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Archives for November 2022

How Budget Calculators Can Help Guide Your Spending

Very few people have a good grasp of their spending habits or how much money they could save by simply eliminating a purchase or two every week. That’s when home budget calculators can help you spend less and save more.

A budget is especially important during times of inflation, job loss, or even saving for a major purchase or life event. Only 32 percent of the U.S. population regularly budget. A variety of budget calculators are available that can make a significant difference in spending habits and they’re easy to use.

Financial Stability

Maintaining a budget is the pathway to financial stability. Instead of buying things that catch your eye with no thought to when the rent is due, it can help you plan for long- and short-term goals. That may include a down payment on a home, purchasing a car, or even starting a family.

Pay Bills on Time

Living within your means is a phrase that’s gained renewed popularity. It means don’t spend money you don’t have. People that don’t budget have to worry about taking from one area to pay for another. Don’t rely on credit cards to bridge the financial gap you’ve created. It’s easy to overspend and find yourself drowning in debt. Budgeting enables you to pay the bills on time, which will also help build your credit rating.

Emergency Fund

A home budget calculator can help you establish an emergency fund. You’ll be better prepared in the event of an injury, illness, job loss or other unfortunate event.

Retirement

Most people qualify for Social Security in their later years, but the program was never designed to be your only means of support when you stop working. That’s what a retirement fund is for and a budget enables you to save enough to have a safe and happy retirement.

Spending Habits

Everyone has bad spending habits that result in budget deficits. It may be dining out too often, expensive coffee, video games, or trips to the spa. A budget calculator will show you how you’re spending your money, the amount, and easy ways where you can cut back and save.

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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Do Single People Pay Fewer Taxes Than Married Couples?

The answer is no. In fact, the opposite is true. Single people are taxed at a higher rate than a married couple that file jointly. It’s essentially a penalty for being single. It’s not just something that affects people who are single by choice – it also impacts individuals who are divorced or lose a spouse through death.

Singles pay more over their lifetime in taxes, receive less in Social Security benefits than their married counterparts, and don’t have the luxury of two incomes to pay for life’s necessities or to create a retirement fund. The inequality affects women more than men.

The state of your finances is your responsibility. Diligence in managing, planning and saving for your future is critical at every stage of your life. You’ll need to factor in your Social Security benefits, pensions and other sources of income for retirement.

Don’t let a spouse or partner control your finances without your input. Enlist a financial advisor or accountant to help you identify tax strategies and other means of maximizing your money.

Single people are charged a higher rate on their income taxes than married couples. Child-focused policies are written in favor of married couples and don’t consider single parents. The tax structure in the U.S. also favors couples at upper income levels.

High-income couples have access to shelters, credits and deductions that singles and lower-income people don’t. Tax laws are written with the traditional nuclear family in mind and don’t account for modern family units and living arrangements.

The more people make, the more they’re taxed as they enter higher tax brackets. Couples receive the same amount of tax breaks for both people, even if only one person is working. That’s not true for single people The current system is designed in such a way that a married couple pays less in taxes than 2 unmarried people filing individually.

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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Who Uses Irrevocable Trusts

An irrevocable trust isn’t something that most people consider. The average individual won’t have any need for such an arrangement, nor would they want one. It commits assets forever, can never be changed, and once the trust is established individuals have no control over it at all – it’s managed by a trustee.

The trust has 3 involved parties. The first is the creator of the trust. The second is the trustee. The third is the beneficiary of the trust. There are only 3 reasons that an individual should establish an irrevocable trust.

Minimize Estate Taxes

This is an opportunity for the wealthy to purchase life insurance that can be used to help them avoid paying probate fees and estate taxes when they die. It can also provide an individual with a steady stream of tax-free income for a set amount of time, with any remaining funds going to a charity of their choice.

Government Program Eligibility

An irrevocable trust is particularly beneficial for the disabled. Individuals receiving Medicaid or Supplemental Security Income have very specific limits on the money and assets a person has. Exceeding those limits means they lose government benefits. An irrevocable trust isn’t counted as income or assets, allowing an individual to continue receiving benefits from government programs.

