Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Filing a Tax Return: Avoid These Common Errors


While not all mistakes on tax returns cause delays in refunds, as the April 18 deadline approaches, taxpayers are advised to steer clear of the common tax return errors listed below to ensure a timely refund.

Not Using Electronic Filing

While this isn’t necessarily a mistake per se, electronic filing is the best way to cut the chances for many tax return mistakes while maximizing deductions to reduce the amount of tax owed. The reason for this is that the tax software your tax professional uses automatically applies the latest tax laws, checks for available credits or deductions, does the calculations, and asks taxpayers for all required information.

 

Due to the backlog of returns related to COVID-19, processing paper tax returns could take much longer than usual, and electronic filing is encouraged. If filing a paper return, taxpayers should double-check the mailing address on IRS.gov or on the form instructions to avoid processing delays.

Failing To Report All Taxable Income

Be sure to have income documents on hand before starting the tax return. Examples are Forms W-2, 1099-MISC, or 1099-NEC. Underreporting income may lead to penalties and interest. Wages, dividends, bank interest, and other income received that was reported on an information return should be entered carefully on your tax forms. This includes any information needed to calculate credits and deductions.

Using Incorrect or Misspelled Names and Social Security Numbers

Enter each Social Security number (SSN) and individual’s name on a tax return exactly as printed on the Social Security card. Persons generally must list the SSN of any person they claim as a dependent on their individual income tax return. If a dependent or spouse does not have and is not eligible to get an SSN, list the Individual Tax Identification Number (ITIN) instead of an SSN. Likewise, a name listed on a tax return should match the name on that person’s Social Security card.

Not Using the Correct Filing Status

If taxpayers are unsure about their filing status, the Interactive Tax Assistant on IRS.gov can help them choose the correct status, especially if more than one filing status applies. Tax software, including IRS Free File, also helps prevent mistakes with filing status.

Forgetting to Answer the Virtual Currency Question

The 2021 Form 1040 asks whether, at any time during 2021, a person received, sold, sent, exchanged, or otherwise disposed of any financial interest in any virtual currency. All taxpayers must answer this question – not just taxpayers who engaged in a transaction involving virtual currency.

Not Using the Correct Bank Account and Routing Numbers

Requesting direct deposit of a federal refund into one, two, or even three accounts is convenient and allows the taxpayer access to their money faster. Make sure that the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

 

Taxpayers can also use their refund to purchase U.S. Savings Bonds by completing Part 2 of Form 8888, Allocation of Refund (including Savings Bond Purchases), with their tax return. Your tax filing must be error-free to receive the Treasury bonds, however.

Figuring Credits or Deductions

Taxpayers can make mistakes figuring things like their earned income tax credit, child and dependent care credit, child tax credit, and recovery rebate credit. The Interactive Tax Assistant Tool on IRS.gov can help determine if a taxpayer is eligible for tax credits or deductions. Tax software will calculate these credits and deductions and include any required forms and schedules. Taxpayers should double-check where items appear on the final return before clicking the submit button.

 

Figuring Credits or Deductions

Taxpayers can make mistakes figuring things like their earned income tax credit, child and dependent care credit, child tax credit, and recovery rebate credit. The Interactive Tax Assistant Tool on IRS.gov can help determine if a taxpayer is eligible for tax credits or deductions. Tax software will calculate these credits and deductions and include any required forms and schedules. Taxpayers should double-check where items appear on the final return before clicking the submit button.

Forgetting to Sign and Date the Return

If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Failing To Keep a Copy of Your Return

When ready to file, taxpayers should make a copy of their signed returns and all schedules for their records.

Not Requesting an Extension, if Needed

Taxpayers who cannot meet the April 18 deadline this year can easily request an automatic filing extension to October 17, 2022, and prevent late filing penalties. Remember that while an extension grants additional time to file, tax payments are still due April 18, 2022.

Tax Breaks for Taxpayers Who Itemize


Many taxpayers opt for the standard deduction, but sometimes itemizing your deductions is the better choice – often resulting in a lower tax bill. Whether you bought a house, refinanced your current home, or had extensive gambling losses, you may be able to take advantage of tax breaks for taxpayers who itemize. Here’s what to keep in mind:

Deducting State and Local Income, Sales, and Property Taxes

The deduction that taxpayers can claim for state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 – $5,000 if married filing separately. State and local taxes paid above this amount can’t be deducted.

