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First Steps to Take When Audited by the IRS

The IRS is one of the few governmental agencies that has the ability to make people freeze in terror – and for good reason. The IRS has the authority to garnish wages, levy fines, take money from your bank accounts, and confiscate your car, home and other personal property. When the IRS notifies you of an audit, there are specific steps to take.

Don’t Panic

Difficult as it may be, you need to remain calm if you’re to discover the extent and reason for the audit. It may be the result of an innocent mistake and easily rectified. The IRS notification will explain why you’re being audited.

It may not even be the result of an actual error. The IRS uses computer technology that screens and selects returns to be audited. They’re often chosen based on a statistical formula against what the IRS considers the “norm.”

People with incomes of 25,000 or less and those making $500,000 or more are the most likely to be audited. If the company you work for is audited, you might be, too.

The Process

Most IRS audits are conducted via mail and there’s no need to sit face-to-face with an auditor. However, if you receive a notice that you’re being audited, providing a timely response is critical. You should know that the IRS has up to three years in which it can start and conclude the audit process from one of your tax returns.

Hire a Professional

It’s an excellent idea to hire a tax professional that’s legally able to represent you in an audit. Collect all the documentation that you used to complete your return in the year for which you’re being audited. The more information you can provide to the tax professional, the better he/she can advocate for your interests.

Findings

You should know that if the auditor finds you at fault, you have the right to appeal within 30 days. The IRS will send a letter indicating the audit is closed, at which time you can appeal. Unfortunately, many people only see the decision rendered in the letter, not their ability to dispute the findings. You must appeal within 30 days of receiving the letter.

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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Managing Taxes in Retirement

Retirement is a critical time in an individual’s life in financial terms. A retiree’s ability to live as they want will depend on their investments, the age they retire, and the lifestyle they want to maintain. It’s beneficial to consult with an accountant to take advantage of all the ways to save.

Diversification

Diversity in investments can help people manage their tax burden. Not all income is taxed the same. Some sources are taxed as long-term capital gains that don’t add to the yearly tax responsibility.

The 15 Percent

The 15 percent tax bracket is ideal for retirees. It’s possible for couples to make up to $100,000 after taking the standard deduction and still remain within the 15 percent bracket. They’ll receive zero tax on income sources as long as they qualify as long-term capital gains.

Roth IRA

This is one of the few resources that individuals can draw funds from that won’t add to taxable income, as it doesn’t involve pre-tax money. Traditional IRAs can be converted to a Roth IRA, though individuals will be taxed on the amount in the year that the IRA is converted.

Delay Withdrawals

Individuals may be able to draw on their retirement resources, but it’s best not to if they’re still working. After the age of 70, there’s no reason to delay withdrawing from retirement accounts. The SECURE Act resulted in changes to the Required Minimum Distribution. Waiting until age 72 to take the first distribution will result in paying a higher tax rate.

Social Security

Individuals may discover that up to 85 percent of their Social Security benefits are taxable, depending on the amount of money a person has from other resources.

No Tax States

Some retirees choose to relocate to states such as Florida and it’s not all about the climate. There are currently 39 states that provide tax exemptions on interest, dividends, pensions and/or Social Security benefits. Some don’t even charge state income tax.

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’s Typically Included in Accounting Services

An accounting service provides a variety of services that are an integral part of operating a financially solvent business and maintaining compliance. It’s essential that Individuals speak with several firms before choosing one to ensure that it will be able to meet business needs.

Some accounting firms offer a comprehensive range of services, while others specialize in one or more areas. Business owners may have requirements beyond bookkeeping, payroll and tax filing. It’s critical that the accounting service provide the services unique to a particular business operation.

Bookkeeping and Payroll

Owning a business doesn’t automatically mean that the owner is good with the financial responsibilities of operating an enterprise. Accounting firms can process payroll, issue checks, and provide the appropriate forms for onboarding new employees. The firms help business owners monitor cash flow and may offer services for accounts payable, receivable and past due.