Protect Assets From Creditors

Individuals that owe significant amounts of money or those that are at risk of frequent lawsuits can obtain protection through an irrevocable trust. That includes medical professional, lawyers, accountants, and public servants, to name a few.

The Disadvantages

An irrevocable trust doesn’t isn’t a good option unless an individual has a very sizeable estate. There’s also no guarantee that a court won’t be able to claim some of those assets if a judge thinks the individual may have anticipated a lawsuit. Many states require that a trust own funds for at least two years before they’re considered protected. The trusts can also represent considerable cost, since it will require the serves of an accountant.

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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Will Estate Planning Ensure Financial Security for Loved Ones?

Estate planning is an essential element of preparing for the future. It addresses issues ranging from end-of-life care to who inherits assets. It also helps individuals minimize the tax burden of inheritors. Estate planning is appropriate at any age, for singles and those with life partners. It’s especially critical for those that have children. It’s never too late to create a comprehensive plan to ensure the financial security of loved ones.

Financial assets and circumstances change over time and so do the needs of individuals. An effective estate planner will help clients create a plan that provides flexibility as their assets grow and family circumstances evolve. Estate planning allows individuals to dictate what will be done with their assets.

An estate plan accomplishes multiple goals. Without an estate plan, the court system will make decisions for an individual and they can be far different than what the owner intended.

Guardianship

Prioritize the guardianship of minor children during estate planning. The guardian must be a trusted person who will give precedence to the children and their needs. It’s a good idea to designate a second guardian if the first is unable to carry out their responsibilities.

Will

Estate planning includes making a will that clearly states who inherits assets and names an executor to ensure those instructions are carried out when an individual dies. Beneficiaries will be of primary importance. A will also confers power of attorney to a specific individual, states end-of-life care, can establish a trust, and make provisions for the funds to pay for a funeral, final expenses and taxes.

Estate planning is a crucial element for every individual, even those with modest estates. Individuals work a lifetime to accrue assets and care for their loved ones. Estate planning ensures their financial wellbeing and that assets are distributed in the manner the manner the client desire.

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 Benefits of Charitable Donations

In 2021, each individual was allowed to deduct a maximum of $300 in charitable donations without itemizing deductions, provided they had receipts, and the contribution was made to a recognized charity. It’s important for individuals to know they can maximize their charitable giving through standard deduction amounts and itemized deductions.

Taxpayers can contribute money, time and a wide range of items to charitable organizations. Individuals should be aware that claiming non-cash contributions will raise red flags at the IRS and can trigger an audit. The IRS scrutinizes charitable contributions extremely closely.

Those that itemize deductions can usually deduct up to 50 percent of their adjusted gross income to lower their tax liability. Individuals can’t claim the time they spent volunteering, but they can deduct out-of-pocket expenses incurred while they volunteer.

Assets and Capital Gains

Every investor should perform portfolio rebalancing to ensure their strategies are working as they wish. As part of that process, individuals can make a charitable gift that will offset capital gains. When donating property or stocks, only 20 to 30 percent may be deducted.

Individuals will need to have held the assets for more than a year. They’re typically deducted at their fair market value, which can be up to 30 percent of adjusted gross income (AGI).

Stocks, bonds, mutual funds, and property are often overlooked opportunities for charitable giving that reduces taxes owed. Capital gains taxes are eliminated on those types of donations when they contributed directly to an organization. It can account for up to a 23 percent reduction in taxes.

Donor Advised Fund

A donor-advised fund is another way in which individuals can reduce their tax burden. It’s an account established for the sole purpose of making charitable contributions. It’s easy to create, highly flexible, and an effective strategy to reduce the tax liability.

IRA to Roth IRA

Converting from a traditional IRA to a Roth IRA comes with significant taxes. A charitable contribution can help in offsetting that cost.

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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Cryptocurrency Losses and Your Taxes

If you’re one of the many cryptocurrency investors, you may have losses to report. The factors that affect traditional paper money also affects digital currency and has led to significant losses for many.

If you own cryptocurrency, you should definitely report it on your federal tax return. The IRS requires it and views cryptocurrency as property rather than currency, per se. The good news is that you can claim your losses on your taxes – within limits.

Deduction

You can use your crypto losses as an income tax deduction up to $3,000. However, you won’t be able to do so if you had total capital gains across all your assets.