Refinancing a Home

The deduction for mortgage interest is limited to interest paid on a loan secured by the taxpayer’s main home or second home. Homeowners who choose to refinance must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described under “buying a home” below.

Buying a Home

People who bought a new home in 2021 can only deduct mortgage interest paid on a total of $750,000 ($375,000 married filing separately) in qualifying debt for a first and second home. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers may continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.

Charitable Donations

Donations to a qualified charity also qualify as a tax break. Taxpayers who itemize deductions can take advantage of a temporary suspension of limits on charitable contributions (CARES Act of 2020) that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI). Normally, the limit for the deduction for cash contributions is 60% of AGI. As a reminder, the non-profit organization must be a 501(c)(3) public charity or private foundation, and non-cash donations may require a qualified appraisal. Taxpayers must have proof of all donations.

Deducting Mileage for Charity

Miles driven using a personal vehicle for charitable service activities could qualify you for a tax break. Taxpayers who itemize can deduct 14 cents per mile for charitable mileage driven in 2021, as well as 2022.

Reporting Gambling Winnings and Claiming Gambling Losses

Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings. You may deduct gambling losses; however, the amount of losses you deduct can’t be more than the amount of gambling income you report on your return. Furthermore, you must keep a record of your winnings and losses. For example, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.

Investment Interest Expenses

Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to property held for taxable investments – the interest on a loan you took out to buy stock in a brokerage account, for example. Taxable investments include interest, dividends, annuities, or royalties.

Wondering whether you should itemize deductions on your 2021 tax return? Don’t hesitate to call the office and find out.

What To Know About the Gig Economy and Your Taxes


The gig economy, also called sharing or access economy, is defined by activities where taxpayers earn income providing on-demand work, services, or goods. This type of work is often carried out via digital platforms such as an app or website. There are many types of sharing economy businesses, including two of the most popular ones: ride-sharing, Uber and Lyft, for example, and home rentals such as Airbnb.

If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides, or other goods or services, they may be part of the sharing or gig worker economy. Understanding how gig work can affect taxes may sound complicated, but it doesn’t have to be. Let’s take a look at what taxpayers should keep in mind:

Income is Taxable

Whether it’s a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax returns. Income from these sources is taxable, regardless of whether an individual receives information returns. This is true even if the work is full-time, part-time, or a side job, if an individual is paid in cash, or if an information return like a Form 1099 or Form W2 is issued to the gig worker.

New for 2022: The reporting requirement PDF for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.

 

 

Taxpayers may also be required to make quarterly estimated income tax payments and pay their share of Social Security, Medicare, or Medicaid taxes. Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe $1,000 or more tax when their return is filed.

Renting Out Your Home

Special rules generally apply if a taxpayer rents out his home, apartment, or other dwelling but also lives in it during the year – this residential rental income may be taxable. For more information about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can also use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable, and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.

Worker Classification

While providing gig economy services, the taxpayer must be correctly classified. This means the business or the taxpayer must determine whether the individual providing the services is an employee or an independent contractor. Taxpayers can check out the worker classification page on IRS.gov to determine how they are classified.

This is important because some gig workers may be classified as independent contractors and may be able to deduct business expenses, depending on tax limits and rules. To do so, taxpayers who are independent contractors need to keep records of their business expenses. For example, a taxpayer who uses their car for business should keep a written mileage log (or use a mileage tracking app) because they often qualify to claim the standard mileage rate on their tax return. For 2021, this rate was 56 cents per mile. In 2022, the rate rises to 58.5 cents per mile.

Paying Taxes on Gig Income

Since income from the gig economy is taxable, taxpayers must remember to pay the right amount of taxes throughout the year to avoid owing when they file. An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe. However, gig economy workers who are not considered employees must pay their taxes. There are two ways to do this:

  • Submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee.
  • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

If you have any questions about the sharing economy and your taxes, help is just a phone call away.

Small Business Financing: Securing a Loan


At some point, most small business owners will visit a bank or other lending institution to borrow money. Understanding what your bank wants and how to approach them properly can mean the difference between getting a loan for expansion or scrambling to find cash from other sources.

Unfortunately, many business owners fall victim to several common, but potentially destructive myths regarding financing, such as:

  • Lenders are eager to provide money to small businesses.
  • Banks are willing sources of financing for start-up businesses.
  • When it comes to seeking money, the company speaks for itself.
  • A bank is a bank, is a bank, and all banks are the same.
  • Banks, especially large ones, do not need and do not want the business of a small firm.