Taxes

An accounting service will provide advice and assistance in planning for tax time, prepare the necessary documents, and file federal and state taxes. The firm can also represent a client in IRS audits and reviews. Accounting services work closely with clients to identify beneficial strategies and business structuring to take advantage of tax laws. Services ensure that clients are in compliance with state and federal regulatory and tax laws.

Valuation and Financing

Businesses want to grow and that may include obtaining a loan to purchase new equipment or expand a facility. It can also encompass mergers and business buyouts. An accounting firm can provide the documentation to prove the company’s valuation, worth and growth for banks or investors.

Estate Planning

Businesses have needs for estate planning that are unique An accounting firm is adept at identifying those needs. The firm will work with an attorney skilled in estate planning to establish a family trust or business ownership transfer.

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 Find a Copy of a Lost W-2

A W-2 is essential for filing taxes, but in the frenzy to collect all the necessary documentation needed to file each year, the form can easily become lost. It’s not uncommon for the forms to get lost in the mail. It’s a very good reason why individuals should have a filing system and not wait until the last minute to file their federal tax return.

Contact the Employer

If the employer has already mailed a W-2 to an employee, the individual can contact their employer, human resources, or the person in charge of payroll to get a duplicate. It’s typically the easiest and fastest way to obtain a duplicate copy. The form may be mailed, but a copy may be able to be immediately supplied.

Online Access

In some instances, employers utilize systems that will allow an individual to access their own information, see their W-2 online, and download a duplicate copy. Employees may be required to contact their employer or the payroll service to get access. If all attempts to obtain a duplicate W-2 from an employer has failed to produce results, it’s time to contact the IRS.

IRS Website

Businesses must also file tax returns. That includes information about employees and their earnings. If the employer has already provided that information to the IRS, individuals may be able to obtain a transcript of the data. Individuals will need to visit the official IRS website, click on “Get Your Tax Record,” and complete the required IRS form online.

Be prepared to answer questions. In addition to the individual’s contact information and employment dates, they’ll have to provide an estimate of their wages and taxes withheld. Employer contact information will also be required.

Alternative Form

Individuals will still be required to file their federal income taxes on time and pay any amount they owe. The IRS has a “Substitute for Form W-2 Wage and Tax Statement” that can be filed. If a W-2 is received after the person has already filed their taxes and the information is different, an emended tax return must be filed.

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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When Teens Need to File Their Own Tax Returns

Teens work a variety of jobs for extra money, they may be employed in the family business, or have unearned income from interest or dividends. In 2022, any child that earned $1,150 or more in unearned income is required to file a return. Tax laws surrounding teens, their income, and the type of income are complex. If in doubt, it’s best to hire a tax professional.

Earned Income

Anyone earning $12,550 or more is required to file a federal tax return and that includes teens. A minor that earns $400 or more in wages or tips working full- or part-time must file a tax return. Even if the teen isn’t required to file a return, it’s a good idea to do so if the employer withheld federal income tax from earnings.

Dependents

However, there are some important elements attached to the question of teen tax returns. It will depend on if the teen is 19 or younger, age 24 and a student, or permanently disabled. Another consideration is if the parent provided 50 percent or more of their support and how many months of the year the teen lived with their parent. If any of those situations apply, the teen may still qualify as a dependent.

Unearned Income

A teen that qualifies as a dependent and has unearned income of more than $1,100 must file a return. However, if the teen only had unearned income, parents may be able to include that income on their own tax return. The disadvantage is that it might propel parents into a higher tax bracket.

Earned & Unearned

Teens that have both earned and unearned income, will need to file their own return if they have more than $1,100 of unearned income, over $12,550 in earned income, or if the combined total is the larger of $1,100 or earned income of up to $12,200 plus $350.

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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3 Questions to Ask a Potential Tax Accountant

The tax code is highly complex. There are ways in which individuals can reduce their tax burden, many of which they’re unaware. Anyone can save themselves a significant amount of time, money and stress by hiring a tax accountant.

However, the tax professionals provide far more than assistance at tax time. Tax accountants help clients attain their financial goals, recommend tax strategies, and ensure taxes are filed accurately and on time. More than 74 million individuals and business owners received assistance from a tax professional in 2020. There are 3 essential questions to ask when hiring a tax accountant.

