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tax deductions

Tax Write-Offs for Alarm Systems

Any business owner that’s been considering the installation of an alarm system should know they can deduct the cost on their federal tax return. The IRS recognizes a variety of qualifying equipment ranging from fire alarms to security systems if they were purchased or financed during the tax year.

Businesses can deduct the entire purchase price up to a specified limit and fire protection systems can now be written off. Allowable expenses include heat and smoke detection units, sensing devices, audible alarms, sprinkler systems, motion detectors, and door and window locks. Monitoring services may be deductible.

Individuals that work from home can deduct the cost of a security system as a business expense, within limits. The line between home office and business can be a little blurry. It’s best to hire a tax professional that is well-versed in the intricacies of the law. Those that work from home due to the COVID-19 pandemic don’t qualify, as they’re employees not business owners.

To claim a security system installed at a home as a business expense, individuals will need to prove that the home is their principal place of business where they meet with patients or clients. The home must also be the exclusive space where inventory is stored. Daycare facilities and properties for rental use are included.

Individuals will need to establish the allowable area where business is conducted. The IRS allows people to deduct a portion of the security system in relation to the area actually used for business purposes. There are two ways that percentage can be determined, so be sure to calculate both ways for the maximum benefit.

As with all IRS rules, there are exceptions. The business expense can’t equal or exceed the individual’s income. However, business owners operating a business from their home can claim depreciation of the system for the portion that protects the business space.

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 deductions

What Charities are Tax Deductible

Charitable organizations rely on the generosity of sources ranging from grants and bequests to personal donations. However, when it comes to tax time, individuals and businesses will want to be able to deduct those contributions. Child, animal and veteran’s organizations are three of the most popular choices for charitable donations. They range from small, local organizations to those based in the U.S. with global reach.

There are thousands of deserving and qualified organizations to which donations can be made, provided it qualifies under IRS rules as a tax-exempt organization as defined by section 501(c)(3). However, it’s important to know that an organization can have non-profit status, without meeting the 501(c)(3) specifications. That distinction is the difference in whether a contribution can be claimed on income taxes.

A major consideration is if the funds will be used generally or specifically. For instance, people can make a donation to a cemetery and it will be tax deductible if the money will be used for general upkeep and maintenance for the entire cemetery rather than a specific gravesite or mausoleum. If the individual received something in return for their donation, such as tickets, merchandise, or a dinner, it won’t be fully deductible.

Contributions to organizations such as the Red Cross and Salvation Army are tax deductible, but not when designated for a specific individual or family. Donations are tax deductible for museums, non-profit educational agencies, and for some religious organizations. Donations to volunteer fire departments and organizations that maintain public parks are also tax deductible, as are private foundations. Many animal shelters and organizations hold 501(c)(3) status.

Use Caution

Holidays and natural disasters are always prime opportunities for scammers to seek donations. There are numerous legitimate organizations that accept monetary contributions. It’s up to each individual or business to ascertain if the organization meets 501(c)(3) qualifications if they want to claim their contribution on their taxes.

It’s also a good idea to ask how much of the contribution will actually go toward the organization for the maximum good. Many people are surprised to learn that a scant 10 percent actually goes toward the organization. The IRS has an exempt organizations tool to help individuals and businesses identify qualifying organizations.

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 deductions

Common Tax Deductions you should Never Miss

Income tax time can be a dreadful season if you are not aware of all of the income tax breaks you can get through income tax deductions.  It is important to understand what is tax-deductible so that you can get as large of a tax refund as possible.

Probably the most well-known income tax deduction is the Earned Income Credit.  The earned income tax credit is available to those who make a minimum amount of money and can file tax as single, married, or head of household.  The more money you made, the more your earned income tax credit is until you hit the peak.  Once you hit that peak, the earned income tax credit goes down until you reach the maximum income allowed to receive the earned income tax credit.

