency
  • Using crypto to purchase goods and services

There are other taxable events when it comes to crypto taxes, if you want to know more about these taxable events, you can read this blog to delve deeper into what’s a crypto taxable event.

 

The information you need to do your crypto tax forms

If you have crypto transactions on your tax forms, make sure that you include the following information:

  • The name of the crypto you bought.
  • The date you bought, sold or traded the crypto.
  • The amount you bought it for and the amount you sold it for. Commonly known as the cost basis.
  • The income or loss you incurred from the sale, trade, or purchase of cryptocurrency.

You can write off your crypto losses, but you’ll need to transfer the totals over to Form 1040 Schedule D, where you report your total capital gains and losses for the tax year.

For a detailed guide on filing crypto taxes this year, this article can help you out!

 

Offset Capital Gains Crypto to write off crypto tax loss

Crypto Capital Gains FormThere’s a saying that goes ‘ a loss is a gain you didn’t realize you had’. Losses on crypto can be used to offset your capital gains. You can write off your crypto losses against your capital gains, so you pay less federal income tax when you file your taxes this year. However, your capital gains tax still depends on how long you’ve held your crypto asset.

If the crypto has been held for more than a year, you can use long-term capital losses to offset long-term capital gains. If it was held for a year or less, you can use short-term capital losses to offset short-term capital gains. Remember that you’re only allowed to offset losses of the same type.

When you have both long-term and short-term gains on an asset, it’s more beneficial to first harvest your short-term capital losses (which are taxed at your regular tax bracket) to offset your short-term gains.

Don’t have crypto gains? Don’t worry, you might be able to claim a deduction.

If you have no capital gains to offset, you can deduct up to $3,000 in capital losses from your ordinary income each year according to 26 U.S. Code § 1211 of the Internal Revenue Code.

If you lost more than $3,000 in a taxable year, you can carry those losses forward over future tax years to offset any capital gains or use the losses as an itemized deduction.

 

Claiming a Crypto Capital Loss Deduction of up to $3,000 from ordinary income

26 U.S. Code § 1211 provides a deduction for taxpayers who sustain losses on capital assets. Instead of tax-loss harvesting, you can deduct $3,000 in capital losses each year, or $1,500 if you’re married and filing taxes separately. Claiming your cryptocurrency losses can result in a higher tax refund through this deduction. If you’ve lost more than $3,000 in net capital losses in a tax year, the excess amount can be carried forward into future tax years, where they may offset capital gains. You may claim the losses again in a future tax year, or use them to offset income before paying taxes.

 

Crypto Tax Loss Harvesting

You can offset your capital gains throughout the year by selling investments at a loss. This helps you avoid unrealized losses – losses on investments held for more than one year but not long enough to receive long-term capital gains benefits. Tax-loss harvesting entails the sale of crypto or other digital assets when fair market value drops below cost basis. This will generate capital losses. You can continue to net those losses against capital gains and reduce your tax bill as described above.

 

‘Wash Sale’ Rule Exception in writing off crypto losses

in December of 2021, the ‘wash sale’ rule is only applicable to stocks and securities. It no longer applies to cryptocurrency in general. A wash sale occurs when a taxpayer sells a stock or security at a loss, but buys either the same one or a substantially identical one within 30 days of the sale. Even though the IRS does not allow a deduction for stock and security losses, this taxpayer is still able to deduct ordinary and necessary investment expenses that would otherwise be disallowed due to claiming the Wash Sale Loss.

However, the wash sale rule does not apply to crypto. As a result, tax-loss harvesting is more effective for crypto investments.

 

What happens if you don’t pay taxes on crypto?

By reporting your taxable crypto transactions on Form 8949, you can help reduce the chance of an audit by the IRS.

The IRS doesn’t disclose its audit selection criteria, but it presumably relies on information provided on a tax return, such as the answer to the virtual currency question on Form 1040 or the information on Form 8949.

The IRS uses a computer system to check the Form 1099 information against what a taxpayer reports on their tax return. A taxpayer that answers No to the question about virtual currency transactions on Form 8949, or doesn’t complete Form 8949 and doesn’t include it with their return, is more likely to be audited; the IRS now has information that may result in penalties on top of whatever additional tax may be owed. It is always a good idea to make accurate tax returns.

