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Best Ways to Reduce Taxable Income

There are a number of ways that even the average taxpayer can utilize to reduce their taxable income, thereby mitigating their tax burden. Those methods are also available to lower income earners of less than $100,000 per year. The following are just a few of the ways that people can use to lower their taxable income.

Charitable Donations

Taxpayers will need to itemize deductions to take advantage of the credit if they contribute more than $300 in cash or goods. Those with cash donations of $300 or less can also claim the deduction.

Earned Income Credit

Even individuals that aren’t required to pay taxes may qualify for the earned income tax credit (EITC) worth a maximum of $6,660, providing they meet income limits and other criteria. It’s available for single people with no children and married couples with 3 or more children.

Education

Higher education costs can net individuals a $2,500 per person tax credit. Adults that return to school or training can receive a $2,000 credit per year.

Health Care

A flexible spending account (FSA) or health savings account (HSA) sets aside a portion of earnings for out-of-pocket health care expenses and the money is untaxable. FSA contributions are limited to $2,750 per year and HSA contributions are capped at $3,600 per individual.

Home Business

Anyone operating a business from their home can claim a deduction for a portion of their home used as their office, equipment and supplies. The deduction can also be beneficial for individuals that have a side-hustle or are working in the gig economy.’

Military

Active military and military reserve personnel can deduct moving costs associated with a change of duty station.

Mortgage Insurance

Premiums to private mortgage insurance companies can be deducted if deductions are itemized.

Retirement Savings

Employer-sponsored retirement plans such as 401(k) and 403(b) can contribute up to $19,500 and people over 50 can make catch-up contributions. The contributions are made before taxes and don’t count toward taxable income. An IRA serves the same purpose for those that are self-employed, though the contribution amounts are different.

Self-Employment

People that are self-employed can deduct 50 percent of the amount paid from income taxes to compensate them for paying the full amount for Social Security and Medicare taxes. Itemizing deductions isn’t required.

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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Best Tax Savings for Single People

There’s a wealth of deductions that couples and parents of children can take to lessen their tax burden. Single people aren’t typically so fortunate, but there are ways that singles can utilize to reduce their monetary burden at tax time.

Adjust Withholding

A large tax refund is a good indication that an individual is having too much withheld from their paycheck. The solution is to file a new W-4 form with their employer. By reducing withholdings individuals will receive more money in each of their paychecks.

Health Care

A health care flex plan diverts money from a paycheck into an account that an individual can use to pay medical bills. Neither income taxes or Social Security taxes need to be paid on the money. The maximum contribution each year to a health care health plan is $2,500.

Job Hunting

For singles that are looking for a new position in the same line of work, job hunting expenses can be deducted. That includes transportation, food, lodging and other associated costs, not to exceed 2 percent of adjusted gross income. Moving costs can be claimed if a new job is more than 50 miles farther from the individual’s home. If the individual is using their own vehicle, they can claim 56 cents per mile, along with tolls and parking fees.

Restricted Stock

Taxes on stock received as a fringe benefit can be paid at the time of the stock’s value rather than until the restrictions disappear. The benefit is that the tax rate could be far more after the stock vests.

Side Hustles

Individuals that are making extra money at home through a side hustle can deduct a percentage of the space as a home office. However, individuals that make more than $400 may be taxed at the increased level reserved for the self-employed.

Pandemic

For singles that have been sharing their home with a family member of friend during the pandemic, if they’ve been providing more than 50 percent of that person’s living expenses, they can claim them as a dependent. Many people didn’t receive one or more of the three stimulus payments that were distributed by the federal government. For others, the full amount wasn’t received. Anyone that experienced one of those situations can claim the amount as a tax credit.

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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Estimated Taxes for the Self-Employed

People that are self-employed typically pay a self-employment tax, income tax, and are required to file quarterly. Estimated taxes are similar to the Medicare and Social Security taxes that are withheld from a person’s paycheck. The goal for the self-employed is to subtract business expenses from business income to determine estimated taxes.

If expenses are less than income, the difference becomes net profit and part of the income. The reverse is also true. If expenses are more than income, the difference is the net loss. Net earnings of more than $400 requires the filing of self-employment taxes and the individual may also have to file an income tax return.

Since there’s no employer taking Medicare and Social Security taxes from a paycheck, those that are self-employed have to estimate their tax liability. Specialized forms and worksheets will be required and it’s at this point that most individuals hire a tax professional. They will know when the client needs to file and they have the advanced software needed for the complex computations. They can also e-file.