Understand the Basic Principles of Banking

It’s vital to present yourself as a trustworthy businessperson, dependable enough to repay borrowed money, and demonstrate that you understand the basic principles of banking. Your chances of receiving a loan will significantly improve if you can see your proposal through a banker’s eyes and appreciate the position that they are coming from.

Banks have a responsibility to government regulators, depositors, and the community in which they reside. While a bank’s cautious perspective may be irritating to a small business owner, it is necessary to keep the depositors’ money safe, the banking regulators happy, and the community’s economic health growing.

Each Banking Institution is Different

Banks differ in the types of financing they make available, interest rates charged, willingness to accept risk, staff expertise, services offered, and their attitude toward small business loans.

Selection of a bank is essentially limited to your choices from the local community. Typically, banks outside of your area of business are not as anxious to make loans to your firm because of the higher costs of checking credit and collecting the loan in the event of default.

Furthermore, a bank will typically not make business loans to any size business unless a checking account or money market account is maintained at that institution. Ultimately your task is to find a business-oriented bank that will provide the financial assistance, expertise, and services your business requires now and is likely to require in the future.

If you need assistance deciding which bank best suits your needs and provides the greatest value for your business operation, don’t hesitate to call the office.

Build Rapport

Building a favorable climate for a loan request should begin long before the funds are needed. The worst possible time to approach a new bank is when your business is in the throes of a financial crisis. Devote time and effort to building a background of information and goodwill with the bank you choose and get to know the loan officer you will be dealing with early on.

Bankers are essentially conservative lenders with an overriding concern for minimizing risk. Logic dictates that this is best accomplished by limiting loans to businesses they know and trust. One way to build rapport and establish trust is to take out small loans, repay them on schedule, and meet all loan agreement requirements in both letter and spirit. By doing so, you gain the banker’s trust and loyalty, and they will consider your business a valued customer and make it easier for you to obtain future financing.

Provide the Information Your Banker Needs to Lend You Money

Lending is the essence of the banking business, and making mutually beneficial loans is as crucial to the bank’s success as it is to the small business. Understanding what information a loan officer seeks – and providing the evidence required to ease normal banking concerns – is the most effective approach to getting what is needed.

A sound loan proposal should contain information that expands on the following points:

  • What is the specific purpose of the loan?
  • Exactly how much money is required?
  • What is the exact source of repayment for the loan?
  • What evidence is available to substantiate the assumptions that the expected source of repayment is reliable?
  • What alternative source of repayment is available if management’s plans fail?
  • What business or personal assets, or both, are available to collateralize the loan?
  • What evidence is available to substantiate the competence and ability of the management team?

Even a brief examination of these points suggests the need for you to do your homework before making a loan request because an experienced loan officer will ask probing questions about each of them. Failure to anticipate these questions or providing unacceptable answers is damaging evidence that you may not completely understand the business or are incapable of planning for your firm’s needs.

What to Do Before You Apply for a Loan

Write a Business Plan. Your loan request should be based on and accompanied by a complete business plan. This document is the single most important planning activity that you can perform. A business plan is more than a device for getting financing; it is the vehicle that makes you examine, evaluate, and plan for all aspects of your business. A business plan’s existence proves to your banker that you are doing all the right activities. Once you’ve put the plan together, write a two-page executive summary. You’ll need it if you are asked to send “a quick write-up.”

Have an accountant prepare historical financial statements. You can’t talk about the future without accounting for your past. Internally generated statements are OK, but your bank wants the comfort of knowing an independent expert has verified the information. Also, you must understand your statement and explain how your operation works and how your finances stand up to industry norms and standards.

Line up references. Your banker may want to talk to your suppliers, customers, potential partners, or your team of professionals, among others. When a loan officer asks for permission to contact references, promptly answer with names and numbers; don’t leave them waiting for a week.

Seek Advice From an Experienced Tax and Accounting Professional

Walking into a bank and talking to a loan officer is stressful for just about anyone. Preparation for and a thorough understanding of this evaluation process is essential to minimize the stressful variables and optimize your potential to qualify for the funding you seek. If you’re thinking about taking out a small business loan, don’t hesitate to call with any questions or to request a consultation.

