Will Estate Planning Ensure Financial Security for Loved Ones?

Estate planning is an essential element of preparing for the future. It addresses issues ranging from end-of-life care to who inherits assets. It also helps individuals minimize the tax burden of inheritors. Estate planning is appropriate at any age, for singles and those with life partners. It’s especially critical for those that have children. It’s never too late to create a comprehensive plan to ensure the financial security of loved ones.

Financial assets and circumstances change over time and so do the needs of individuals. An effective estate planner will help clients create a plan that provides flexibility as their assets grow and family circumstances evolve. Estate planning allows individuals to dictate what will be done with their assets.

An estate plan accomplishes multiple goals. Without an estate plan, the court system will make decisions for an individual and they can be far different than what the owner intended.

Guardianship

Prioritize the guardianship of minor children during estate planning. The guardian must be a trusted person who will give precedence to the children and their needs. It’s a good idea to designate a second guardian if the first is unable to carry out their responsibilities.

Will

Estate planning includes making a will that clearly states who inherits assets and names an executor to ensure those instructions are carried out when an individual dies. Beneficiaries will be of primary importance. A will also confers power of attorney to a specific individual, states end-of-life care, can establish a trust, and make provisions for the funds to pay for a funeral, final expenses and taxes.

Estate planning is a crucial element for every individual, even those with modest estates. Individuals work a lifetime to accrue assets and care for their loved ones. Estate planning ensures their financial wellbeing and that assets are distributed in the manner the manner the client desire.

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Tax Deductions
posted by Mark Battalini
November 6, 2022

Cryptocurrency Losses and Your Taxes

If you’re one of the many cryptocurrency investors, you may have losses to report. The factors that affect traditional paper money also affects digital currency and has led to significant losses for many.

If you own cryptocurrency, you should definitely report it on your federal tax return. The IRS requires it and views cryptocurrency as property rather than currency, per se. The good news is that you can claim your losses on your taxes – within limits.

Deduction

You can use your crypto losses as an income tax deduction up to $3,000. However, you won’t be able to do so if you had total capital gains across all your assets.

Capital Gains

It’s possible to lower or offset your capital gains, and future capital gains if carried forward, by claiming a loss on your crypto. A strategic selling off of assets at a loss is known as crypto tax loss harvesting and can offset your gains. You can also carry forward those losses to future tax returns.

You’ll use the same method to report crypto losses as you would crypto gains. Crypto isn’t considered a security, so selling it and buying it back within 10 days isn’t technically considered a crypto wash sale. However, you should consider safer ways to reduce capital gains.

Special Forms

The IRS requires special forms to report gains and losses from cryptocurrency. It can be difficult to quantify short-term and long-term losses and gains. The best solution is to seek the services of an accountant who is knowledgeable in tax laws concerning crypto and understands the exact forms to use.

Stolen Crypto

If you’ve been the victim of a crypto hack, you’re understandably upset and have little hope of recovering the lost currency. Unfortunately, the IRS views stolen crypto in the same way it does traditional dollars that have been stolen. Even though you can’t take a deduction for stolen crypto, its important to record it in your records so it’s not mistaken for a sale.

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IRS Information
posted by Mark Battalini
December 30, 2020

Your Appeal Rights When Fighting The IRS

Are you in the middle of a disagreement with the IRS? One of the guaranteed rights for all taxpayers is the right to appeal. If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal. The IRS appeals system is for people who do not agree with the results of an examination of their tax returns or other adjustments to their tax liability. In addition to examinations, you can appeal many other things, including:

Collection actions such as liens, levies, seizures, installment agreement terminations and rejected offers-in-compromise,
Penalties and interest, and
Employment tax adjustments and the trust fund recovery penalty.

Internal IRS Appeal conferences are informal meetings. The local Appeals Office, which is independent of the IRS office, can sometimes resolve an appeal by telephone or through correspondence.