Business Structure

When an individual launches a business, they must decide what type of business structure the enterprise will follow to ensure they’re estimating the correct level of taxation. People most commonly establish a sole proprietorship, corporation, partnership or S corporation. They may also choose to operate as a limited liability company (LLC), which is a relatively new type of entity that most states deemed allowable in the 1990s.

Joint Venture

When spouses form a business venture, it’s considered a joint venture for tax purposes and the rules are slightly different. They have the option, if they’re the only employees, to elect to file taxes individually rather than as a partnership.

Penalties

Business owners will find that they’re charged a penalty if they don’t pay enough taxes through estimated tax payments if they receive other income. Those sources can include alimony, dividends and capital gains, and prizes and awards. It’s just one of the reasons why it’s easier and more efficient to hire a tax professional.

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 Advantages of an HSA

A Health Savings Account (HSA) is an often-overlooked strategy that has tax advantages. An HSA allows individuals to set aside money on a pre-tax basis to pay for qualifying medical expenses. The savings account can be used to pay for insurance copayments and other expenses that can save money on overall healthcare costs.

It’s important to remember that employer contributions will also figure toward those amounts. Individuals that contribute more than the allowable amount will incur a 6 percent tax. However, not everyone can take advantage of an HSA.

The HSA funds can be utilized at any time, but funds can only be contributed if individuals have a high deductible health plan – such as those available through the Health Insurance Marketplace. In 2022, individuals can contribute up to $3,650 and up to $7,300 for families. The funds also roll over from year to year if they’re not spent. HSAs have the potential to earn interest or other benefits that aren’t taxable.

Contributions

Contributions are tax free. They can be made through a pre-tax payroll deduction and isn’t counted as income so it can’t be taxed. Self-employed people can make pre-tax contributions and it won’t count as taxable income.

Interest

An HSA is a savings account and it will earn interest like any other savings account. The good news is that interest earned won’t be deemed as taxable income.

Withdrawals

Withdrawing funds to pay for allowable medical expenses can be done without penalty. An added bonus is that the HSA will perform like a traditional IRA once an individual turns 65 years old. Funds can then be withdrawn for any reason, not just for medical care and costs. However, individuals will be taxed on the money if they do. Anyone that’s enrolled in Medicare won’t be able to contribute to the HSA any longer. The good news is that any unused money that rolled over for all those years will still be there to pay for medical expenses tax free.

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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Does my Teen Need to File Taxes?

Filing income taxes can be difficult enough with the constant changes to IRS rules. The situation becomes significantly more difficult when a teen and their income are involved. You’ll need to have a variety of information at your fingertips. The IRS sets dollar amount limits and whether or not your teen will have to file a tax return will depend on their total income was from all sources.

Income Levels

Unlike adults, there’s more flexibility when a child is filing, but that can also make it more complicated. If your child has income above the level set by the IRS, he/she won’t need to file. However, when a child has both earned and unearned income, the two will have to be added together to determine their filing status.

Financial Support

You can claim your child if you provide more than 50 percent of their financial support, they live with you more than half the year, and they’re under the age of 19 during the entire year. You can claim them up to the age of 24 if they’re a full-time student, even if they live outside your home due to their education.

Wages and Salary

The type of income your child has will also affect their filing status. Dependent children that have earned income of more than $12,400 (as of 2020) through wages and salaries must file. They may also owe income taxes. A child’s standard deduction can’t exceed the larger of $1,100 or their earned income plus $350. The maximum is $12,400.

Investment Income

A child’s investment income is treated differently. It’s considered unearned income when acquired through dividend or interest payments, for example. If all the child’s money was unearned income, you can include it on your return and combine it with your income. However, doing so has the potential of elevating you to a higher tax bracket.

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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Side Hustle Taxes

Over 55 million people are engaged in side hustles. Commonly known as the gig economy in today’s vernacular, people are turning to work they can do on their own terms to earn extra cash in addition to their regular jobs. Side hustles run the gamut from making handcrafts and freelance writing to dog walking and driving for ride-share companies.

The activities can generate significant funds to help people get out of debt, finance college, or save for retirement. It allows individuals to follow their passion, provides a measure of financial freedom, and allows for extreme flexibility on the part of the individual. What most people don’t realize is that they’ll also be responsible for paying taxes on their side hustle.

However, the IRS has an entirely different set of rules for people in the gig economy. If an individual makes more than $600 in a calendar year, they’ll have to report the money as earnings on their tax returns. The IRS then classifies individuals as self-employed and subject to a 15.3 percent self-employment tax.

To offset that, individuals will need to take every deduction possible and make sure they have enough money in savings to pay the taxes the IRS will impose. Failing to plan ahead will leave side hustlers with a large tax bill they may be ill-equipped to pay, which can set an entirely new set of problems in motion.