The IRS has begun sending taxpayers CP2000 notices when information on a Form 1099 does not match what a taxpayer reported on his/her tax return. Cryptocurrency tax software allows taxpayers to complete and file their taxes using existing blockchain technology. However, some software providers do not provide information on how their software calculates gains and losses. This audit trail can be difficult to construct without a trusted provider.

 

Conclusion

Don’t be discouraged by crypto losses: they happen to everyone. Instead, strategize how you can turn your losses into future profits. As the saying goes, ‘a loss is a gain you didn’t realize you had’. There are plenty of opportunities for you to make a bad thing become a good thing. You just have to be creative about it!

Need an expert to help you with your crypto taxes this year? Our expert Enrolled Agent is here to help you with the highly complicated field of crypto tax filing and planning!

Get in touch with us today! Hurry, the tax season is about to end!

Want to know more about Crypto Taxes?

Check out our other Crypto Blogs to help you with your Crypto Tax Compliance!

 

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Why Are Social Security Benefits Taxable?

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why are my social security benefits taxable

Why Are Social Security Benefits Taxable?

Retirement and disability benefits administered by the Social Security Administration (SSA) are taxable. You pay federal income taxes on your benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security benefits. About 40 percent of Social Security beneficiaries pay federal income taxes.

The Social Security Administration will send you a Form SSA-1099, Social Security Benefit Statement, each year to show the amount of benefits you received. Include this statement with your federal income tax return to find out if you must pay taxes on your benefits.

You can determine whether any of your benefits are taxable by adding one-half of the Social Security money (collected during the year) to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your combined income is the sum of adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

 

Filing an Individual Federal Tax Return

  • If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000 for the year, you may be required to pay income tax on up to 50 percent of your benefits.
  • If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Filing a Joint Federal Tax Return

  • If you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income taxes on up to 50 percent of the amount of any Social Security benefits that you receive.
  • Up to 85% of your benefits may be taxable if your combined income is more than $44,000.

Filing Separately as a Married Taxpayer

Up to 85% of social security benefits may be taxable if you are:

  • A married taxpayer who lived apart from your spouse for all of 2021 with more than $34,000 income
  • A married taxpayer who lived with your spouse at any time during 2021

Work Pension

If you receive a pension based on work for which you paid Social Security taxes, your pension will not reduce your Social Security benefit. If you are retired or disabled and receive a pension from employment not covered by Social Security, your Social Security benefits may be reduced.

Retiring abroad?

Generally, in other countries, you’re not taxed on income that you receive as retirement pay from the United States. As a U.S. citizen who is retiring abroad and receiving Social Security, for example, you may owe U.S. taxes on your income but may not be liable for tax in the country where you’re spending your retirement years.

Tax laws treat benefits from the Social Security program differently from most other forms of income. For some individuals, Social Security benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources and are a citizen or resident alien of the United States, or are a citizen of another country but are covered under the U.S. social security system because you worked in the United States, then you may have to pay U.S. taxes on some of your benefits – the same as if you were still living in the U.S.

You may also be required to report income earned in the country where you retired and pay taxes on that income. Each country is different, so consult a local tax professional specializing in expatriate tax services.

Help is just an email away

If you receive Social Security and you’re not sure if it is taxable, an Enrolled Agent can help you determine if some or all of your benefits are taxable!

Get in touch with us today!

 

Bookkeeping and tax services Katy TX

How to choose the best tax preparer near you – Here’s what you should look for!

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how to choose the best tax preparer in my area

How to choose the best tax preparer near you – Here’s what you should look for!

Do you feel like taxes are getting harder and harder every year? Do you find yourself asking how will you find the best tax preparer in my area? Well, you’re not alone! Taxes are getting harder and harder as the years go by, if tax preparation is too much to handle yourself this year and think that you need some help with tax preparation this year, check out this checklist to find the right person for the job.

When you hire a tax preparer, it helps to ask what credentials and certifications they have.

It might come as a surprise to you, but tax preparers have access to your most personal details, including your bank accounts, marriage, and kids — and your Social Security number.