The second well-known income tax deduction is the Child Tax Credit.  The child tax credit is available to you if you have two or more children in the home for more than six months out of the year for which you are filing tax, and if you have a tax liability.  The total amount is then applied to your tax liability, and any amount of child tax credit left over is made a part of your income tax refund.

Another income tax deduction is for child daycare, when the child daycare is needed in order for one or both parents to work outside the home.  This daycare income tax credit is equal to a percentage, up to a maximum amount, of the actual daycare expenses paid for that tax year.  

Other expenses can also be tax-deductible.  Interest paid on a mortgage for the primary residence can be claimed as an income tax deduction.  Medical expenses can also be claimed as an income tax deduction, although this is not very helpful unless you have an excessive amount of medical expenses to deduct on your income tax return.  Tax paid to another state can be used as an income tax deduction in the state that you live in.  Donations and contributions to charities, fundraisers, churches, etc. can also be tax-deductible.  

If you are self-employed, you can also claim business expenses as income tax deductions.  This includes any expenses directly related to running your business.  You can take a mileage income tax deduction for any miles you put on your vehicle for business purposes.  You can also take an income tax deduction for your office space in your home if it is used only for business purposes in the form of a portion of your rent, utilities, and phone bills.  You can also take an income tax deduction for your personal computer, printer supplies, and other office supplies as long as you have the receipts for the tax-deductible expenses, and usage logs for the personal computer and other equipment to show that it is used primarily for business.

As you can see, there are many income tax deductions available to you.  If you have any questions about what is tax-deductible, you should contact a qualified, certified, licensed tax accountant today.

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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accounting

Bad Debt Tax Deduction

Practically every small business has receivables that it cannot obtain from clients. If your small business doesn’t have any such receivables, consider yourself lucky. For those small businesses that suffer from uncollected receivables, solace can be taken from the fact you can claim a tax deduction

A small business can write-off bad debt losses if it meets nominal requirements. To claim such a tax deduction, the following must be shown:  

  1. The existence of a legal relationship between the small business and the debtor
  2. The receivables are worthless
  3. The small business suffered an actual loss

Proving there is a legal relationship between the small business and debtor is fairly simple. You must simply show that the debtor has a legal obligation to make a payment. Most businesses issue invoices or sign contracts with debtors and these documents suffice to prove the legal relationship. If you are not putting your business relationships in writing, you should begin doing so immediately.

Proving receivables are worthless is slightly more complex. A small business is required to show that the debt has become both worthless and will remain so. You must also show that you took reasonable steps to collect the receivables, but you are not necessarily required to go to court to meet this requirement. A clear example of where you would meet this requirement is if the debtor filed bankruptcy.

While proving that you suffered a loss may sound like the easiest requirement to meet, the issue is a bit more complicated. The Tax Code defines the loss as an amount that is included in your books as income, but is never collected. A classic example of such a situation would be a manufacturer that provides products to retailers on credit. The manufacturer can show a real loss if the retailer files bankruptcy.

Unfortunately, there is almost no way to claim a loss if you provide hourly services and use a cash accounting method. The IRS does not consider the expenditure of time and effort to be a sustained economic loss. 

Small businesses suffer all too often from uncollected receivables. If you failed to claim such losses as a tax deduction during your last three tax filing years, you should file amended tax returns to get a refund.

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

 

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How Retirement Contributions Affect your Taxes

The COVID-19 pandemic underscored the need to save for retirement and highlighted how many individuals are living paycheck to paycheck. Many individuals were unable to continue their contributions, while others were forced to withdraw funds due to pandemic-related situations. The following are some of the ways in which retirement contributions will affect your taxes.

Filing Status

Navigating tax-deductible amounts can be highly complicated and depends on your filing status, age, and the type of retirement plan you have. The best option to ensure accuracy on your income tax return is to seek the services of a professional accountant or tax preparer that will be knowledgeable in the tax laws governing multiple types of retirement accounts.

