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

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

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

Assets and Capital Gains

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

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

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

Donor Advised Fund

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

IRA to Roth IRA

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

At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs.  We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!

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One of the biggest misconceptions about filing an extension on federal tax returns is that it means individuals don’t have to pay any amount owed on time. An extension gives people more time to file, but not more time to pay.

Individuals can file an extension on their federal taxes, but it has to be done before the last day for filing the taxes. An extension provides taxpayers with additional months to prepare and file their return for any reason. The IRS automatically grants a request for an extension, but the proper forms must be filed and the extension is valid until Oct. 15. The extension can be filed electronically.

Taxpayers are expected to pay the full amount they owe by the tax deadline, even if they file an extension. The IRS assesses a penalty for late payments, usually 0.5 percent per month of the balance that’s due, but failing to pay can increase that penalty to a maximum of 25 percent.

There are 3 primary reasons that individuals file an extension. The first is missing or inaccurate information. Many people find that they haven’t received a form they need in time to file.

The second most common reason for an extension is that a taxpayer will be out of town during tax season. Many people from northern states winter in the south, while others choose to vacation during spring break. If they anticipate a refund, they often file an extension.

Lastly, people run out of time. Filing federal taxes can be stressful, leading to procrastination. Despite taxes being due on or near the same date every year, some individuals lose track of time, simply get busy, or find themselves dealing with a major life event.

For those that don’t have the money to pay their tax bill in full, the IRS offers some payment plans. Individuals will still have to pay their tax bill, along with any applicable penalties and interest, but at a lower rate. Installment agreements are also available, in which individuals pay a set amount each month. The IRS advises individuals pay their tax burden with a credit card or take out a loan to save money.

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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There are dozens of reasons why you need assistance with your taxes, especially if you’re doing them yourself. If you’re one of the millions that prepare their own taxes online, the services offer help in the form of popup windows, but those can be even more confusing and you may want to speak with a real person that’s knowledgeable about your particular circumstances.

You should bear in mind that the IRS was overwhelmed with calls in 2020 and again in 2021. People waited for hours on the phone to have their questions answered. That situation is likely to continue in 2022 and beyond.

Volunteer Income Tax Assistance (VITA)

VITA can be found online. You enter your zip code and the distance within which you want to find a volunteer. If you don’t find someone within your search criteria, keep expanding the distance. The online search will provide you with the name of the agency, it’s location and directions for contacting it. VITA help is available at a variety of locations ranging from colleges to community centers.

Tax Counseling for the Elderly (TCE)

To qualify for TCE, you must meet certain criteria. You’ll need to be a senior citizen, disabled, earn moderate or less income, or not be able to speak English very well.

IRS Taxpayer Assistance Center

These are IRS offices where you can search for a location where you can make an appointment to speak with an IRS representative. However, these sites can be 50 miles or more away from your location.

Taxpayer Advocate Center

The service is an independent organization within the IRS. It can be a good resource for those with a financial hardship due to a tax situation, levy or lien.

AARP Foundation Tax-Aide Program

Operated by the AARP for over 50 years, its focus is on those age 50 and older with a low to moderate income, though technically they offer help to any taxpayer.

MilTax Program

This is for current military personnel, a spouse or dependent child of someone in the military, or those who have served in the past. The organization offers help over the phone 24/7 and appointments can also be scheduled for MilTAX at a VITA office.

Local Services

Each year libraries and community centers in almost every town offers services provided by volunteers to help individuals with their tax-related questions. Some offer tax preparation seminars and workshops.

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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Many people are confused about how to list their business. Many think that one type provides more protection from lawsuits, when in fact, both offer protection against liability for business obligations.

LLC stands for limited liability company and Inc. is an indication that a business is a corporation. The difference between LLC and Inc. is the way in which each is owned, managed and taxed, along with reporting requirements and record-keeping methods.

Ownership

Owners of an LLC are called members instead of shareholders. Each member holds a specific percentage of the company called a membership interest. If an LLC wants to transfer shares/percentages, it’s more difficult. In some states, unless otherwise specified, if an LLC member leaves the organization, the LLC must be dissolved.

In contrast, a corporation issues shares of its stock to owners that are called shareholders. Transferring stock is a relatively simple process. If a stockholder leaves or sells their stock, it typically has little impact on the corporation’s future operations.

