5 Reasons to Hire a Bookkeeper

Operating and growing a business is a full-time endeavor. There’s no reason for business owners to take on the responsibilities of another job when there are highly-trained professionals available who have the training and experience required to do so in an exemplary manner.

Time

One of a business owner’s most valuable assets is time. When individuals find themselves expending as much time working on the books as they do their business, it’s time to hire a bookkeeper. When individuals are overwhelmed and don’t have sufficient downtime, errors creep in and the business will suffer.

Receipts and Transactions

There are untold transactions that take place every day in the course of conducting business. Maintaining accurate records is essential for any business. Losing track of receipts, invoicing, employee-related expenses, and even when insurance is due opens the door to errors that can cost a business far more than the expense of hiring a bookkeeper.

Paying Penalties

There are numerous state and federal reports and taxes that must be filed each year, along with deadlines for submitting that information. Failure to do so results in financial penalties that increase the longer they go unpaid. Any business owner that finds themselves paying fines and facing penalties needs to hire a bookkeeper as soon as possible.

According to the IRS, approximately 47 percent of the penalties it collects is due to filing delinquencies. A bookkeeper can assist in eliminating that problem and help clients keep that money within their business.

Profits aren’t Increasing

Over time, business owners expect to see an increase in profits. Without accurate records, there’s no way to discern if advertising is working, if the business is acquiring new customers, areas of inefficiencies, and where the company is losing money. A bookkeeper can help determine that and assist individuals in maintaining their cash flow.

Planning for the Future

Eventually, every business owner wants to expand their business. Individuals may want to apply for financing or achieve a specific goal by a certain time. The services of a bookkeeper will show business owners where their finances stand at any point in time so they can accurately plan for future growth or even retirement.

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Accounting
posted by Mark Battalini
October 9, 2022

Will Payroll Services Save You Money?

Small business owners are always looking for ways to save money and many make the mistake of trying to handle payroll duties on their own. Even if you only have a single employee, payroll services can save you money. There are serious fines and consequences for not meeting reporting deadlines or keeping accurate tax records for employees.

There are many facets to maintaining payroll ranging from employee withholdings to business deposits and withdrawals. It may include paid time off (PTO), 401k deductions and garnishments. It requires a significant amount of time and effort that could be better spent growing your business.

Flexibility

Small business owners face a variety of challenges and a payroll service helps you remain flexible and meet those challenges as the business environment and economy changes. You could be encountering supply chain issues or need to quickly scale up production to meet increased demand. Payroll services enable you to keep ahead of changing circumstances and minimize business disruptions.

Rules and Regulations

Payroll services enable you to remain compliant with state and federal reporting requirements and deadlines. You’ll also be compliant with the many regulations governing employee benefits ranging from retirement funds to insurance coverage.

Fines and Penalties

You can run afoul of the IRS for multiple reasons ranging from failure to pay business income tax, underpayments or late payments. The fines and fees associated with even small infractions increase over time and limits cash flow to your business. A payroll service reduces your risk.

No Degree Necessary

You don’t have to have experience or a degree in accounting. Your payroll company has the knowledge and experience to attend to all the details. They’ll provide you with accurate accountings and keep you informed of the financial health of your business.

Security

You need to maintain security against physical and cyber incursions. A data breach at your company can cost you dearly, leave your business vulnerable to ransomware attacks, and compromise employee data. Payroll services utilize advanced security measures to keep sensitive information about your enterprise safe.

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Tax
posted by Mark Battalini
September 26, 2022

What’s the Difference Between 1099 and W-2?

The U.S. tax system is complicated, complex, and the IRS has hundreds of forms to account for different reporting needs. One of the biggest confusions for individuals is the difference between Form 1099 and the W-2. Both are important, absolutely required, but serve very different purposes.

Form 1099

There are multiple types of Form 1099. The most common is used to report various types of payments that are made by a business or individual that’s not an individual’s regular employer. The person that made the payments completes the appropriate details and sends a copy to the payee and the IRS at tax time.

A Form 1099-MISC is used by the government to report income such as Medicare earnings. It’s also used to report prizes and awards, fishing boat proceeds, medical and healthcare payments, and crop insurance proceeds. Form 1099-MISC is also utilized to report earnings from direct sales of at least $5,000.

W-2

In comparison, individuals complete a W-2 when they start a new job. It tells the employer how much money to withhold in federal, state and Social Security (FICA) taxes from each paycheck. The IRS utilizes that information to track each person’s earnings and income every year from employment. IRS rules state that employers must provide individuals with their W-2 by Jan. 31^st of each year.

The form is used each year when an individual files their annual income tax returns. The W-2 shows the amount of any benefits that may have been paid by the employer on an employee’s behalf that encompasses items ranging from health savings accounts (HSA) and number of dependents to insurance benefits.

If there are any errors such as name misspellings, incorrect Social Security number, or an incorrect amount, individuals should contact their employer for a corrected copy of their W-2. Independent contractors should receive a 1099-NEC instead of a W-2.