Roth IRA

Contributions to a Roth IRA are not deductible. You’ll pay the full amount of taxes on any money placed in the account. The trade-off is that you won’t pay taxes on contributions or investment returns after you retire and begin drawing money from the account.

Traditional IRA

Contributions to a traditional IRA reduces taxable income in direct proportion to the amount contributed. There’s a limit of $6,000 that can be contributed to the retirement plan. However, if you’re aged 50 or over, you can contribute up to $7,000.

Retirement & the CARES Act

The CARES Act in response to the COVID-19 pandemic added some changes to retirement funds and how they’ll affect your tax liability. The Act removed the 10 percent penalty on withdrawals if you’re under 59.5 years old. The tax liability can be spread over three years and an amended tax return can help regain money paid on the distribution if you’re paying back the account.

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 Credits for Single Parents

Tax time can be extremely stressful, particularly for single parents that need every tax credit they can take. There are a number of ways that single parents can take advantage of credits on their federal income taxes to reduce the tax burden of which they may not be aware.

Head of Household

Claim head of household to receive a higher standard deduction. Individuals will also pay fewer taxes overall. Generally, the filer can claim this if they were single on the last day of the year, the child(ren) lived with them the majority of the year, and they provided more than 50 percent of the child’s financial support.

Earned Income Credit

This is one of the most often claimed credits by single parents and couples. It’s designed for working families of low- and moderate-income, even if they don’t owe taxes. However, the IRS is required to hold the entire amount of any refund until mid-February if they claim this.

Child Care Credit

A single parent is eligible for this credit if they paid someone to care for their child so they could work. The child and the one caring for them must meet certain requirements. The credit is available when children are cared for by a licensed childcare center. Parents that pay someone to care for a child in their own home may be subject to the “Nanny Tax” as an employer.

Child Tax Credit

The child tax credit shouldn’t be confused with the child care credit. Up to $2,000 can be deducted from tax liabilities for each child under the age of 17 on Dec. 31, provided the parent has earned at least $2,500. The amount that can be refunded begins to diminish once individuals reach the $200,000 mark for income.

Medical Expenses

Extensive medical expenses that exceed 7.5 percent of an individual’s adjusted gross income can be deducted. It will require an itemized return and itemized returns are more likely to be audited.

Adoptions

The federal government gives individuals a tax credit when they adopt a child. Adopting a spouse’s child doesn’t count for the credit.

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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accounting

Ways to Cut your Tax Bill

Everyone wants to cut their tax bill and reduce their taxes. There are ways to accomplish those goals of which you may not be aware. The following are just some of the ways that you can cut your tax bill.

401k

The IRS doesn’t tax contributions to an IRA, making them an ideal way to reduce taxable income. Up to $19, 500 can be placed in an IRA and people 50 and over can add an extra $6,500 to that amount.

Education

You can establish an educational savings fund and deduct your contributions on your federal tax return. Contributing to the state’s 529 prepaid tuition or educational savings plan may also be deductible on state taxes. Be aware that the gift tax may apply if it exceeds $15,000 to a single beneficiary.

FSA

A flexible spending account for medical and dental expenses can aid in lowering your tax bill. There’s a limit of $2,750 in contributions. If you have a dependent care FSA account for child care expenses, the IRS will exclude contributions of up to $5,000. It may also cover eldercare expenses. Check with a tax professional to be sure.

HSA

Contributing to a health savings account can be beneficial if you have a high-deductible insurance plan. The plan parameters change each year and not everyone may qualify for the deduction, but they also have investment potential. It’s not a good option for everyone, so check with a tax professional first.

IRAs

There are standard/traditional IRAs and Roth IRAs. You might be limited on how much you can contribute or unable to deduct contributions under certain circumstances, depending upon which type you have. It’s best to discuss the situation with a tax professional or accountant.

