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individual income tax preparation

tax credits and tax deductions

Can You Use Tax Credits and Tax Deductions?

You can definitely use tax credits and tax deductions to lower the amount of federal income tax you pay. Tax credits directly reduce your tax. Deductions reduce the amount of your taxable income, the taxes you pay and may increase the amount of your refund if you have one coming. However, taking some deductions and credits will depend on which tax bracket you fall within and your personal situation.

Tax Credits and Tax Deductions

Federal income taxes can be complex, even for low-income filers. The Advance Child Tax Credit payments that began in the summer of 2021 is an example. You may have been receiving them, but the amount is half of what the total would be. You can claim the other half when you file your federal income tax return. Corona Virus Impact payments and stimulus payments will also have to be considered.

Tax Credits

There are credits for Earned Income, dependent care, adoption, and the elderly or disabled. There’s a foreign tax credit, those for undistributed capital gains, excess Social Security and RRTA withholdings and retirement savings contributions. You may have a credit if you’re a homeowner or have costs from healthcare and education. Some have limits on the amount that can be claimed.

Deductions

Work deductions are one of the most common types of deductions, enabling you to deduct expenses such as union dues and uniforms, or the use of your car and a portion of your home space if you’re working from home. If you’re part of the gig economy or use an employment app for per-day jobs, you can still take those deductions.

If you use those apps or are part of the gig economy, you should be aware that you’ll be classified as self-employed by the federal government and that means you’ll be paying higher taxes. You’ll be liable for self-employment taxes, Social Security and Medicare taxes. The good news is that you can typically claim your earnings on your regular income tax form under “Other Income.”

Tax Preparation

There are a number of good online tax preparation software programs for those that have fairly straightforward tax forms. If your taxes are more complicated, you should definitely seek the services of a professional tax preparer or CPA.

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 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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Deducting Medical Expenses

Everyone wants to lower their tax burden by getting every possible deduction to which they’re entitled and medical expenses is one way to accomplish that. However, individuals must itemize to claim the deduction and much will depend on an individual’s income. Claiming medical expense deductions is beneficial if the amount of the deductions exceeds the standard deduction on income taxes.

What can be Deducted?

The IRS enables taxpayers to deduct unreimbursed medical, dental, vision, and mental health expenses for themselves, a spouse and dependents, up to 7.5 percent of their adjusted gross income. Those expenses can include diagnostics, mitigation, treatment and cures, along with preventative measures. Individuals can also deduct travel expenses.

The COVID-19 pandemic has left many individuals with astronomical medical bills. Some private insurance companies have pledged to cover all COVID-19 expenses, while others have not. Taxpayers that rely on Medicaid and Medicare for medical care may have co-pays and spend-downs that they can claim.

There are a great many expenses that taxpayers can deduct if they’re itemizing deductions, up to 7.5 percent of their adjusted gross income. They include fees to a wide range of medical and mental health professionals, including surgeons, dentists, chiropractors, psychiatrists and psychologists, and non-traditional medical practitioners.

Wide Range of Deductions

Other expenses include oral and injectable prescription medications, weight loss programs prescribed by a doctor, and in-patient costs for drug, alcohol and nicotine addiction. Nursing home costs, insurance premiums, and medical aids such as crutches, wheelchairs, dentures and even service dogs are all allowable expenses.

The range of medical-related expenses that can be deducted is extensive, but there are also restrictions on what can be claimed. For taxpayers with substantial costs, it can be beneficial to claim those deductions. The best solution for those intending to claim medical expense deductions is engaging the services of a tax professional or certified public accountant (CPA) that has the experience, knowledge and resources to help them get every deduction to which they’re qualified.

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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5 Reasons a Tax Professional is Better than Online Filing Services

Millions of people across the nation file their taxes each year using popular online software. It’s easy, convenient, and fairly inexpensive. The IRS recommends that individuals use e-file options for their taxes. However, the best solution can be a tax professional. The more complex the tax filing, the more a tax professional makes sense and they can also e-file for clients.

  1. Year-Round Help

Online tax software is only available for a limited time each year and it can’t provide advice on potential tax issues that may arise during the coming year. A tax professional is available to answer questions and concerns at anytime during the year, not just at tax time.

  1. Best Software

Tax professionals have access to better and more sophisticated software than that offered online. An individual’s information can be scanned, entered, and organized quickly and efficiently. The process eliminates manual data entry, significantly reducing the potential for human error.

  1. On Time

Online software depends on individuals buckling down, collecting their information and beginning the task of filing taxes. Fear of a mistake is common among self-filers and it’s exacerbated when the individual happens to be a procrastinator. Provided that individuals get the information to their tax professional in a timely manner, taxes will always be filed on time, thereby eliminating late fees and running afoul of the IRS. Filing via a tax professional may also reduce the potential of an audit.