Is a Tax Credit Better Than a Tax Deduction

People typically look for all the credits to which they’re entitled when they complete their federal income tax return, but overlook tax deductions that they’re able to claim. Tax deductions can actually lower the amount of taxes people owe. An individual’s deductions will depend largely on their tax bracket and if they’re an employee or self-employed.

Tax credits and tax deductions both work to lower tax liability, but they work in different ways to accomplish that goal. Credits are a dollar-for-dollar reduction, while deductions decrease the amount of money that an individual is taxed on. The standard deduction is what most people claim. It’s a flat amount per person in the family. However, individuals can choose to itemize deductions instead, though it can increase the chances of an audit.

Deductions

There are deductions for a wide variety of situations, ranging from those for continuing education and buying a home to being self-employed. Those attending college can deduct the interest on their student loan and the amount of charitable donations up to $300 per person. There’s also a deduction for state and local taxes that are paid and mortgage interest.

For those that gamble, there’s a deduction for gambling losses, along with one for educator expenses. People that contribute to an IRA, 401k or health savings account (HSA) also receive a deduction. Individuals that are self-employed can take a home office deduction and self-employment expenses.

Tax Credits

If an individual can’t take advantage of tax deductions, don’t forget to explore the range of credits that are available. Individuals can receive a tax credit for child and dependent care, adopting a child, lifetime learning, and earned income for the number of children in the family. An energy credit is offered for installing certain energy-efficient items such as furnaces and AC units.

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Tax
posted by Mark Battalini
September 25, 2022

What is Capital Gains Tax?

There’s some confusion for some about what the capital gains tax is, especially if they’ve sold an asset or they’re new to trading. It’s a tax that’s levied on the profit an individual makes when they sell an asset or investment. The asset can range from real estate to stocks and bonds. The amount of tax is determined by how much the asset has appreciated in value during the time it was held by the owner.

The rate of tax is also dependent on the filer’s income bracket. The tax can range from 0% to 15% or 20%. A long-term capital gains tax is assessed if an individual has owned the asset for a year or more. Short-term capital gains taxes will apply if the investment has been owned for less than a year and will be taxed according to the individual’s normal tax rate.

Unrealized capital gains refer to unsold investments. It doesn’t matter how much in assets an individual has, how long they’re held, or how much they’ve increased in value. Purchasing or investing in an asset and keeping it over the long term is a way of building wealth that can be passed on to heirs.

Maximizing profitability and minimizing capital gain taxes requires careful, well-though out strategies. For tax purposes, a purchased asset is typically treated the same as if was a salary or wages. The same is true of dividends derived from an asset.

An increasing number of people are using software applications to trade online. The thrill of buying and selling can override any benefits if they’re not aware of the capital gains taxes they’ll have to pay or if they don’t understand IRS laws.

However, taxable gains can be offset by capital losses. A maximum tax of $3,000 per year is levied on net losses. Leftover losses can be carried forward into following tax years.

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Tax Deductions
posted by Mark Battalini
September 25, 2022

If I’m Self-Employed, What Tax Deductions do I Qualify For?

An increasing number of people are launching their own businesses. Government figures indicate that ¼ of the self-employed have an incorporated business operation. However, a full ¾ of all self-employed people have an unincorporated enterprise.

Nearly 11 percent of people in the U.S. are self-employed, representing 15 million individuals. It includes home-based businesses, those in the gig economy, entrepreneurs, startups, and small business endeavors.

Tax time is especially painful financially for the self-employed. They have to pay state and federal taxes, and may need to pay city taxes. Individuals need to pay FICA taxes and are forced to pay a self-employment tax. The good news is that there are a variety of deductions that can help ease the pain at tax time.

Home Office

Those that work out of their home can deduct a portion of the total area of their home’s square footage if they’re self-employed, but not if they work for someone else. The space will have to be used regularly, be the principal place of business, and only be used for business purposes. Individuals can deduct the cost of rent for business space.

Credit Card Interest

Qualified business purchases placed on a credit card may be deductible. It can include phone bills, business travel, meals rent, internet service, office equipment, membership dues for professional organizations, and other expenses/utilities necessary for operating the business.

Training and Education

Taking a course to maintain or improve current skills relating to the business may be tax deductible. Expenses includes the cost of the course, tuition, books and supplies, and transportation.

Insurance Premiums

Premiums for business insurance are deductible for those who are self-employed.

Self-Employment Tax

The IRS allows people that are self-employed to deduct 50 percent of their total self-employment tax, subject to certain income limits.

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Tax
posted by Mark Battalini
August 28, 2022

Why do the Wealthy Pay Fewer Taxes?

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

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

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

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

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

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

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

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Tax Preparation
posted by Mark Battalini
August 28, 2022

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

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

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

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

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

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

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

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Accounting
posted by Mark Battalini
August 28, 2022

What is an Environmental Accountant?

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

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

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

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

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

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

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

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

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Tax Preparation
posted by Mark Battalini
August 28, 2022

What to Know About Filing Extensions on Tax Returns

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

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

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

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

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

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

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