Skip to main content Skip to search

tax preparation Conway

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!

 

Contact Us Today

Read more

Stimulus Relief and Taxes

Various stimulus payments during the COVID-19 pandemic have been designed to provide relief for those struggling during job loss and lock downs. The coronavirus has affected every aspect of life, and that includes income taxes.

Payment Delays

The federal government has made three rounds of stimulus payments to individuals, even to those that typically don’t file or aren’t required to file. The distribution of those payments has encountered a number of problems. Individuals may have received one, but not the other payment, but that doesn’t mean that they won’t receive the second and third.

Others received less than the full amount and in many cases, the payments were confiscated for child support and similar court-ordered payments or the full amount wasn’t disbursed. For those individuals, they may be eligible to claim a Recovery Rebate Credit, but to do so they need to file a tax return.

Tax Liability

The good news is that stimulus checks aren’t taxable. Individuals must pay taxes on income, but stimulus checks aren’t really income for tax purposes. It’s classified as an advance payment on a tax credit and a tax credit isn’t taxable either. Pay careful attention to the new tax forms, as they can save taxpayers money if they:

  • Had a baby
  • Were married and one spouse doesn’t have a Social Security number
  • Income dropped in 2020
  • Are a recent college graduate
  • Didn’t receive a full round of stimulus checks
  • Didn’t file a 2018 or 2019 tax return

Delivery Difficulties

The stimulus payments were first made to people that filed tax returns by e-file. Paper checks were then dispersed to those that filed paper copies of their return. It led to delays, shorted amounts, and no check at all, since distribution was based on 2019 and 2020 tax returns. That means individuals will be able to claim the amount they missed as a tax credit on their 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!

 

Contact Us Today

Read more

Financial Steps to Take After you get a Raise

A raise represents a welcome addition to your income, but it can also come with some pitfalls. You may be tempted celebrate by splurging on something you or the family have wanted. While a small purchase may be in order, it’s important to remember that the money will be doled out across multiple pay periods. You also won’t receive the entire $5,000 since taxes will take a percentage of each dollar.

Take Home Pay

Take stock of your current financial situation and figure out how many dollars more you’ll be taking home each pay period. You may also have to make adjustments to your withholdings your IRS W-4 form. Claiming too much in withholdings will net a large refund at the end of the year, but it can also bring unwelcome attention from the IRS. Claiming too little in withholdings can leave you owing a significant amount of money to the IRS that you’re ill-equipped to pay.

Address Debt

If you have credit card debt or a car loan, use the extra money each pay period to pay it down. It’s especially important if you have high-interest credit cards or long-term debt. It will also work to increase or maintain your credit rating.

Emergency Fund

A raise is a great way to build on an existing emergency fund or start one. You’ll have the needed funds if there’s a job loss, unexpected medical bills, or a major appliance needs to be replaced. Keep the money in a separate savings account so you won’t be tempted to spend it. Financial advisors recommend having enough money in an emergency fund to cover living expenses for 3 to 6 months.

Retirement Fund

It’s never too early to think about retirement. Contributing even 1 percent of your raise to retirement can make a big difference. Consider making it an automatic deduction from your pay check. If your employer matches your contributions, definitely take advantage of it.

Treat Yourself

It’s okay to set aside a little money to treat yourself or the family and enjoy your success. It’s your reward for hard work. Just keep it small and don’t go overboard. A treat doesn’t have to cost a fortune to be appreciated and savored.

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!

 

Contact Us Today

Read more

How To Use Accounting Software To Organize Your Tax Records

Keeping track of your tax records does not need to mean an overflowing file cabinet. Plenty of free online resources will help keep even the most chaotic offline tax records well organized. Finding out which records should be kept and where is just half the battle. Storing them properly takes discipline, without which you will be left with an over-loaded shoebox full of receipts.

There are many different ways that you can store and organize your records; some work better than others for different people. In the case of individual tax returns, it is easier to use accounting software to manage the accounting side of things; you simply record when you make a purchase, when you make a payment or write in a check. It would be much more time consuming, however, if you want to organize your receipts and other documents.

One of the first steps in keeping up with your records is to have a system in place for storing all of the receipts that come into your business. If you are using a single computer for all of your document filing and accounting needs, then you can easily install and use one of the free accounting software programs available online. You can then print out each receipt and store it in your receipt folder. If you have more than one location for your receipt and bookkeeping needs, you can use labels or tags to organize the documents as you see fit.

If you use accounting software to organize your tax records, you may also want to purchase a receipt scanner. With this tool, you can scan every receipt that comes into your office. These scanners are usually used by accountants and other individuals who have a lot of paperwork to process. There are even models available that can be mounted on the wall so you can scan everything that comes into your office. There are even some models available that will allow you to print out everything that is scanned. The benefit of using these products is that you will be able to save money by eliminating the cost of purchasing ink and paper.

In addition to using an accounting software product to organize tax records, you can also take advantage of available online resources. One of the best options available is the ability to use an online filing program. These types of programs will allow you to electronically file your income tax documents so that you can avoid the extra time and money spent filing by hand. When you file electronically, you can usually do it from any location with an Internet connection. This will allow you to access your files from any computer with an Internet connection. This option is often times very helpful if you have a home office because you can easily conduct your tax records there.

The tax records that you maintain should be organized so that you can easily retrieve them when you need them. There are a variety of ways that you can organize these documents. If you want to save time while filing your tax returns, consider buying an accounting software product that will help you organize your tax records. If you are unsure about how to organize your tax records, then you can hire a certified public accountant to help you. There are many advantages to keeping your tax records in order and using a tax software product that helps you organize your information.

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!

 

Contact Us Today

Read more
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!

 

Contact Us Today

Read more

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!

 

Contact Us Today

Read more
tax brackets

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: 

  1. Collection actions such as liens, levies, seizures, installment agreement terminations and rejected offers-in-compromise,
  2. Penalties and interest, and 
  3. 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.

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!

 

Contact Us Today

Read more

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!

 

Contact Us Today

Read more

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!

 

Contact Us Today

Read more

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!

 

Contact Us Today

Read more