Reminder: Social Security Benefits May Be Taxable


Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable. Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security. About 40 percent of people who get Social Security have to pay income taxes on their benefits.

At the end of each year, the Social Security Administration sends a Form SSA-1099, Social Security Benefit Statement, showing the amount of benefits you received. Use this statement when you complete your federal income tax return to find out if you must pay taxes on your benefits.

 

Although you’re not required to have Social Security withhold federal taxes, you may find it easier than paying quarterly estimated tax payments.

 

An easy method of determining whether any of your benefits might be taxable is to take one-half of the Social Security money collected during the year and add it to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your “combined income” is the sum of your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

Taxpayers Filing an Individual Federal Tax Return

  • If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Taxpayers Filing a Joint Federal Tax Return

  • If you and your spouse have a combined income (adjusted gross income + nontaxable interest + 1/2 of your (and your spouse, if applicable) Social Security benefits) that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • If it is more than $44,000, up to 85 percent of your benefits may be taxable.

Married Taxpayers Filing Separately

Up to 85% of social security benefits may be taxable if you are:

  • A married taxpayer who lived apart from your spouse for all of 2021 with more than $34,000 income
  • A married taxpayer who lived with your spouse at any time during 2021

Pensions from Work

If you get a pension from work for which you paid Social Security taxes, that pension won’t affect your Social Security benefits. However, if you get a retirement or disability pension from work not covered by Social Security, we may reduce your Social Security benefit. Work not covered by Social Security includes the federal civil service, some state or local government employment, or work in a foreign country.

State Taxes

Twelve states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Retiring Abroad?

Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income but may not be liable for tax in the country where you’re spending your retirement years.

If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits – the same as if you were still living in the U.S.

You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional specializing in expatriate tax services.

 

Even if you retire abroad, you may still owe state taxes – unless you established residency in a state that does not tax retirement income such as Florida before you moved overseas. Another thing to keep in mind is that some states honor the provisions of U.S. tax treaties and some states do not. Therefore, it is prudent to consult a tax professional before choosing a retirement location.

 

Help is Just a Phone Call Away

If you receive Social Security, a tax professional can help you determine if some – or all – of your benefits are taxable.

There’s Still Time To Make an IRA Contribution for 2021


If you haven’t contributed funds to an Individual Retirement Account (IRA) for tax year 2021, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2022, due date (April 19 if you live in Maine or Massachusetts), not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2021. Otherwise, the trustee may report the contribution as being for 2022 when they get your funds.

Generally, you can contribute up to $6,000 of your earnings for tax year 2021 (up to $7,000 if you are age 50 or older). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Traditional IRA. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans.

Saving for retirement should be part of everyone’s financial plan, and it’s important to review your retirement goals every year to maximize savings. If you need help with your retirement plans, give the office a call.

What Is the Credit for Other Dependents?


The credit for other dependents is a tax credit available to taxpayers for each of their qualifying dependents who can’t be claimed for the child tax credit. The maximum credit amount is $500 for each dependent who meets certain conditions. These include:

  • Dependents who are age 17 or older.
  • Dependents who have individual taxpayer identification numbers.
  • Dependent parents or other qualifying relatives supported by the taxpayer.
  • Dependents living with the taxpayer who aren’t related to the taxpayer.

The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.

A taxpayer can claim this credit if:

  • They claim the person as a dependent on the taxpayer’s return.
  • They cannot use the dependent to claim the child tax credit or additional child tax credit.
  • The dependent is a U.S. citizen, national or resident alien.

Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. The worksheet in Publication 972, Child Tax Credit and Credit for Other Dependents helps taxpayers determine if they can claim the credit for other dependents.

For more information about this important tax credit for families, please call the office.

Business Meals Fully Deductible in 2021 and 2022


Beginning January 1, 2021, and extending through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant under the circumstances.

In most tax years, there is a 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception was included in the Taxpayer Certainty and Disaster Relief Act of 2020, part of a series of tax laws intended to provide coronavirus-related relief.

Where can businesses get food and beverages and claim 100%?

Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods, not for immediate consumption, such as grocery stores and convenience stores.

Additionally, an employer may not treat certain employer-operated eating facilities like restaurants, even if a third party operates these facilities under contract with the employer.

Questions?

For more information about this and other coronavirus-related tax relief for business owners, please contact the office today.

Employee Business Expense Deductions: Who Qualifies?