Taxpayers should ask prospective tax preparers some key questions before hiring them. Here are 5 things that to consider that can help you choose the best tax preparer near you.

 

  1. Find a tax preparer with an Enrolled Agent designation

The Enrolled Agent designation is one credential that stands out when it comes to the field of tax preparation! Enrolled Agents are certified by the Federal Government through the IRS to prepare taxes for everyone. Enrolled Agents also go through the IRS’ Annual Filing Program to ensure that they are up to date with the latest rules and guidelines concerning your taxes. The Accredited Business Accountant/Advisor and Accredited Tax Preparer programs prepare people to fulfill annual filing season requirements. These credentials require varying amounts of study, exams, and ongoing education.

 

  1. Watch out for Tax Preparer Red Flags

Because there are many people claiming to be tax preparers, it can be difficult to know who’s right for you. Here are a few red flags that could mean someone isn’t legitimate.

    • Promises the moon when it comes to your tax refund

      When looking for a tax preparer you can fall for the “it’s-too-good-to-be-true” trap. The trap involves promises of high tax returns that are significantly higher than what you usually get for the past few years. Unless your income, family situation, or the tax law has changed significantly, your tax refund should be similar from year to year. Be wary of anyone who says they can get you a refund far in excess of anything you’ve received in the past.

    • Won’t sign the return

      The law requires those who prepare taxes to sign the tax return that they have prepared! If you find yourself with a tax preparer that outright refuses to sign a return, do not put your signature on the paper. Find another tax preparer that will willingly sign the tax return that he or she has made and then you can have the peace of mind of placing your signature on the return since your tax preparer placed theirs on the return.

    • Doesn’t have a website

      You should choose an independent tax preparer who has a permanent business presence and is easy to find. You’ll want to be able to find him or her if you’re audited or have any questions about your return.

    • Charges you based on your refund

      Legitimate tax preparers charge their clients either an hourly fee or a flat rate for their work. Avoid those who charge based on the size of your refund; this practice is considered unethical by the National Association of Tax Professionals.

    • Listen to your gut

      When deciding on a preparer, go with your gut and trust your instincts. If something about a tax preparer doesn’t feel right—they seem to gloss over or misunderstand your questions or tax situation, for instance—it might be best to keep looking for someone else to handle your return.

 

  1. Interview Tax Preparers in your area

You can learn a lot by researching the tax preparer online, but nothing beats a personal discussion. This is particularly true when you’re looking for a long-term tax preparer that you can trust. Tax season is busy, so don’t expect a deep conversation. But make sure to ask your tax preparer for a five to ten-minute phone call at least. During the call, get the following information if it is not readily available on the preparer’s or professional’s website:

  • How they handle and store your sensitive financial documents.
  • Are the charges based on a flat fee or an hourly rate?
  • How many years have they been in the business?
  • Do they prepare the returns themselves or have a staff to assist.
  • Do they file tax returns electronically?
  • Are they an Enrolled Agent.

 

  1. Runaway from Tax Preparers who still file by paper

Tax preparers who file 10 or more taxes per year are required to file electronically. If your tax preparer refuses to file electronically, this might mean that they don’t do that much tax preparation to have the knowledge and skills to properly file your taxes.

 

Bottom line

Anyone can pose themselves as a tax preparer by simply having a PTIN. However, preparing taxes is complicated work that requires years of experience and technical tax knowledge to properly execute. Getting stuck with a tax preparer that doesn’t have the experience or technical tax knowledge of an Enrolled Agent might result in mistakes in your tax returns and it could lead you to hot waters. Take these tips in mind when you are looking for a tax preparer so you can save yourself the hassle of an IRS audit!

Rushing to meet the 2022 tax deadline and need a trustworthy tax preparer to help you out? Don’t worry we’ve got you covered!

Get in touch with us today! We are located at 24044 Cinco Village Center Blvd 100, Katy, TX. You can call us at +713 855 8035

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Benefits of Itemized Deductions

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itemized dedcution form

Benefits of Itemized Deductions

If you itemized deductions instead of taking the standard deduction, you may be able to save more money on your taxes. This is because itemized deductions allow you to deduct certain expenses that aren’t covered by the standard deduction. For example, if you spent a significant amount of money for home improvements, or if you bought or refinanced a home during the year, those costs are deductible only if you itemize your deductions.