Tax Calculators

There are numerous types of tax calculators that can help you save. There are calculators to estimate your taxes and refund to more complex calculators for determining capital gain taxes. Knowing where you stand financially is an effective tool for managing your finances and reducing tax liability.

W4s

Your W4s tells your employer how much to deduct from your check each week. If you had to pay in a sizable amount last year, increase your withholdings. The opposite is true if you got a large refund the previous year. You can change the withholdings on your W4 any time you want.

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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Why Tax Filing Status Matters

Federal tax returns are never fun to complete. Their complex and convoluted nature causes serious stress and even fear in those trying to do their own taxes – even with online tax services. Getting as much of a refund as possible while reducing tax liability is the goal and it begins with the question of filing status.

Filing status is extremely important as it affects the filer’s tax bracket and the amount they’ll owe. Filing status also determines how much – if any – refund that will be received and the deductions and credits for which individuals are eligible. The more deductions and credits for which an individual or family qualifies, the less their tax liability will be. Individuals can file as:

  • Single
  • Head of Household
  • Qualifying Widow(er) with Dependent Child
  • Married Filing Jointly
  • Married Filing Separately

Single

Unmarried people on Dec. 31, those whose divorce was finalized before that date, and people that have never been married can claim this status. It can reduce tax liability for individuals with children, providing certain conditions are met.

Head of Household

Filing in this category lowers the tax rate and provides a higher standard deduction for single filers. As a head of household, individuals will need to have a higher income than a single filer before they owe income taxes.

Qualifying Widow(er) with Dependent Child

Men or women filing this way receive a higher standard deduction and lower tax rate. It can be taken for two years following the death of a spouse, provided they remain single. The filer must have a dependent child, stepchild, or adopted child and meet income, age, and support requirements. This category and married filing jointly offer the highest standard deduction. These filers may also qualify for tax breaks on investments.

Married Filing Jointly

Filers in this category can help couples qualify for a lower tax bracket, less tax liability, and may even net a refund. There are a number of credits and deductions that can be taken, especially with dependent children that aren’t available to single filers or married couples filing separate returns.

Married Filing Separately

This can be beneficial if one spouse earns significantly less money than the other. The individual making less may then be eligible to benefit from certain deductions of which the other spouse may not qualify.

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 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.

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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Automobile Tax Expenses

The powers that be have historically written sections into the tax code promoting business activities. One of the traditional write-offs has always been the expenses associated with using a vehicle for business purposes.

 

The simplest automobile tax expense situation is one in which a vehicle is used entirely for business. For example, if you have a van used for a delivery service and nothing personal, all expenses associated with the van can be written off. This is known as the exclusive use situation. For many small businesses, however, a vehicle will be used for both personal and business reasons.

 

Where you use a vehicle for both personal and business reasons, you can only deduct the automobile expenses associated with the business use. Keep in mind that driving to and from work is not considered business mileage while driving from an office to meet a client is considered business mileage.

 

There are two methods for determining deductible automobile tax expenses. The first is a simple calculation known as the standard mileage deduction. The second is the actual expenses method. You can choose whichever deduction provides you with the biggest deduction unless you lease the car. With a lease, you must use the standard mileage deduction.

 

The standard mileage rate deduction is a calculation wherein you multiply your total business mileage for the year by a figure provided by the IRS. For the first eight months of 2005, the figure provided by the IRS is 40.5 cents per mile. For the last four months of 2005, the figure has been bumped up to 48.5 cents to reflect high gas prices.

 

The actual cost expense option is exactly what it sounds like. It is the actual cost associated with using the vehicle for tax purposes for a particular tax year. Automobile tax expenses will include gas, tires, repairs, oil changes, registration costs, licensing, insurance and so on. In many cases, the actual expense deduction will end up being larger than the standard mileage deduction.

 

Regardless of the method you choose, you must document the automobile tax expenses. This means keeping a mileage book and receipts of anything you intend to deduct.

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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