  1. Business Needs

Complying with new tax laws for operating a business and investments becomes more complicated every year. A tax professional is one of the first to have access to upcoming changes that affect clients’ taxes and livelihood. They have a thorough understanding of tax laws in multiple areas and can guide individuals. Even those with straightforward tax returns will fare better.

  1. Stress

Tax time generates a considerable amount of stress each year and it’s compounded when people try to do their own taxes – even with online software. The changes in tax laws and the COVID-19 pandemic are further confusing requirements. An ordinary tax return can take up to two hours to complete online. A tax professional saves clients time, effort and stress.

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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Important Audit Advice

Oh no! You need audit advice. You just received in the mail a notification that you are going to be audited by the IRS. What now? How do you respond to this and should you be having a heart attack now? While many people lose it as soon as they realize that the IRS is going to be asking for their records and proof, the fact of the matter is that the best audit advice is to stay calm and gather the information that you need carefully, accurately and without worry. 

Make a Call

Before you put it to the side and decide to deal with it later, (it won’t go away by the way) take the time to respond to it. Give the IRS a call and find out what is going on and when they want to come and see your paperwork. This simple phone call can help you find the right information before you react the wrong way. Remember, it’s not the fault of the lady on the other side of the phone, that this is yours either. So, be nice, play fair and be honest. 

Need more Time?

Do you need some extra time to get your information in order? Need to dig out that box, organize it and hope that it’s all there? Then make sure to ask for a postponement of the audit. This audit advice is very important: don’t wait until the last minute to do it either! Call them up and ask for a small delay so that you can get things in order. Simple, done. 

Don’t Panic

Lastly, it is important to realize that most audits are simply needed because of minor errors. You added or subtracted wrong. You entered the wrong information on the wrong line. That type of thing occurs every day. This audit advice is to be honest about what is happening with you. So, you made a mistake. Fix it by providing a good attitude to the IRS auditor that comes to see you.

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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Your Tip Earnings and Taxes

The internal revenue service takes a very simple approach to tips. It views all tips you make in your job as taxable income that must be reported and for which taxes must be paid. Put another way, the IRS has a simple but brutal view towards taxes.

Now tips come in different forms. Some are received directly from customers while others are automatically added to the customer’s bill. The IRS takes the position you must report and pay taxes on both amounts. This also includes taxes you earn through any group splitting where all tips are collected together and then split amongst the employees. On top of this, the IRS also takes the view that any non-cash tips such as tickets to something are also income that should be reported and taxes paid on. Put another way, the internal revenue services gets you coming and going. 

To make things a little more brutal, the internal revenue service requires you to take some steps in reporting tips. If your tips total $20 or more in any calendar month from a single job, you are supposed to report the total to the employer by the 10th day of the next month. The employer is then supposed to withhold federal income tax, social security and Medicare taxes from your paycheck. Keep in mind that the failure to do so can lead to the placement of a 50 percent penalty on your taxes. Obviously, the IRS is fairly serious about getting its money. 

Tips paid to waitresses, bartenders, barbacks and so on are a hot spot with the IRS and always have. Since tips tend to be given in cash form, the potential for forgetting to report them is particularly high. The IRS seems to think so and has shown a generally aggressive attitude on the subject. If you indicate you are a waitress or bartender on your tax return, but fail to report any tip income, it could be audit time.

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 A Dependent For Tax Purposes?

What are the qualifying characteristics of a dependent for tax purposes? Following is a general explanation on how to determine dependents, and how it relates to your tax status, liability and the credits you can claim on your tax return.

There are a few assessments that a person must pass in order to qualify as a dependent on a U.S. tax return. For starters, individual must be the taxpayer’s child, stepchild, foster child, sibling or stepsibling, or a relative of one of these, and the individual must live at the taxpayer’s residence for greater than 6 months of the tax year. There are exceptions for children of divorced parents, kidnapped children, and for children who were born or died during the year. 

The individual must be under the age of 19, or 24 if a full-time student. Finally, the individual must not have contributed more than one-half toward his or her own support during that year in order to qualify as a dependent. Other qualifying points include, U.S. citizenship and single status or married filing as a single person. 

If the individual fulfills all of these requirements, then any of the applicable deductions, exemptions, and credits can be used for them. Some of these include dependent daycare expenses, child tax credits, medical expenses, earned income credit, and various itemized deductions. Determining eligibility often means the difference between owing money to the government and receiving a refund from them. 

The child and dependent care expenses cover things like daycare, after school programs, private childcare services, etc. Any qualifying children the child and dependent care expenses must be under the age of 13. 

The child tax credit is similar to the earned income credit because it is a straight credit. Taxpayers with a qualifying dependent that is under 17 years old may only take the child tax credit. 