Here are some benefits of itemized deductions:

 

Deducting State and Local Income, Sales, and Property Taxes

Taxpayers are allowed to deduct income taxes they have paid to the state and their municipality, but the combined total of deductions cannot exceed $10,000 if married and filing jointly, $5,000 if married filing separately.

Buying a home

Starting in 2021, taxpayers who bought a new home may deduct mortgage interest for a total of $750,000 ($375,000 for married filing separately) on qualified debt for a first and second home. For mortgages with an original principal balance of $1 million or more that were taken out before December 15, 2017, the limit remains at $1 million.

Refinanced home

The mortgage interest deduction is limited to interest paid on a loan secured by the taxpayer’s main home or second home. If homeowners refinance, they may deduct only the interest paid on the amount of the loan used to improve their main or second home, but not any other amounts.

Donations

Making a charitable donation is one of the ways in which taxpayers can reduce their tax burden. To take advantage of this deduction, donate to a qualifying 501(c)(3) public charity or private foundation. Remember that non-cash donations may require that you have a qualified appraisal done to substantiate your deduction. You must be able to provide proof of all donations.

Investment Interest Expense

Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to income from taxable investments, such as interest on a loan you took out to buy stock in a brokerage account.

 

Bottom line

Opting for a Standard Deduction is easier for most taxpayers so they choose it over Itemized Deduction. However, what most people don’t know is that using Itemized Deduction opens up a ton of tax break opportunities for you to take advantage of! But be careful, you must have an ample amount of tax know-how to properly itemize your deductions. A simple mistake might lead to hefty fines and penalties. If the thought of these tax break opportunities pique your interest but you don’t know how to itemize your deductions, well worry no more! Simply send us a message and let our expert Enrolled Agent do your taxes for you!

Get in touch with us today!

2022 Tax Filing Season in Peril of Delays

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paperwork

2022 Tax Filing Season in Peril of Delays

2022 Tax filing season is in peril of delays because the Internal Revenue Service has not yet processed more than 24 million tax returns from last year, a large increase from the number reported by the agency. The IRS also said it is taking many taxpayers far longer than usual to get their refunds.

   The Situation

The IRS’s taxpayer advocate service delivered a report to the tax-writing committees in Congress. The inventory lists unprocessed returns and related correspondence. The agency’s warning that it would provide poor service in the 2022 filing season is nothing new; this has been the case for years.

Three people who spoke on the condition of anonymity because they were not approved to speak publicly say that the IRS is struggling to hire and train new staff, and respond to growing bipartisan pressure from lawmakers and tax preparers to clear the logjam and provide relief to taxpayers. Among the considerations are suspending tax collections and excusing some penalty enforcement.

30 Senators wrote to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig on Thursday, saying that a raft of delayed returns, some dating back to the 2019 filing season, along with millions of missed calls and other correspondence had threatened “our constituents’ ability to have their returns processed accurately and efficiently.” However, it can be noted that some Senators are hindering any new federal help that might be able to save the agency from drowning even further.

The IRS’s productivity took a big hit during the coronavirus pandemic, with thousands of employees working from home for months without access to returns, audits, and other business. The federal stimulus measures also added to the agency’s workload, as it emphasized getting relief money to millions of Americans. Paper returns took the greatest hit, as mail piled up on trucks outside closed offices for months. Foreboding peril of delay on the 2022 tax filing season.

The storm over hiring continued to intensify on Tuesday after IRS Inspector told lawmakers at a hearing that the agency continues to suffer from severe, long-standing hiring shortages, inefficient practices, and old equipment. That includes mail processing woes since its systems have “outdated dust collectors” that cause paper jams. Poor scanners, meanwhile, meant the IRS last year missed out on $56 million because of “untimely check deposits,” since the agency could not determine if envelopes it received contained checks.

Erin Collins, of the National Taxpayer Advocate, said in January that there was a backlog at the IRS of about 10 million tax returns. An IRS official said that 6 million individual tax returns were unprocessed from the previous filing season. In the past, the IRS typically processed only one million or fewer returns in a season.

