Smart Things to do with your Tax Refund

It can be extremely tempting to use your tax refund to reward yourself with a mini-vacation or buy something you’ve been wanting. Unfortunately, when the money is spent it’s gone for good and you’ll still be looking at the same debts as before while trying to make ends meet. The following is a list of the smartest things that anyone can do with their tax refund.

Debt

Pay off any credit card debt if possible or a significant portion of it. Depending upon your individual circumstances, you may choose instead to pay down student loan debt.

Education

Consider an educational fund for your children. Costs continue to increase and an education fund will lessen the student loan burden when they seek a degree. You may want to take advantage of continuing education for yourself and the fund may even be tax deductible.

Emergencies

A major car repair, medical expense, or job loss can happen at any time. An emergency fund will help meet those challenges without breaking into the rent money.

Home Improvements

There are dozens of home improvement projects that are necessary, but it may be difficult to handle the cost all at once. A new roof, more efficient air conditioning, or a bathroom or kitchen update is a good investment, especially if you’re thinking of selling your home.

Life Insurance

A life insurance policy is one of the most overlooked precautions for families. A term policy can provide for final expenses and pay off debt upon your death.

Mortgages

Make extra payments on your mortgage. More of your monthly payments will begin going toward the principal instead of interest.

Retirement

The time for retirement will arrive sooner than you think and you need to be prepared. Consider putting your tax refund into a traditional or Roth IRA where it will stay safely tucked away when you’re no longer working.

Savings

Establishing a separate savings account from your primary savings and checking will keep the money out of sight and out of mind. You won’t be tempted to spend it on impulse buys.

Start a Business

If you’ve ever dreamed of being an entrepreneur with your own business, a tax refund can help you realize that goal. The best part is that you don’t have to quit your regular job while you’re building your brand.

Tax Saving Tips for Millennials

Many Millennials are struggling when it comes to their taxes. They don’t have access to the wide variety of tax deductions that their parents have been claiming for years. They’re at a unique point in their life where they’ve just graduated, started a new job, or are just struggling with day-to-day expenses. The following are some tax tips specifically for Millennials.

Filing Fees

Anyone that makes less than $64,000 per year is eligible to file for free. The IRS website can lead filers to companies and organizations that provide the online software to complete their federal and/or state taxes and for e-filing.

Education

Students and graduates should write off every possible educational deduction, including a tuition and fees deduction. It could result in a deduction of up to $4,000. To do so, Millennials will need to save every receipt that may apply. Young taxpayers can also claim their student loan interest up to $2,500.

Another deduction is Lifetime Learning Credits. The deduction can be taken for continuing education even after graduation and has the benefit of making individuals more attractive to employers.

Healthcare

A Health Savings Account (HSA) is a fund to which a taxpayer can contribute on behalf of their medical expenses. Up to $6,150 can be deposited each year and it’s all tax-free money that can be used toward any medical expense.

Retirement

Millennials should start saving for retirement as soon as possible. A Roth IRA, for example, allows individuals to take money from the original principal without penalties if needed while continuing to yield monetary results.

Working

Expenses associated with moving to start a new job may be deductible as a work-related expense if the relocation is at least 50 miles. For Millennials that may be working from home, a portion of their living space may qualify as a home office and be eligible for the home office deduction.

Amazon, eBay, and Etsy are all great ways to make extra cash and those avenues may qualify as a home business. Some individuals that are working in positions in which they can offer consulting services can change their filer status from employee to entrepreneur, which opens up new savings possibilities when filing.

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Tax Preparation
posted by Mark Battalini
June 29, 2020

Reduce Your Chance for a Tax Audit

Everyone fears the dreaded tax audit – and with good reason. It means that the algorithm scoring formula used by the Internal Revenue Service (IRS) has found what it deems to be an irregularity on your tax return. Few audits turn out well for the individual or small business being questioned and the following are just a few of the ways that people can help mitigate the chance of being audited.

Hire a Professional

Nothing can compare to the personalized service and expertise available with a tax professional. It’s tempting to use online tax software. It’s easy and convenient, but the software may not be able to account for special circumstances and you may be leaving money on the table that could go in your pocket. Hire a professional if your tax return is complicated or complex in any way.