Prior to tax reform, an employee could deduct unreimbursed job expenses, along with certain other miscellaneous expenses, that were more than two percent of adjusted gross income (AGI) as long as they itemized instead of taking the standard deduction. Starting in 2018, however, most taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions unless they are a qualified employee or eligible educator.

No other type of employee is eligible to claim a deduction for unreimbursed employee expenses. In other words, employee business expenses can be deducted as an adjustment to income only for eligible educators and specific employment categories such as:

  • Armed Forces reservists
  • Qualified performing artists
  • Fee-basis state or local government officials
  • Employees with impairment-related work expenses

Qualified Expenses

A qualified expense is one that is:

    Paid or billed during the tax year

  • Used for carrying on a trade or business of being an employee, and
  • Ordinary and necessary

Nondeductible Expenses

Taxpayers should also know there are nondeductible expenses as well. Examples of nondeductible expenses include club dues, commuting expenses, fees and licenses, such as car licenses, lunches with co-workers, meals while working late, expenses to improve professional reputation, and capital expenses. A full list of nondeductible expenses can be found in Publication 529, Miscellaneous Deductions.

Please call if you have any questions.

The Facts: Taxable vs. Nontaxable Income


Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

Taxable Income

Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income

Here are some types of income that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

 

Under the CARES Act, emergency financial aid grants made to students at a higher education institution because of an event related to the COVID-19 pandemic are not included in the student’s gross income.

In addition, some types of income are not taxable except under certain conditions, including:

  • Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
  • Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.
  • If you received a state or local income tax refund, the amount might be taxable. You should have received a 2021 Form 1099-G from the agency that made the payment to you. The agency might have provided the form electronically if you didn’t get it by mail. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.

If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office today.

Bundling Items in QuickBooks? Build Assemblies


Some things naturally go together. For example, if you manage a fast-food restaurant, you probably sell similar combinations frequently, like a double cheeseburger, fries, and a soft drink. If you run a car dealership, there are numerous ways to upsell your customers by adding accessories, maybe at a discount. Even very small businesses can bundle items. You might sell handmade jewelry and want to put together a package that includes cleaner and cleaning cloths for one price.

You can, of course, continue to sell all of those products separately. But you may find you can bump up your sales (and profits) by creating assemblies (sometimes called “kits”), bundles of items that are sold as one unit. You can automatically build these using QuickBooks Desktop Premier or above. Here’s how.

Putting Items Together

If you’re already creating item records and recording product sales in QuickBooks, you probably already have Inventory turned on. If you don’t, open the Edit menu and select Preferences. Click Items & Inventory, then Company Preferences. Make sure the boxes are checked for the options you want.

 Figure 1 - QuickBooks has several options for dealing with inventory. You should check your <strong>Preferences</strong> before you start entering sales.
Figure 1: QuickBooks has several options for dealing with inventory. You should check your Preferences before you start entering sales.

Haven’t started creating item records yet? If you have questions about how QuickBooks handles this, help is just a phone call away. In fact, this is encouraged because some of the records’ fields may be foreign to you. If you want to try it on your own, however, you will need to open the Lists menu and select Item Lists. Next, click the down arrow next to Item in the lower-left corner and then click New. The New Item window will open. Since you’re going to be building assemblies, you have to create records for all of the products that will be included. So choose the Inventory Part option under Type. Complete the rest of the fields here and click OK. Once you have enough product records created to start building assemblies, go through the same steps you went through to open the New Item window. Rather than selecting Inventory Part under Type, though, click on Inventory Assembly. Instead of defining a single item in this window, you’ll be choosing the components that will be included. This is your Bill of Materials.

You won’t have to complete every field in this window, but several are required. Give your assembly its own Item Name/Number. Then, so you know what you’ll be pricing, jump down to the Bill of Materials window and select the items that your assembly will include in the table provided. If you completed all of the fields in the product records, QuickBooks will fill in the other columns on each line except for quantity (QTY) , which you must enter.

 Figure 2 - Enter the item name and quantity for every inventory part in your assembly, and QuickBooks will fill in the rest and calculate your total cost.
Figure 2: Enter the item name and quantity for every inventory part in your assembly, and QuickBooks will fill in the rest and calculate your total cost.