But the new data include broader categories of work, such as manufacturing, that have been stagnant since the pandemic, and some positive returns that have come in this year. Taxpayer advocates, lawmakers, and others say the revised count is a more realistic representation of activity.

It does not include returns that are pending because of slowdowns related to enforcement actions, appeals of audits, notices of tax liens, penalties, or other business workflows.

More than 80 percent of taxpayers now file their tax returns electronically, and those can generally be processed quickly. The remaining 10 percent who file Form 1040 on paper should expect a delay in processing any tax return that contains errors.

The IRS is still processing paper returns filed for the 2020 tax year and has only caught up to April 2021 for returns without errors, according to the most recent information available on its website. Last year the vast majority of taxpayers— about 77 percent—received refunds.

 

IRS Burden

The IRS’s backlog of letters was formed in part by the many demands put on it during the Covid pandemic.

Congress gave the agency the power to send direct relief checks to millions of Americans, giving it immense pressure to act swiftly to help cash-strapped families newly out of work. Multiple rounds of such payments have been approved, and Democrats last March made an even more work-intensive request: to stand up a system that would distribute monthly tax payments to families with young children.

Since the IRS was underfunded and understaffed for decades before it was given new responsibilities, President Biden and top Democrats have proposed boosting the budget, but their effort has so far failed to gain enough support in Congress, where lawmakers are still working on a spending deal to fund the government and avoid a shutdown.

Both parties have said they are confident that the federal government can remain open for the rest of the fiscal year, which ends on September 30.

Rather than funding new IRS initiatives, Some Senators this week called on the agency to consider other tactics that it has previously used to ease the burden on taxpayers. These include halting automated invoice and collection processes until agency staff can sort through piles of unopened mail and better prioritizing which returns it takes.

The senators wrote in their letter, “When taxpayers cannot get help from those tasked with administering our tax laws, it diminishes the integrity of our voluntary tax system.”

 

The solution

The IRS has already halted collection notices that are triggered when records show a taxpayer owes taxes and has not filed a tax return. Many of these letters have gone out before the returns have been processed. With this they hope that the 2022 tax filing season won’t be in peril of delay.

A Treasury official who spoke on the condition of anonymity to describe private conversations said Rettig said at a Ways and Means Committee meeting in January that the agency is working to get the backlog of unprocessed tax returns back to normal levels by the end of the year.

The commissioner announced last week that he was temporarily reassigning 1,200 employees as part of a “surge team” to help. However, the House Ways and Means Committee oversight panel was told this week that staffing problems are far broader, due in part to recruiting challenges and low pay.

The agency had originally intended to hire 5,000 workers for several campus locations but ended up filling fewer than 200 positions. In a bid to attract talent, the organization is paying employees $500 if they refer job candidates that stay in their roles for at least a year.

The IRS is having issues with its staff. The agency has one of the oldest workforces in the U.S. Treasury Inspector General for Tax Administration reported that as of August 2021, the IRS faced a total staff shortfall in the submission processing unit of about 2,598 employees. The surge Rettig announced is not going to submission processing, but will be staffing a department known as accounts management, which answers the taxpayers’ phone calls and responds to general correspondence.

The watchdog urged the IRS not to close its processing center in Austin, Texas — a planned part of a long-term consolidation as more business is done electronically — until hiring and backlog shortages are addressed, rather than waiting for the agency’s current approaches to improve staffing to bear fruit.

The looming troubles with this filing season led tax preparer groups to form a coalition in recent weeks as part of an effort to pressure the agency for relief.

The executive director of the National Society of Tax Professionals, said groups representing more than 100,000 tax preparers have joined together to help taxpayers with an inventory of unprocessed returns. “There is nobody to help the taxpayer,” said Tross, quoted in the February issue of The Journal of the National Society of Tax Professionals. “What is it going to take to get this outstanding inventory through the system?”

The coalition said it has received complaints from members who claim they have gotten too many automated notices saying they failed to file or failed to pay, when in fact they have or have sent letters back contesting the charges. Members seeking to file power of attorney forms for clients also have gotten nowhere.