Capital Gains

It’s possible to lower or offset your capital gains, and future capital gains if carried forward, by claiming a loss on your crypto. A strategic selling off of assets at a loss is known as crypto tax loss harvesting and can offset your gains. You can also carry forward those losses to future tax returns.

You’ll use the same method to report crypto losses as you would crypto gains. Crypto isn’t considered a security, so selling it and buying it back within 10 days isn’t technically considered a crypto wash sale. However, you should consider safer ways to reduce capital gains.

Special Forms

The IRS requires special forms to report gains and losses from cryptocurrency. It can be difficult to quantify short-term and long-term losses and gains. The best solution is to seek the services of an accountant who is knowledgeable in tax laws concerning crypto and understands the exact forms to use.

Stolen Crypto

If you’ve been the victim of a crypto hack, you’re understandably upset and have little hope of recovering the lost currency. Unfortunately, the IRS views stolen crypto in the same way it does traditional dollars that have been stolen. Even though you can’t take a deduction for stolen crypto, its important to record it in your records so it’s not mistaken for a sale.

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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Are Grants Tax-Free?

A wide variety of grants are available for education, research, business, municipal, and even home projects. Whether the funds are taxable or not will depend on the type of grant received and the purpose for which its intended.

The funds may be distributed under the auspices of a grant, emergency relief funds, a stipend or a variety of other names. It can be a one-time payment or made through recurring payments. A grant can be in the form of cash, supplies or equipment.

Education

Grants and scholarships are not taxable, providing the money is used for study or research for a degree. The funds must be spent at an eligible educational institution.

Business

Grants for business purposes are taxed by the IRS as income, regardless of its source. Depending upon the state in which the business is located, owners may also be required to report grant funds as income on their state income tax returns. Some grants are only allowed to be used for very specific purposes.

Home

Programs are available for projects ranging from home repairs for low-income families to those for installing eco-friendly solutions that protect and preserve natural resources.

Reporting

A schedule C should be completed for grant money. The benefit of claiming it as income is that it will usually be taxed at no more than 30 to 40 percent on federal or state income tax returns. Even if a state says the grant is tax-free, it will still be subject to federal taxes, Social Security and Medicare taxes.

In some instances, recipients must prove what the grant was spent on or what was purchased. No matter how it’s distributed, the source, its intended purpose, or if it’s in the form of cash, equipment or supplies, recipients are better off financially if they report it as income. It will be considered revenue by the IRS.

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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Top Five IRS Audit Triggers

An IRS audit is one of the most dreaded events on the planet. It fills the heart with dread knowing the potential penalties for even an innocent misreporting or mistake. Each tax return is rated by a computer scoring system called the Discriminant Function System (DIF) System. It rates each return on the potential for change, compared with similar returns.

Income

Failure to report all income from W-2s and 1099s will trigger an audit. Employers must supply workers with a W-2 and they’re also required to provide a copy to the IRS. The same is true for independent contractors that receive a 1099. The IRS knows from employer records that an individual has received the income and failure to report it will result in an audit.

Earned Income Tax Credit

A surprising number of low-income earners are audited each year that claim the Earned Income Tax Credit (EITC). The program has a long history of fraud since taxpayers can receive money back when they claim it. The EITC is designed to help qualifying low- and moderate-income families reduce their tax liability and, in some instances, increase their refund.

Self-Employed

Independent contractors, sole proprietors, and those engaged in the gig economy are a collective group that are highly scrutinized and even the smallest anomaly will trigger the DIF System. It especially looks at income compared to business expenses that are claimed. Individuals are entitled by law to claim allowable work-related expenses, but should be sure they’re actually work related.

Hobby vs Business

The IRS has very clear rules about what qualifies as a hobby and what’s considered a legitimate business. Claiming a hobby as a business allows individuals to claim business expenses, but it doesn’t quality as a business according to the IRS if a net profit hasn’t been reported in the prior 5 years.

High Income

The more money an individual makes, the more loopholes there are in which to hide assets and income. Those with incomes of $1 million are more likely to be audited than other income brackets. If a business suddenly starts posting a significant amount of income or losses, the owners can expect to be audited.

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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