File on Time

Seeking an extension or filing an amended return can activate you for review by IRS systems, particularly for high-end earners. The same is true for those that file paper returns. It’s always best to e-file and makes sure they’re filed before the deadline.

Documentation

When dealing with the IRS, documentation is everything. If there’s a chance that the IRS may not understand expenses you’ve claimed or deductions, the onus will be on you to provide documentation to prove your right to make the claims. A professional tax preparer will know what documentation you’ll need.

Deductions

Another instance that will red-flag your tax return is the deduction-to-income-ratio. Deduction amounts that are unusually high compared to stated income may be a symptom of claiming the same deductions twice in the eyes of the IRS. Stay away from dubious deductions.

Exemptions

A high number of exemptions and dependents will bring unwarranted attention from the IRS. There are specific rules about what dependents are eligible for you to claim. For example, in some instances, a dependent may be required to file their own return, which means you can’t claim them.

Compliance

Remaining in compliance with your responsibilities in regard to withholding taxes, filing status, deductions, and exemptions will significantly reduce the potential for a tax audit. If you do get audited, having a professional file your tax return will ensure you have knowledgeable backup should you need it.

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Accounting
posted by Mark Battalini
June 28, 2020

Great Ways to Keep Track of your Finances

In today’s busy world, it can be difficult to monitor and manage your financial health. Keeping track of your finances involves more than simply knowing how much is in your account or making sure you pay the rent or mortgage on time. There are a number of ways that anyone can utilize to better manage their money that includes the following, in no particular order.

Accurate Budgeting

A budget doesn’t mean you can’t spend for fun. It does mean that you need to account for the must-pay expenses first, such as rent, car payments, utilities, groceries, and insurance premiums. The remainder will provide information on major expenditures ad areas where you might save.

The Little Things

Small expenses are the bane of a budget. They nibble away at money that you could be saving and they account for a significant amount of money each day. Some of those small expenses include eating lunch out, whether it’s by yourself or with co-workers, or designer coffees and juices. Start saving receipts from each purchase and total them up at the end of the month or use a debit card for each purchase so you can go back and identify each one on your bank statement.

Savings

Everyone should have a savings goal whether it’s for a major purchase or for retirement purposes. If your budget doesn’t have a category for savings, create one. It can be any amount you want, but financial advisers recommend a set percentage of your income. Don’t be tempted to draw upon your savings. If you have extra money at the end of the month, shift it to your savings.

Software

There are dozens of software programs that will help you budget your money, track expenditures, and even send you alerts via mobile device so it’s easy to manage your money on the go with today’s busy lifestyles.

How an Accounting Firm can Help Your Small Business

Small business owners have more than their share of tax-related items to consider and an accounting firm can help in a number of ways. It can provide bookkeeping services, tax consulting and return preparation, payroll processing, cash flow estimations, and even litigation support if needed.

As a business owner, you may need to make difficult decisions based on your own unique circumstances and the industry you’re in, along with current and future economic trends. You never know when an emergency will occur or what type – as evidenced by the COVID-19 pandemic. An accounting firm that’s adaptable and can act quickly in your best interests is worth its weight in gold.

Accounting firms can help you achieve greater success and business health through insights and experience gained over many years, combined with an in-depth knowledge of financial matters. An accounting firm has the ability to provide precise and highly-detailed reports about all areas of your financial health. It can also identify opportunities for growth of which you may not be aware.

Hiring an accounting firm provides the means to maintain financial stability. You’ll know at every juncture what your cash flow is for consistent and reliable growth. You’ll know the number of staff to hire, when not to take on new challenges, and be able to serve your clients in the best way possible.

An accounting firm also provides you with the means to market your business more efficiently and effectively for the acquisition of new clients. Knowing the financial health of the business will enable you to launch marketing campaigns at the most opportune time.

Greater efficiency is another way that an accounting firm can help your small business prosper. They provide you with highly accurate financial information so you’ll know the best time to expand or make other investments that can make the enterprise more efficient and profitable. An accounting firm helps you get all aspects of your business finances under control and in order.

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Tax
posted by Mark Battalini
June 27, 2020

Common Practices to Reduce Your Tax Liability

At tax time, everyone is looking for ways to reduce their tax liability and keep more of their hard-earned income. It’s possible to reduce your liability without having your return red-flagged by the IRS. The following are just some of the common ways to do so.