When you’ve completed the table for your assembly, enter the Total Bill of Materials Cost in the Cost field above it, then supply the Sales Price that you will charge. Select the correct Tax Code and Income Account. Then go down to the bottom of the screen under Inventory Information and select the appropriate Asset Account. You’ll also need to specify at what point new assemblies should be built (minimum and maximum). There are four other fields on this line that QuickBooks will fill out once you start building assemblies and selling them.

Building Assemblies

The hard work is over now. When you want to actually start building assemblies, open the Vendors menu and click Inventory Activities | Build Assemblies. Select the kit you want by opening the drop-down menu next to Assembly Item. The items you selected will appear in the table below. QuickBooks will also display the maximum number of kits you can build given the quantity of inventory on hand. Enter the number you want in the Quantity To Build field and click the Build & Close button.

Now, when you go back to your item record, you’ll see that QuickBooks has filled in the On Hand number to reflect the assemblies you just built.

 Figure 3 - QuickBooks will keep the numbers in the lower right corner of the assembly item record updated.
Figure 3: QuickBooks will keep the numbers in the lower right corner of the assembly item record updated.

The process of building assemblies may feel a little foreign at first. And if you’re going to keep some on hand, you’ll need to pay extra attention to your inventory levels, which you can do by running the Inventory Stock Status by Item report. So, this is an area where you may need help. If that is the case, don’t hesitate to call for assistance with inventory and assembly concepts or any other element of QuickBooks.

Tax Due Dates for March 2022


March 1

Farmers and Fisherman – File your 2021 income tax return (Form 1040 or Form 1040-SR) and pay any tax due. However, you have until April 18 (April 19 if you live in Maine or Massachusetts) to file if you paid your 2021 estimated tax by January 18, 2022.

March 2

Health Coverage Reporting – If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals.

March 10

Employees who work for tips – If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.

March 15

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February.

Partnerships – File a 2021 calendar year income tax return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065-B) or substitute Schedule K-1. To request an automatic 6-month extension of time to file the return, file Form 7004. Then file the return and provide each partner with a copy of their final or amended (if required) Schedule K­1 (Form 1065) by September 15.

S Corporations – File a 2021 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder’s Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in tax. Then file the return, pay any tax, interest, and penalties due and provide each shareholder with a copy of their Schedule K-1 by September 15.

S Corporation Election – File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2022. If Form 2553 is filed late, S corporation treatment will begin with calendar year 2023.

March 31

Electronic Filing of Forms – File Forms 1097, 1098, 1099 (except Form 1099-NEC), 3921, 3922, and W-2G with the IRS. This due date applies only if you file electronically. The due date for giving the recipient these forms generally remains January 31.

Electronic Filing of Form W-2G – File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2021. This due date applies only if you electronically file. The due date for giving the recipient these forms remains January 31.

Electronic Filing of Forms 8027 – File copies of all the Forms 8027 you issued for 2021. This due date applies only if you electronically file.

Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1095-B – If you’re an Applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of minimum essential coverage, file electronic Forms 1094-B and 1095-B with the IRS.

How Secure Is Virtual Accounting?


Increasingly, day-to-day business operations are going virtual. In recent years, numerous brick-and-mortar companies have adopted digital business practices to achieve greater flexibility and lessen their dependence on physical offices.

This trend has extended to the professional services sector. In particular, a growing number of accounting professionals are moving their operations online to better support the shifting business landscape.

While business leaders are gradually embracing the shift to virtual accounting, concerns remain about the safety of online accounting processes and systems. Every company wants to ensure that its data is safe from intruders and external attackers.

Below, we’ll examine the safety of virtual accounting and the benefits it offers to businesses and accounting professionals. But first, let’s understand what virtual accounting is.

What Is Virtual Accounting?

Virtual accounting refers to accounting tasks that are completed remotely with the aid of technology. Virtual accounting systems store data in the cloud, allowing accountants and their clients to accomplish key financial tasks without being physically present in an office or workplace. This allows for greater collaboration between business departments, as well as between businesses and accounting professionals. Additionally, virtual accounting solutions often present opportunities for integration and automation, helping businesses streamline their accounting activities and consolidate all their financial data in a single place.

Virtual accounting applications can help businesses:

  • Automate accounting and bookkeeping processes
  • Enhance accuracy and reduce errors
  • Improve team collaboration
  • Enhance data privacy and security
  • Perform expense tracking, invoicing, and payroll processing
  • Improve tax preparation and planning capabilities

However, for virtual accounting to be a useful tool, businesses must select a secure and scalable software solution. Fortunately, today’s leading accounting software developers have placed security at the forefront of their offerings.