The IRS also offers an option called Fast Track Mediation, during which an appeals or settlement officer attempts to help you and the IRS reach a mutually satisfactory solution. Most cases not docketed in court qualify for Fast Track Mediation. You may request Fast Track Mediation at the conclusion of an audit or collection determination, but prior to your request for a normal appeals hearing. Fast Track Mediation is meant to promote the early resolution of a dispute. It doesn’t eliminate or replace existing dispute resolution options, including your opportunity to request a conference with a manager or a hearing before Appeals. You may withdraw from the mediation process at any time.

When attending an informal meeting or pursuing mediation, you may represent yourself or you can be represented by an attorney, certified public accountant or individual enrolled to practice before the IRS.

If you and the IRS appeals officer cannot reach an agreement, or if you prefer not to appeal within the IRS, in most cases you may take your disagreement to federal court. Usually, it is worth having a go at mediation before committing to an expensive and time-consuming court process.

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Accountant
posted by Mark Battalini
November 30, 2020

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.

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Tax Preparation
posted by Mark Battalini
August 29, 2020

Tips for Preventing a Tax Audit

Despite what individuals may have been told in the past, an audit by the Internal Revenue Service (IRS) isn’t random. The IRS utilizes a state-of-the-art software program to flag tax returns for auditing. The software is called Discriminate Income Function (DIF). It flags returns for investigation by comparing the deductions an individual or business takes compared to others that are within the same income bracket.

There’s no reason taxpayers should be afraid to take the deductions to which they’re legally entitled, as long as they have the appropriate documentation to support what they’re claiming. There’s no foolproof way to be protected against an IRS audit, but there are steps individuals can take to minimize the potential.

Targeting Factors

Some jobs, careers, tax brackets, and geographical locations are more likely than others to be targeted for an audit, along with the very rich and the very poor. Individuals with an annual income of less than $25,000 have an audit rate of about 0.69 percent, a figure that’s 50 percent higher than all others.

Areas with a large African-American, Hispanic, Native American, and poor population are audited more. People that regularly receive tips such as hairdressers, waitresses, and bartenders are audited with more frequency, along with accountants, doctors, and attorneys that typically keep their own books. It’s a good idea for anyone in these categories to avoid miscellaneous deductions.

Self-Employed & Small Business

Small businesses and the self-employed are favorite IRS targets. Many choose to incorporate or form a limited liability company as they’re audited less often. File any pertinent worksheets, avoid amendments, know when to file, and hire a professional to prepare tax returns.

Know What’s Questioned

Keeping exemplary records is critical. Home office deductions, medical expenses, casualty losses, and business costs for travel, entertainment, and meals are some of the most often questioned.

Neatness Counts

Being neat really does make a difference. Returns that are difficult to read or have blank lines are more likely to be audited. It’s better to use a zero on a line than to leave it blank.

Do the Math

Use a calculator, double check the math, and make sure federal and state returns match. For those that use online tax preparation software, if it says there’s a problem and something needs to be revisited – pay attention.

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IRS Information, Tax
posted by Mark Battalini
July 30, 2020

Tax Penalties you Need to Avoid

It doesn’t matter whether it’s time to pay your personal taxes or your business taxes, it’s easy to run afoul of the IRS. There are some common types of tax penalties that you may incur if you don’t stay focused. The following are the most common tax penalties you need to avoid.

Bad Checks

If you write a check to pay your taxes and the funds aren’t available when the IRS tries to withdraw the money, you can be penalized a set amount or the full amount of the check you wrote.

Charitable Contributions

Anyone caught operating for-profit activities while claiming the endeavor as a charitable organization will face considerable penalties. Non-profits that are caught operating for-profit activities can lose their tax exempt status.

Failure to File

There are some taxpayers that aren’t required to file a return, but if you do have to file, you need to do so by a specific date or file for an extension. An extension gives you six more months to file, but won’t absolve you from the need to pay any taxes owed by the usual deadline.