The first thing that side hustlers learn is to save every receipt. Individuals working from home can claim a portion of their home as office space. Expenses for driving to trade shows, assignments, and even internet services can be deducted, along with laptops, software and similar expenses for conducting the side job.

Performing work for others via online platforms is one of the most popular ways that people are engaging in side hustles. It’s important to know that these gig platforms typically don’t issue a form 1099 for taxes at all, and some only do if a certain income level is reached. Individuals will need to learn how to keep accurate records of expenses and income on their own.

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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How To Use Accounting Software To Organize Your Tax Records

Keeping track of your tax records does not need to mean an overflowing file cabinet. Plenty of free online resources will help keep even the most chaotic offline tax records well organized. Finding out which records should be kept and where is just half the battle. Storing them properly takes discipline, without which you will be left with an over-loaded shoebox full of receipts.

There are many different ways that you can store and organize your records; some work better than others for different people. In the case of individual tax returns, it is easier to use accounting software to manage the accounting side of things; you simply record when you make a purchase, when you make a payment or write in a check. It would be much more time consuming, however, if you want to organize your receipts and other documents.

One of the first steps in keeping up with your records is to have a system in place for storing all of the receipts that come into your business. If you are using a single computer for all of your document filing and accounting needs, then you can easily install and use one of the free accounting software programs available online. You can then print out each receipt and store it in your receipt folder. If you have more than one location for your receipt and bookkeeping needs, you can use labels or tags to organize the documents as you see fit.

If you use accounting software to organize your tax records, you may also want to purchase a receipt scanner. With this tool, you can scan every receipt that comes into your office. These scanners are usually used by accountants and other individuals who have a lot of paperwork to process. There are even models available that can be mounted on the wall so you can scan everything that comes into your office. There are even some models available that will allow you to print out everything that is scanned. The benefit of using these products is that you will be able to save money by eliminating the cost of purchasing ink and paper.

In addition to using an accounting software product to organize tax records, you can also take advantage of available online resources. One of the best options available is the ability to use an online filing program. These types of programs will allow you to electronically file your income tax documents so that you can avoid the extra time and money spent filing by hand. When you file electronically, you can usually do it from any location with an Internet connection. This will allow you to access your files from any computer with an Internet connection. This option is often times very helpful if you have a home office because you can easily conduct your tax records there.

The tax records that you maintain should be organized so that you can easily retrieve them when you need them. There are a variety of ways that you can organize these documents. If you want to save time while filing your tax returns, consider buying an accounting software product that will help you organize your tax records. If you are unsure about how to organize your tax records, then you can hire a certified public accountant to help you. There are many advantages to keeping your tax records in order and using a tax software product that helps you organize your information.

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 Liability – A Simple Tax Strategy

Knowing how to minimize your tax liabilities can help you avoid having to pay too much in taxes or using up too much of the tax season. Ways to minimize tax liabilities for your business include: Using an accountant or CPA. A certified public accountant will help you create a comprehensive year-end tax strategy, which can be used to reduce both your taxable income and your taxes. Accountants will also help you with tax-deductible expenses such as those related to buying equipment, selling assets, or increasing your tax deductible business expenses.

Create a Budget for Tax Liabilities Your budget should include a list of all your income, expenses, and assets. Divide income into your tax liability category in order of highest to lowest. Include your total annual expenses, including mortgage, insurance premiums, and property taxes. Add your investment earnings and include the total amount you pay to rent, repair or improve the house, and any other miscellaneous expenses. Do not include retirement contributions and interest income on retirement accounts or pensions.

Maximize your deductions When you are trying to minimize your tax bill, consider being audited by the government. Audits are designed to identify areas where business owners can make improvements to their business in order to minimize their tax liability. Some auditors will suggest that business owners meet with them before the audit to discuss their income taxes and assets.

Be sure to calculate a tax-free allowance If you don’t have enough taxable income to meet the asset limitation on your return, you may want to calculate a tax-free allowance. The tax-free allowance is the maximum amount of money that you can claim on your tax return for each taxable income class. For most people, the tax-free allowance is around 50% of their income. It is possible to increase this allowance over time, especially if you meet the eligibility requirements.

Estimate taxes payable annually One way to minimize your tax liabilities is to make an educated guess at how much you will owe. This method, though imperfect, will provide a ballpark figure for you. Many tax professionals will encourage you to make an annual estimate of taxes payable. Estimations are available from different sources such as the Internal Revenue Service, the Social Security Administration, and your own payroll processor. If you don’t have access to these sources of information, there are many websites that offer free tax planning advice and tools.