Making Security a Priority

If you use a reputable virtual accounting solution recommended by accounting professionals, you can be confident that your financial data is safe. Today’s leading accounting software companies prioritize security due to the highly sensitive nature of the data they process. Most solutions automatically deliver security patches to your application as needed, ensuring that your accounting operations are as safe as possible. They also encrypt all data moving through the network and ensure continuous off-site backup to avoid data loss. Other standard security features include firewalls and extended validation (EV) SSL to enhance the security of internet transactions.

Virtual accounting solutions that support multiple users can improve a business’ collaboration and flexibility, but more user profiles can lead to more security concerns. Many virtual accounting solutions bolster the security of their login processes with multi-factor authentication (MFA). Instead of requiring static login credentials tied to each user’s email address, MFA prompts users for a one-time password generated by their mobile service provider or the Google Authenticator app.

Additionally, recent advances in technology have led to new software security strategies that eliminate security vulnerabilities at the code level. These strategies include secure coding practices like code minification and obfuscation, which make it difficult for attackers to access or understand code.

Final Thoughts

By choosing the right accounting software, you can improve your accounting efficiency while keeping your organization safe in the digital world. Of course, you’ll still need to prioritize cybersecurity best practices to reduce the risk of cyberattacks.

Common cybersecurity best practices include keeping software up-to-date, using a secure file sharing solution, installing anti-malware and anti-virus software, and being wary of suspicious emails and links. You should also use strong passwords and educate all employees on the importance of cybersecurity policies.

The post How Secure Is Virtual Accounting? first appeared on www.financialhotspot.com.

Form 1099-K and Online Payments: The New Tax Rule Business Owners Should Know


 

The IRS recently changed the reporting requirements for business payments received through online payment services like PayPal and Venmo. In order to ensure all income from these apps is accounted for, the IRS substantially lowered the threshold for required reporting. Now, if a business earns over $600 via an online payment processor in a calendar year, the payment processor must report on the income.

Who Gets a 1099-K?

Most retailers who accept online credit card payments from customers will henceforth receive a 1099-K if their annual processing activity meets the following guidelines:

  • In limited instances, if the sales volume exceeds $600 per year.
  • Through third-party processors, if the sales volume exceeds $20,000 and if there were over 200 individual transactions.

This is going to be a significant change for many self-employed gig workers and individuals with side hustles. However, it will not impact anyone using such payment platforms for personal transactions. The regulatory change is a government initiative to close the tax gap by making more online transactions reportable to the tax agency. The ultimate goal is to make it harder for individuals and businesses to underreport taxable income.

The changes to the tax code affect “third-party settlement organizations”—such as PayPal, Venmo, and Cash App—that accept payments for the sale of goods and services. According to the IRS, third-party information reporting has significantly increased voluntary tax compliance and enhanced collections and assessments.

What Is the Reporting Threshold?

In the past, there was a very high threshold for reporting peer-to-peer (P2P) payments for transactions involving the sale of goods and services. Companies were only required to submit Form 1099-K to the IRS for gross payments exceeding $20,000 and over 200 transactions within a calendar year.

The new regulation has significantly reduced this reporting threshold. If your business receives $600 or more in payments, the payment processors must submit a 1099-K, regardless of the total number of transactions completed within the calendar year. This includes any side income you received for selling t-shirts on Etsy or renting a house on Airbnb, for example. Even if you haven’t received form 1099-K, you’re still required to report all your taxable income from these payment platforms. However, you need to be careful to avoid double taxation via reporting on both forms 1099-MISC and1099-K.

How to Correctly Report Your 1099-K Tax Return

Beginning with the 2012 tax year, self-employed individuals must report 1099-K payments on Schedule C under a separate revenue line. So, you’ll need to reconcile your total business income and 1099-K payments with your profit & loss statements from your accounting system.

If you’re filing a Schedule F for farming operations, you need to report 1099-K payments there instead of Schedule C. And if you are not sure about how many 1099-K forms you will be receiving, you can defer your tax returns until after January 31, when you’ll have received all of these forms.

Always keep in mind that underreporting your taxes could negatively affect your financial future. So, seek professional help whenever you’re in doubt about your 1099-K reporting.

The post Form 1099-K and Online Payments: The New Tax Rule Business Owners Should Know first appeared on www.financialhotspot.com.