 

Bottomline

The IRS is facing an unprecedented level of backlog coupled with manpower deficiency and roadblocks manned by some Senators which forebods 2022 tax filing season in peril of delays. This level of hardship that the IRS is facing could mean that the tax returns for this year would be delayed, but nothing is for certain yet. The odds might be against the IRS, but they may still be able to come out ahead despite internal and external forces holding their hands back. What does it mean for taxpayers? Delays! Even though the tax preparer groups are doing everything they can to protect the interest of their clients, the ball is still in the hands of the IRS. At this point, all we can do is wait and see if the IRS will come through or if they will drop the ball this tax season.

Don’t want the hassle of taxes dragging you down? Send us a message today and let one of our Enrolled Agents do your taxes for you!

 

Get in touch with us today!

 

IRS Red Flags That Trigger Audits

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Red Flag

IRS Red Flags That Trigger Audits

This tax season has begun, and the IRS has warned that filing mistakes may cause delays amid staffing shortages and a massive backlog. Tax experts say that filing electronically is your best chance for a quick refund but other moves may attract the IRS’s attention.

The IRS closed nearly half a million audits in the fiscal year 2020, or about 0.29% of the roughly 157 million individual income tax returns it received, according to agency data released.

The IRS has a three-year statute of limitations for auditing a tax return, but there’s no limit on the amount of time they may pursue fraud or non-filers. One of the first cues may be claiming too many credits or deductions compared to your income, tax experts say. Here are the IRS red flags that trigger audits and some pointers as to how you can be mindful of them.

 

Audit Triggers

The Internal Revenue Service uses software to assign numeric scores to each tax return, with higher scores more likely to set off audit alarms.

This system calculates the amount of each deduction and credit that taxpayers can claim based on income.  If a taxpayer’s write-offs fall outside the system’s calculated range, the score may increase or decrease depending on whether the number of deductions exceeds what the taxman allows. For example, if a taxpayer earning $90,000 claims $60,000 in charitable deductions, the system will flag this as suspicious.

if the forms you submit do not match your reported income, an automated notice will be triggered, which may lead to further questions from the IRS.

For example, the IRS might receive your full-time wages on Form W-2, contract earnings on Form 1099-NEC. But to avoid underreporting, you should double-check these forms with a free IRS transcript before filing. You can get a copy of your tax transcripts by setting up an e-services account at the IRS website.

 

Top IRS Red Flags that Trigger Audits

  1. Unreported Income
  2. Rounded Numbers
  3. Refundable credits like the earned income tax credit
  4. Excessive write-offs compared with earnings

 

Write-Off Red Flags

Advance child tax credit or stimulus payment errors are likely to be caught by the IRS this year, but other write-offs tend to be a recurring reason. As an example, the earned income tax credit—a tax benefit for low- to middle-income families—is valuable because it is refundable; you may still get a refund even if your income is too low to owe taxes.

Claiming the earned income tax credit as a self-employed person is a give-away that you haven’t been reporting all your income. You need to have receipts for income, not just deductions. Self-employed taxpayers must be cautious when making deductions for a home office or a vehicle because the IRS typically disallows any deductions that can be classified as personal, rather than business expenses.

When you’re reporting income and expenses, be accurate and precise.  Imprecise numbers are a tipoff that you have not done the work necessary to accurately report your revenue and expenses.

 

Burden of Proof

You should not be afraid to face those tax problems if you can back up your claims with proper documentation.  “The IRS is not the enemy”.

 

Bottom line

While the chances of the IRS auditing you are slim, there are still several reasons why your return may get flagged by the IRS’ system, which could then in turn trigger a notice for the IRS to audit you. Signs of a possible audit include unusually high write-offs compared with revenues, unreported income, refundable tax credits, and more. Remember that when it comes to dealing with the IRS, you are only as good as your supporting documents. So you should be mindful of these IRS red flags that trigger audits.

Don’t want to deal with the IRS altogether? There is a way! Send us a message today and let our expert tax professional deal with them. Get yourself the peace of mind that your tax professional is working day and night to ensure that your tax return is made to be fully compliant with the IRS.

Get in touch with us today!

 

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