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Archives for August 2022

tax preparation

Why do the Wealthy Pay Fewer Taxes?

The Office of Management and Budget reports that between 2010 and 2018, the wealthy paid an average of 8.2 percent of their income from their wealth, and a large part of their wealth went untaxed. There are 22 different tax brackets in 2022, with the highest rate at 37 percent, making the taxation system confusing at best.

That estimate is at odds with millionaire Warren Buffett’s statement in 2013, who famously said he pays lower taxes than his secretary. The wealthy pay less in taxes for multiple reasons. The first is that their income is derived from dividends, stocks, and capital gains from investments, rather than wages, that are taxed at a lower rate of 20 percent.

Additionally, a tax code feature called “stepped up basis,” says gains on an asset is never subject to income tax if an asset isn’t sold during the owner’s lifetime. That continues when the wealthy pass it on to their heirs.

That means that a significant amount of the wealthy’s income will never appear on their income tax return. A study by the White House in Sept. 2021 showed that the wealthy paid an average of 8.2 percent in actual taxes, while the typical middle-class family paid 13.3 percent.

Taxes are just one component of a highly complicated and complex tax code that enables the ultra-rich to pay a small fraction of taxes on their actual wealth. They use legal loopholes that includes depreciation, hiring their children, deducting business expenses, and rolling forward business losses.

Other legal methods of avoiding income taxes are deducting interest payments on debt, claiming investment losses, and like-kind exchanges of property. The wealthy also claim a deduction when they transfer money to their own philanthropic foundations.

For millions of Americans, the avenues used by the wealthy aren’t available to the average taxpayer. It’s also interesting to note that in the 1950s and 1960s, the federal income tax rate was 91 percent for the wealthy, down from 94 percent in 1944-1945. The tax rate for the wealthy has steadily been decreasing since then.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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tax brackets

When Should You Complete a New W-4 with Your Employer?

You’ll be required to complete a W-4 form anytime you start a new job. It tells your employer the correct amount of federal income tax and state tax to withhold from each of your checks. It’s known as the Employee’s Withholding Certificate and a new form should be completed anytime your circumstances change. It determines your tax liability at the end of the year and if you’re entitled to a refund.

Many individuals claim a greater number of withholdings than they need in expectation of a large refund at the end of the year. However, the IRS advises minimizing withholdings to make tax liability and the amount of taxes withheld as equal as possible.

Too little withholding can result in a significant tax bill at the end of the year and penalties for underpayment. Conversely, withholding too much will give you less available income throughout the year, while essentially giving the government an interest free loan.

A larger withholding base on your W-4 can be helpful if you have a side hustle or are part of the gig economy. If you have income from either source, you’ll have to report it on your federal income tax and you’ll be taxed at a higher rate as being self-employed.

There are several situations in which you’ll want to change your W-4 withholdings. They include marriage, having a child or adopting one, getting divorced, or if a spouse gets a job or changes employment. You can also request in writing that your employer compute withholdings on the part-year method if you work no more than 245 days per year.

Your W-4 is a critical tool in determining how much money you take home with each paycheck and how much money you owe at tax time. The amount withheld will also have an impact on your standard of living throughout the year.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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tax accountant

What is an Environmental Accountant?

Increasing concern for the environment has led many to pursue a career as an environmental accountant without fully understanding what’s involved. It’s a field that was first introduced in the 1980s and is employed by multiple types of businesses and governments to determine the best way to conduct business, while minimizing the impact on the environment.

There are four types of environmental accounts. They encompass environmental financial accounting, environmental cost accounting, environmental management accounting, and environmental national accounting.

Environmental financial accounting pertains to estimating and public reporting of environmental liabilities, along with financial material environmental costs. They produce reports of exposure and management of the financial and non-financial impacts due to climate change of various entities.

An environmental cost accounting expert is concerned with the use and depletion of natural resources. The professionals calculate the costs of managing natural resources and the operational costs of doing so within multiple types of organizations and businesses.

Environmental management accounting helps companies save money and provide product pricing through optimal use of resources. The information can result in cleaner production practices. The primary benefit is increasing value for shareholders, improving an entity’s reputation, and improving the public’s perception of a company.

The field of environmental national accounting is used to determine a country’s economy and the environment. It takes into consideration a country’s physical and monetary assets and operational costs of natural resources.

The environment plays a vital role in the economy. Environmental accountants provide businesses and nations with important data that’s instrumental in determining criteria ranging from economic health, degradation of natural resources, and the costs of pollution. The professionals provide data on the contribution of the environment to the economy and vice-versa.

Environmental accounting is also known as green accounting. The accounting processes have become invaluable for business and countries in making policies in regard to natural resources in an international marketplace.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

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What to Know About Filing Extensions on Tax Returns

When taxpayers are faced with high income tax bills they can’t immediately pay in full, the first reaction is typically panic. There is a way to buy some time to gather the necessary documents needed to file a return, but it won’t give individuals extra time to pay their taxes. They’ll still be due on the appointed date set by the IRS.

Filing an extension will give taxpayers until Oct 15 to gather their documentation. Individuals will need to file a special form and they’ll be required to estimate their tax liability. There are some rules to which individuals must adhere and they’ll typically be subject to fines and fees if they don’t pay what they owe in full.

In many instances, it’s best to have the services of an income tax professional who knows the exact requirements, forms and deadlines, as there are a multitude of forms for different entities. People at any income level, along with businesses, can file an extension on their federal taxes and they can even do so if they file electronically.

If Oct. 15 falls on a Saturday, Sunday or holiday, the next business day will be considered the due date. An extension can also be obtained by paying all or part of the taxes owed by indicating the payment is for an extension. Using Direct Pay, the electronic federal tax payment system (EFTPS), or a debit or credit card offers several benefits.

EFTPS enables people to schedule payments up to 365 days in advance and payments can be made from any location. Payments can be rescheduled if necessary and tracked via email. Individuals can view 15 months of their payment history.

One of the reasons that hiring a tax professional is a good investment is that there may be special rules that apply to individuals living outside the U.S., those serving in a combat zone, or a hazardous duty location.

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

 

Contact Us Today

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