Failure to Pay

When you owe taxes to the IRS, you have 21 days to pay the entire amount. If you don’t, the IRS will charge you ½ of 1 percent per month on the amount you owe.

Fraud

Fraud occurs when you don’t report all your income or inflate the number of deductions you have to lower your taxes. The IRS can penalize you by 75 percent of what you actually owe and/or have you jailed. The IRS receives a copy of your earnings every year, just as you do.

Late Payments

If you fail to pay a balance owed the IRS by the filing deadline, there will be financial penalties that will be added to what you already owe. Those penalties accrue compound interest each month that they go unpaid.

Social Security Number

You have to provide a Social Security number for yourself, spouse, and anyone you claim as a dependent. You must disclose those numbers or face penalties for each instance of non-compliance.

Underpayment

For individuals that estimate their tax burden, you’ll incur a fine if you fail to pay the entire amount. There is also a fine for underestimating what you owe. The fine will be added to the amount you owe the next time you’re required to file.

Tax Saving Tips for Millennials

Many Millennials are struggling when it comes to their taxes. They don’t have access to the wide variety of tax deductions that their parents have been claiming for years. They’re at a unique point in their life where they’ve just graduated, started a new job, or are just struggling with day-to-day expenses. The following are some tax tips specifically for Millennials.

Filing Fees

Anyone that makes less than $64,000 per year is eligible to file for free. The IRS website can lead filers to companies and organizations that provide the online software to complete their federal and/or state taxes and for e-filing.

Education

Students and graduates should write off every possible educational deduction, including a tuition and fees deduction. It could result in a deduction of up to $4,000. To do so, Millennials will need to save every receipt that may apply. Young taxpayers can also claim their student loan interest up to $2,500.

Another deduction is Lifetime Learning Credits. The deduction can be taken for continuing education even after graduation and has the benefit of making individuals more attractive to employers.

Healthcare

A Health Savings Account (HSA) is a fund to which a taxpayer can contribute on behalf of their medical expenses. Up to $6,150 can be deposited each year and it’s all tax-free money that can be used toward any medical expense.

Retirement

Millennials should start saving for retirement as soon as possible. A Roth IRA, for example, allows individuals to take money from the original principal without penalties if needed while continuing to yield monetary results.

Working

Expenses associated with moving to start a new job may be deductible as a work-related expense if the relocation is at least 50 miles. For Millennials that may be working from home, a portion of their living space may qualify as a home office and be eligible for the home office deduction.

Amazon, eBay, and Etsy are all great ways to make extra cash and those avenues may qualify as a home business. Some individuals that are working in positions in which they can offer consulting services can change their filer status from employee to entrepreneur, which opens up new savings possibilities when filing.

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Tax
posted by Mark Battalini
June 27, 2020

Common Practices to Reduce Your Tax Liability

At tax time, everyone is looking for ways to reduce their tax liability and keep more of their hard-earned income. It’s possible to reduce your liability without having your return red-flagged by the IRS. The following are just some of the common ways to do so.

Business Expenses

If you own a small business, always hire a professional to do your taxes. There are a variety of deductions you may be eligible to take, but may not take advantage of for fear of triggering an audit. A professional tax preparer will be cognizant of the types of expenses that you can claim and the documentation you’ll need.

Charity

Charitable donations can be written off if they exceed your standard deduction and you itemize your taxes. You’ll need receipts to prove the contribution and they should be realistic.

College

You can contribute to a 529 account for yourself or grandchildren, nieces and nephews. You can’t deduct a 529 on federal taxes, but it can provide savings on state tax returns, depending upon the state in which you live. You can also deduct $2,000 in educational expenses through the Lifetime Learning Credit, even if you aren’t working toward a degree and your income isn’t too high.

Health Insurance

The federal government will no longer penalize you financially for not having insurance, but many states have initiated their own fines in the form of a tax for not having a qualifying healthcare plan. The rules vary on what a qualifying health plan means, so it’s best to consult with a professional and get covered.