Business Expenses

If you own a small business, always hire a professional to do your taxes. There are a variety of deductions you may be eligible to take, but may not take advantage of for fear of triggering an audit. A professional tax preparer will be cognizant of the types of expenses that you can claim and the documentation you’ll need.

Charity

Charitable donations can be written off if they exceed your standard deduction and you itemize your taxes. You’ll need receipts to prove the contribution and they should be realistic.

College

You can contribute to a 529 account for yourself or grandchildren, nieces and nephews. You can’t deduct a 529 on federal taxes, but it can provide savings on state tax returns, depending upon the state in which you live. You can also deduct $2,000 in educational expenses through the Lifetime Learning Credit, even if you aren’t working toward a degree and your income isn’t too high.

Health Insurance

The federal government will no longer penalize you financially for not having insurance, but many states have initiated their own fines in the form of a tax for not having a qualifying healthcare plan. The rules vary on what a qualifying health plan means, so it’s best to consult with a professional and get covered.

Retirement Funds

Contribute as much as you can to an IRA or 401k account. You can contribute $6,000 to an IRA or $19,000 to a 401k. Additional amounts can be contributed if you’re over 50.

Automobile Tax Expenses

The powers that be have historically written sections into the tax code promoting business activities. One of the traditional write-offs has always been the expenses associated with using a vehicle for business purposes.

The simplest automobile tax expense situation is one in which a vehicle is used entirely for business. For example, if you have a van used for a delivery service and nothing personal, all expenses associated with the van can be written off. This is known as the exclusive use situation. For many small businesses, however, a vehicle will be used for both personal and business reasons.

Where you use a vehicle for both personal and business reasons, you can only deduct the automobile expenses associated with the business use. Keep in mind that driving to and from work is not considered business mileage while driving from an office to meet a client is considered business mileage.

There are two methods for determining deductible automobile tax expenses. The first is a simple calculation known as the standard mileage deduction. The second is the actual expenses method. You can choose whichever deduction provides you with the biggest deduction unless you lease the car. With a lease, you must use the standard mileage deduction.

The standard mileage rate deduction is a calculation wherein you multiply your total business mileage for the year by a figure provided by the IRS. For the first eight months of 2005, the figure provided by the IRS is 40.5 cents per mile. For the last four months of 2005, the figure has been bumped up to 48.5 cents to reflect high gas prices.

The actual cost expense option is exactly what it sounds like. It is the actual cost associated with using the vehicle for tax purposes for a particular tax year. Automobile tax expenses will include gas, tires, repairs, oil changes, registration costs, licensing, insurance and so on. In many cases, the actual expense deduction will end up being larger than the standard mileage deduction.

Regardless of the method you choose, you must document the automobile tax expenses. This means keeping a mileage book and receipts of anything you intend to deduct.

What is a Sole Proprietorship?

A sole proprietorship is the business or an individual who has decided not to carry his business as a separate legal entity, such as a corporation, partnership, or limited liability company. This kind of business is not a separate entity. Any time a person regularly provides services for a fee, sells things at a flea market or engage in any business activity whose primary purpose is to make a profit, that person is a sole proprietor. If they carry on business activity to make profit or income, the IRS requires that you file a separate Schedule C “Profit or Loss From a Business” with your annual individual income tax return. Schedule C summarizes your income and expenses from your sole proprietorship business.

As the sold proprietor of a business, you have unlimited liability, meaning that if your business can’t pay all its liabilities, the creditors to whom your business owes money can come after your personal assets. Many part-time entrepreneurs may not know this, but it’s an enormous financial risk. If they are sued or can’t pay their bills, they are personally liable for the business’s liabilities.

A sole proprietorship has no other owners to prepare financial statements for, but the proprietor should still prepare these statements to know how his business is doing. Banks usually require financial statements from sole proprietors who apply for loans. A partnership needs to maintain a separate capital or ownership account for each partner. The total profit of the firm is allocated into these capital accounts, as spelled out in the partnership agreement. Although sole proprietors don’t have separate invested capital from retained earnings like corporations do, they still need to keep these two separate accounts for owners’ equity – not only to track the business, but for the benefit of any future buyers of the business.