All these steps will help you reduce your tax liability. Be prepared when tax season comes and do your homework. Educate yourself about income tax liabilities and strategies that could reduce your tax liability. You can always adjust your estimated tax liability for the current year when tax season arrives.

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 Laws for Real Estate and Inheritance Taxes

Estate taxes can be very burdensome and can result in undue stress on a family. A family faced with the prospect of having to pay estate taxes will have a greater risk of losing assets than they would have had they been aware of the laws in the state in which they lived. This situation is even more common where the deceased was a member of a large family. Estate taxes can often result in a family being forced to split assets amongst themselves, resulting in further financial hardships for the family.

Taxes are levied on many types of assets throughout the world, but estate taxes are unique because they are levied directly upon the beneficiaries of that asset. An estate tax is basically a tax paid on an inherited property or cash by an individual who receives money or other assets from someone who has passed away, whilst an estate tax merely is an annual tax on the entire value of an inherited asset, regardless of whether it is paid or not during the lifetime of the person claiming it. There are exceptions to these two types of taxes, but the majority of people will at least have to face them throughout their lifetimes.

The bulk of what can be termed as estate taxes are levied on people who inherit wealth or inherit property within their estate. Many times, there is no way to ensure that the assets have been properly titled (cashed in) so that the tax that is due cannot be levied on them, although in cases where this is the case, the heirs can claim exemptions against the amount of the tax owed on their inheritances.

Estate taxes are collected from the proceeds of the distribution of the estate, which can consist of any part of the assets of the deceased person that were not immediately consumed during the course of the decedent’s life. Commonly, the proceeds of the estate are levied as a gift tax, and this gift tax generally applies to the executor or administrator of the estate, even if they are not the claimant of the inheritance. While there is no way that one can avoid the gift tax, it is possible to reduce the size of the proceeds that are subject to this particular tax. These methods include making sure that there is an adequate Trustee, if there is more than one executor; paying the gift tax over a period of time rather than all at once; and setting up the trust to make payments directly to the IRS rather than a trustee.

Estate taxes are a necessary evil and are levied in order to pay the expenses that are incurred during the administration of an estate. Unfortunately, many people don’t realize that they are responsible for these taxes, and often feel that the estate is simply an investment opportunity that has been passed down to them without any obligation whatsoever. The reality is that if the proper steps aren’t taken to ensure that taxes are paid in a timely fashion then the estate can become subject to heavy penalty fines and legal action by the government. One of the most common strategies estate planners to use when working with clients that owe inheritance taxes is to seek out someone who is experienced in financial law and tax law in general. This individual will be able to advise and assist the client in the entire process of settling their tax obligations, from the collection of the assets to the disposition and distribution of those assets.

It is very important that individuals that are liable for inheritance taxes properly learn about the laws regarding these types of taxes, and that they take every step necessary to minimize their impact on their heirs as much as possible. It is also very important for everyone to remember that if the IRS goes after you for inheritance taxes, they have the right to take your money immediately – even if you have already gone through the process of legally establishing the estate and transferring assets. This can be extremely frightening for many families and individuals who are responsible for huge sums of money that could be rightfully heading to your heirs. If you’re afraid of the IRS going after your assets, you need to learn everything you can about estate taxes so that you can properly protect yourself.

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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Why Hire a CPA For Your Taxes?

What is the reason to hire a CPA to handle your business taxes? CPA’s are highly experienced accountants who have gained valuable experience in the business world.  It is a very valuable tool for business owners to hire a CPA because a Certified Public Accountant (CPA) can negotiate with the IRS on your behalf to get you better tax benefits.

Hiring a CPA can save you money and hassle. A Certified Public Accountant (CPA) is trained and experienced in all aspects of small business accounting and tax laws. The Certified Public Accountant (CPA) is the person most qualified to interpret the complicated IRS instructions and other federal and state tax laws. They will be able to properly prepare your tax returns and advise you on the best option for taking advantage of every tax deduction available to you.

Small business owners can hire a CPA to handle their taxes due in April, July and October. Most accountants are already familiar with the complex procedures required to file an income tax return with the IRS. The IRS also requires small businesses to retain an accountant to manage their accounting and bookkeeping. Even if you do not currently use the CPA for your accounting needs it is still a wise decision to hire one to file your taxes for you.

One of the many benefits to business owners who fail to hire a CPA is the potential financial backlash from paying incorrect taxes. In 2021 the Internal Revenue Service audited more than 500 business owners for tax liability. The majority of these tax liability audits resulted in the taxpayer owing a penalty or interest amount. The majority of business owners were not even aware they had incurred taxes.

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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