Taxation

The taxation structure in an LLC is flexible. If a single person owns the LLC, they’re taxed as a sole proprietorship. LLCs owned by multiple members are taxed as a partnership. An LLC can be taxed as a C or S corporation. The difference is that a C represents a business entity and the S is a tax classification used to protect assets from double taxation. Profits can be claimed on the owner’s individual tax return.

Corporations are taxed as C corporations by default, pay income taxes on corporate profits, and shareholders pay tax on dividends they receive. If the corporation chooses to be classified as a C corporation, stockholders avoid being double taxed and the corporation doesn’t pay corporate income taxes – providing it meets specific requirements.

Management

LLCs can be managed by its members or a managerial group. A corporation has a board of directors that makes rules, policies, and oversees the way its run. Officers manage day-to-day affairs and shareholders typically aren’t involved in the day-to-day operations.

Records and Reporting

An LLC has less formal record keeping requirements than corporations. They may be required to adhere to a standard of minimal record keeping and the entity doesn’t have to file annal reports. Corporations are required to hold an annual shareholder’s meeting and provide notice of the meeting. Minutes of the meeting must be kept and corporations may be required to file annal reports.

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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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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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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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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Here are seven ways for owners of small businesses to save money on their taxes.

1. Incorporate Yourself: If you`re still a proprietor or partner of a business, it`s time to incorporate yourself. Not only will you limit your liability, but you may enjoy lower tax rates on small business income and other tax advantages as well. 

2. Be Home Based: If possible, continue (or switch to) being a home based business. Not only will you keep your overhead down, but you will be able to write-off (or deduct) the business use of your home.

3. Income Split: Pay reasonable wages to your spouse and children. In this way, you can legally divert income taxed at your higher rate to your family members that are in a lower tax bracket.

4. Rearrange Your Affairs For Maximum Tax Savings: Can you make some changes to turn your hobby into a moneymaking business? Can you use that extra room in your house as a home office for your business? Can you arrange to use your car more for business purposes? Can you arrange for more of your entertainment expenses to be business-related? 

5. Document Your Expenses Well: Do you document your expenses well so that they would survive a tax audit? Have you kept a mileage log so that you can prove the percentage of business use you claim for your vehicle? Have you kept receipts for all your entertainment expenses and listed the business purpose on the back of each receipt?

6. Be Punctual: File all returns and pay all taxes due (income, payroll, sales, et cetera) on time. This way, you avoid expensive late filing (and payment) penalties and interest. 

7. Develop a Tax Planning Mindset: Some people only worry about their taxes during tax season. However, you will save a fortune in taxes, legally, if you make tax planning your year-round concern. Do you make business and personal purchases, investments, and other expenditures with tax savings in mind?

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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Every business owner knows the value of maintaining accurate records for tax purposes, but keeping good records also provides individuals with a measure of the health of their enterprise. It doesn’t matter if it’s a brick and mortar store or operated completely online through e-commerce, good record keeping is critical.

It’s recommended that individuals keep pertinent records for three years and that includes tax returns. Most business owners envision boxes and file cabinets full of paper documents and that can seem overwhelming. Welcoming the digital age and appropriate software programs into a business will eliminate the clutter and keep records immediately available should they be needed for any contingency.

Keeping good records provides business owners with the knowledge required to know if their endeavor is failing or flourishing. It also tells them which products are selling well, where their largest expenditures are, and any areas where changes may need to be made.

Business owners have a legal obligation to maintain full and accurate records about their enterprise. They’ll need those records if they’re audited by the Internal Revenue Service (IRS) or asked to explain any items on their tax returns.

Maintaining detailed records enables individuals to prove income, deductible expenses for tax purposes, and make projections about their tax liability. Those records will also be utilized to prepare a variety of financial statements and balance sheets that will be essential when working with banks and creditors.

Good record keeping allows business owners to ascertain where the majority of purchases are originating, along with the reliability of the vendors with which they regularly conduct business. The receipts provide a record of who pays promptly and who doesn’t.

All of those records provide a health check on the business, allowing owners to make critical decisions about issues such as expansions, new product lines, vendors, and employees. Keeping good records is the key to operating any business more efficiently, effectively, and profitably.

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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