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Accounting
posted by Mark Battalini
May 22, 2020

What are Auditors?

Accountants and auditors help to ensure that the Nation’s firms are run efficiently, its public records kept accurately, and its taxes paid properly and on time. They perform these vital functions by offering an increasingly wide array of business and accounting services, including public, management, and government accounting, as well as internal auditing, to their clients. Beyond carrying out the fundamental tasks of the occupation-preparing, analyzing, and verifying financial documents in order to provide information to clients-many accountants now are required to possess a wide range of knowledge and skills. Accountants and auditors are broadening the services they offer to include budget analysis, financial and investment planning, information technology consulting, and limited legal services.

Specific job duties vary widely among the four major fields of accounting: public, management, and government accounting and internal auditing.

Internal auditors verify the accuracy of their organization’s internal records and check for mismanagement, waste, or fraud. Internal auditing is an increasingly important area of accounting and auditing. Internal auditors examine and evaluate their firms’ financial and information systems, management procedures, and internal controls to ensure that records are accurate and controls are adequate to protect against fraud and waste. They also review company operations, evaluating their efficiency, effectiveness, and compliance with corporate policies and procedures, laws, and government regulations. There are many types of highly specialized auditors, such as electronic data-processing, environmental, engineering, legal, insurance premium, bank, and health care auditors. As computer systems make information timelier, internal auditors help managers to base their decisions on actual data, rather than personal observation. Internal auditors also may recommend controls for their organization’s computer system, to ensure the reliability of the system and the integrity of the data.

Government accountants and auditors work in the public sector, maintaining and examining the records of government agencies and auditing private businesses and individuals whose activities are subject to government regulations or taxation. Accountants employed by Federal, State, and local governments guarantee that revenues are received and expenditures are made in accordance with laws and regulations. Those employed by the Federal Government may work as Internal Revenue Service agents or in financial management, financial institution examination, or budget analysis and administration.

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Accounting
posted by Mark Battalini
May 21, 2020

How to Analyze a Financial Statement

Its obvious financial statements have a lot of numbers in them and at first glance, it can seem unwieldy to read and understand. One way to interpret a financial report is to compute ratios, which means, divide a particular number in the financial report by another. Financial statement ratios are also useful because they enable the reader to compare a business’s current performance with its past performance or with another business’s performance, regardless of whether sales revenue or net income was bigger or smaller for the other years or the other business. In order words, using ratios can cancel out differences in company sizes.

There aren’t many ratios in financial reports. Publicly owned businesses are required to report just one ratio (earnings per share, or EPS) and privately-owned businesses generally don’t report any ratios. Generally accepted accounting principles (GAAP) don’t require that any ratios be reported, except EPS for publicly owned companies.

Ratios don’t provide definitive answers, however. They’re useful indicators but aren’t the only factor in gauging the profitability and effectiveness of a company.

One ratio that’s a useful indicator of a company’s profitability is the gross margin ratio. This is the gross margin divided by the sales revenue. Businesses don’t disclose margin information in their external financial reports. This information is considered to be proprietary in nature and is kept confidential to shield it from competitors.

The profit ratio is very important in analyzing the bottom-line of a company. It indicates how much net income was earned on each $100 of sales revenue. A profit ratio of 5 to 10 percent is common in most industries, although some highly price-competitive industries, such as retailers or grocery stores will show profit ratios of only 1 to 2 percent.

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Posts by Mark Battalini

Smart Things to do with your Tax Refund

Debt

Education

Emergencies

Home Improvements

Life Insurance

Mortgages

Retirement

Savings

Start a Business

Tax Saving Tips for Millennials

Filing Fees

Education

Healthcare

Retirement

Working

Reduce Your Chance for a Tax Audit

Hire a Professional

File on Time

Documentation

Deductions

Exemptions

Compliance

Great Ways to Keep Track of your Finances

Accurate Budgeting

The Little Things

Savings

Software

How an Accounting Firm can Help Your Small Business

Common Practices to Reduce Your Tax Liability

Business Expenses

Charity

College

Health Insurance

Retirement Funds

Automobile Tax Expenses

What is a Sole Proprietorship?

What are Auditors?

How to Analyze a Financial Statement