Determining if you have any dependents that you can claim on your annual tax return might take a little work, but it can be well worth it in the long run. You could be rewarded with a nice tax refund, thanks to the credits, exemptions, and deductions that your dependent(s) will give you the opportunity to claim.

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 to Use a Certified Public Accountant

A Certified Public Accountant, or CPA, can help you make sure that your small business accounting or individual taxes are accurate and complete.  Some businesses are small enough, such as home-based businesses, that a Certified Public Accountant is not needed for most accounting tasks.  However, there are times when a business or individual should use a Certified Public Accountant.

If you have a small business, and you have discovered that an error in your bookkeeping exists, it can often be difficult to locate where and when the error was made to correct the mistake.  A Certified Public Accountant has special training and education to find these errors through an external audit process.  It is vital that these errors be corrected because the books you use in your business are used to determine taxes and business decisions. 

These records also allow investors to see how well your business is doing so that you can get more backing to help your business grow.  A Certified Public Accountant can find and correct any errors in your bookkeeping, and help you organize your bookkeeping so that you or the Certified Public Accountant can easily generate financial statements and reports.  These financial statements and reports prepared by a Certified Public Accountant are the documents that most banks and investors want to see before making any financing decisions.

If you are starting up a home-based or small business, you should seek the guidance of a Certified Public Accountant.  The Certified Public Accountant can help you set up a double-entry method of accounting with a journal and ledger, as well as a chart of accounts to help you use these tools effectively in your business.  The Certified Public Accountant can also advise you as to what taxes you will be responsible for paying throughout the year.  Quarterly taxes are often required of businesses and self-employed individuals.  To avoid penalties, late fees, and a large tax bill at the end of the year, you should contact a Certified Public Accountant for this information.

Any individual that is self-employed should seek out the services of a Certified Public Accountant when it is time for tax return preparation.  Tax laws change every year, and a Certified Public Accountant can help you make sure that you are receiving all of the deductions you have available as a self-employed individual.

Any individual with children, who is separated or newly divorced, or who may wish to itemize deductions based on mortgages, medical expenses, and charitable contributions should also seek out a Certified Public Accountant for assistance in income tax preparation.  This is because the tax laws are very complex, and change often.  If you make a mistake and claim a deduction that you could not legally claim, the IRS may audit your return and cause you to pay back the refund amount, with penalties.  Additionally, if you make a mistake and do not claim a deduction that you could legally claim, the IRS will not attempt to correct the mistake, causing you to receive a smaller refund.  Either way, you lose money.  The best way to avoid these and other errors is to have a Certified Public Accountant prepare your income tax return.

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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Top 7 Reasons To File Your Income Tax Returns On Time

  1. Avoid Late Filing Penalties

Late filing can result in substantial and continuing penalties. This is in addition to any interest that is due.

  1. Receive Better Service from Your Accountant

The earlier you get your paperwork to your accountant, the sooner he can start preparing your tax returns. More importantly, there will be more opportunities to explore and implement tax saving strategies. On the other hand, if you file late, you tie your accountant’s hands. For example, he may hesitate to retain profit in your corporation if such profit will be subject to substantial penalties.

  1. Avoid Criminal Charges

Of course, if you don’t file tax returns at all for a few years, you may also face charges of tax evasion.

  1. Prevent Bankruptcy

Generally speaking, persons who don’t file tax returns on a timely basis also lack adequate records for managing their business. Since they don’t keep their bookkeeping and accounting up-to-date, they only think they know how they’re doing and how they stand financially. This, of course, is a recipe for financial disaster.

  1. Enjoy Better Relations with Tax Authorities

Late filers also receive the unwanted attention of the taxation departments. Non-compliance can result in audits, aggressive collection action and legal proceedings. In addition, if you ever do have extenuating circumstances that might call for some leniency or extraordinary consideration on the part of the tax department, you are more likely to receive it if you have a flawless history of co-operation and compliance.

  1. Obtain Financing

You’ll have difficulty obtaining financing if you can’t provide your financial institution with current income information. Assessment Notices from taxation authorities give banks more assurance that the income claims you make are true. As well, if you haven’t filed your current income tax returns, what hidden tax liabilities exist? What is the state of your record-keeping? How do you run your business without adequate financial information? Your bank may hesitate to loan you money or refinance under these circumstances.

  1. Reduce Stress and Worry

Many people who are late filing their tax returns feel guilty about it. At the back of their minds, they worry about taxation authorities contacting them, audits, asset seizures, criminal prosecution, penalties and interest, and so on. Some of these worries can become magnified beyond what the actual situation warrants. Save yourself unnecessary stress by filing your income tax returns on time.

By following these simple steps, you can have confidence in finding an accountant who will work hard to help you direct your company into a positive direction for financial growth and expansion.  

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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