Retirement Funds

Contribute as much as you can to an IRA or 401k account. You can contribute $6,000 to an IRA or $19,000 to a 401k. Additional amounts can be contributed if you’re over 50.

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Accounting
posted by Mark Battalini
April 29, 2020

Revenue and receivables

In most businesses, what drives the balance sheet are sales and expenses. In other words, they cause the assets and liabilities in a business. One of the more complicated accounting items are the accounts receivable. As a hypothetical situation, imagine a business that offers all its customers a 30-day credit period, which is fairly common in transactions between businesses, (not transactions between a business and individual consumers).

An accounts receivable asset shows how much money customers who bought products on credit still owe the business. It’s a promise of case that the business will receive. Basically, accounts receivable is the amount of uncollected sales revenue at the end of the accounting period. Cash does not increase until the business actually collects this money from its business customers. However, the amount of money in accounts receivable is included in the total sales revenue for that same period. The business did make the sales, even if it hasn’t acquired all the money from the sales yet. Sales revenue, then isn’t equal to the amount of cash that the business accumulated.

To get actual cash flow, the accountant must subtract the amount of credit sales not collected from the sales revenue in cash. Then add in the amount of cash that was collected for the credit sales that were made in the preceding reporting period. If the amount of credit sales a business made during the reporting period is greater than what was collected from customers, then the accounts receivable account increased over the period and the business has to subtract from net income that difference.

If the amount they collected during the reporting period is greater than the credit sales made, then the accounts receivable decreased over the reporting period, and the accountant needs to add to net income that difference between the receivables at the beginning of the reporting period and the receivables at the end of the same period.

Determining Your Tax Status

There are five classifications from which you choose to file: single, married filing jointly, married filing separately, head of household or qualifying widower with dependent child. If for some reason, more than one status applies to you, you should choose the status that gives you the greatest tax benefit.

Determining your status as a single filer seems simple enough, but there are different situations that exist that can qualify the taxpayer as single. For example, if you are legally separated even in the last month of the year, you are considered single for the entire year. With no dependents and you are unmarried, you are considered single. Divorce and annulment within the year also qualifies you to file as single.

However, even if you are single, but you have a dependent, or were widowed during the tax year, and you have dependents, your filing status would change to head of household or widowed with qualifying dependent child, not single.

When it comes to determining your status as a married taxpayer, there are simple qualification assessments that establish your legal filing status and if you’re considered married. Obviously, if you are legally married and living together as husband and wife, even for a small part of the tax year, then you would be considered married. If you are living together as common law spouses, and it is legally recognized in the state in which you live, or you lived part of the tax year in the state where the common law marriage began, then your filing status is married. Your filing status is still married even if you are married but not living together, but are not legally separated or divorced.

If you have unique circumstances, it might not be so easy to determine your filing status. If, for example, you were widowed during the tax year and did not remarry, you can file as married with your deceased spouse, and then file as widowed with qualified dependents for the next two years, so long as you do not remarry. If you remarry within the tax year that your spouse passed away, you would file as married with your current spouse, and file with your deceased spouse as married filing separately.

If you are married and want to file a joint return, your tax status is married filing jointly. All income to the household must be included on the one return, and both spouses must sign and date prior to submitting the tax return. All exemptions, deductions, and credits are reported on the joint return, and you share equal responsibility and liability for the information reported on the tax return, as well as any tax money owed. There are ways to ask for release from joint responsibility, either through innocent spouse relief, separation of liability for spouses who have not lived together for the past year, or equitable relief.

There are sometimes reasons that a spouse cannot sign a joint tax return, such as a spouse stationed abroad for the military. In this type of situation, you may sign for your spouse as a proxy, and attach a written explanation.

Choosing your filing status, while lengthy and sometimes complicated, is an important in the process of completing your Federal Income Tax return.

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