Self-Employment Taxes

Many individuals are operating side hustles and working in the gig economy without realizing that the IRS considers that self-employment. That makes earnings subject to additional taxes. Individuals should ask their tax accountant if they’re paying self-employment taxes and if there’s any way to reduce the amount.

Self-employment taxes include Social Security and Medicare, along with state and federal taxes on income. There are ways to reduce the tax burden and a tax accountant will know how to accomplish that.

Payroll

Business owners need to ask their tax accountant about placing themselves on the company’s payroll in the future. There’s a tax deduction that can be taken by doing so. Not all business entities are able to do this and a tax accountant will know if the client qualifies. For those that do qualify, it’s viewed as a distribution for IRS purposes and owners will be taxed as an employee.

Estimated Taxes

Many small business owners encounter problems during their first years of operation because they don’t budget for their taxes or fail to make estimated tax payments. A tax accountant will be able to provide sound advice and guidance on whether individuals should be making estimated tax payments.

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 Professionals Can Help with an IRS Appeal

Everyone makes mistakes and that’s even true of the IRS. According to the IRS, more than 650,000 audits were performed in 2021. The IRS relies on a specialized computer program that screens tax returns for accuracy. Those selected for an audit are based on statistical “norms.” Even the smallest of mistakes can result in an audit. Individuals can appeal an IRS decision and a tax professional can help.

The IRS will send a letter indicating there was a problem with the tax return. Read it carefully. Individuals typically experience shock and fear when they receive a letter from the IRS. Don’t panic. Certified public accountants (CPAs), attorneys and enrolled agents can represent an individual during an audit.

Those tax professionals are cognizant of the audit process and can assist in minimizing penalties. Even if individuals prepared their taxes through one of the online companies that offer the service, they can hire a tax professional to represent them in an appeal.

The tax professional will understand the scope of the original audit and under what circumstances taxpayers can request an appeal if they disagree with the decision of the IRS. They’ll also know the proper steps to take, how to request an appeal, and where the request should be sent.

The IRS has very specific rules governing appeals. A written protest is required and must be filed within a predetermined timeframe. It’s easy for individuals to miss a step or respond to the wrong department within the agency without the guidance of a tax professional.

It’s easy to inadvertently become the target of an IRS audit. Appealing the agency’s decision is a complex procedure that individuals should never try to handle on their own. Hire a tax professional with the knowledge and experience to save clients time, money, stress, and ensure the appeal is addressed in a timely and appropriate manner.

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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Businesses Should Prepare for Tax Season Now

For those that own a business or are considered self-employed by the IRS – begin preparing for tax season now. There’s a mountain of documentation to collect. Waiting until the last minute can result in fines and other penalties.

Organize Documents

A substantial amount of tax reporting begins in January. There will be a variety of final documents that must be available when preparing a tax return. Preparation is especially important for small business owners and those considered by the IRS to be self-employed.

Prepare Early

Business owners can begin their returns as soon as they have the necessary documents. They can utilize personal tax software or use online filing sites, but the best solution is to hire a tax professional. Even though tax returns can be prepared early, the IRS won’t begin accepting them until a time the entity will announce.

Documentation

It’s far less stressful and more cost effective to have a tax professional do the work. The expert will need to understand the business and its financials. Individuals should be prepared with their employer ID number, along with receipts from sales and services, expenditures, and bank accounts, to name a few.

All of these documents and more are required for a tax professional to ensure a client is receiving all the deductions and credits to which they’re entitled, and to take advantage of any new state or federal tax laws. They can also ascertain if the business would benefit from itemizing expenses and calculate projected payroll taxes.

Extension

If necessary, a tax professional will be able to file for an extension, which gives business owners an additional 6 months of leeway to submit their tax return. An extension provides a grace period in which to file the return, but business owners will still have to pay any taxes that may be due on time.

An extension can be especially beneficial if any clarification is needed or if all of the essential documents aren’t immediately available. For those in some industries, there may be compliance and regulatory issues to consider.

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 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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