1. Reputation -A history of delighted customers as a signal of outstanding service.
2. Credibility -Building customer confidence with licensing, industry accreditations, and awards.
3. Experience - Masters of their craft, based on years of practical experience and education.
4. Availability - Consistently approachable and responsive, so customers never feel ignored.
5. Professionalism - Providing customers a seamless experience both online and off.
6. Engagement - Actively engaged with their customers across a number of platforms.
Get and Stay out of Debt
Staying out of debt seems like a pretty simple concept. But, what exactly are some recommendations from experts on this topic? And, in a country where we are set up to borrow money at every turn, how can we do successfully stay out of debt? Here are some simple guidelines for you to follow.
1. Pay yourself first. Above all else, even if you are currently in debt, take money off the top of your paycheck and put it away in a savings account. Then, forget about it. This savings is so important to you not going into debt. I’m not talking about the money that may already be going into your ROTH IRA or automatically deducted for your retirement. Have a separate savings or even an envelope in your sock drawer where you stuff away some money every paycheck. Do this before you pay anyone else or for anything else; pay yourself first.
2. Budget your money to 0. The first statement in this sentence is to budget your money. Do you ever wonder where your money goes? If you find yourself in this situation, try the following technique. Let’s say you get a $1200 paycheck. Start by paying yourself first, then pay toward your critical living expenses such as food, shelter, electricity and clothing. After you’ve made these payments, you may have some money left over. Budget that money somewhere- whether it’s into your paying off debt fund, retirement fund, vacation fund or entertainment fund. Make sure you have an account or sock drawer designated for these specific funds. Transfer the money there and note how much it is. When it comes to spending it, don’t over spend.
3. Create a Debt-Snowball. Make a list of all your debts, include credit cards, auto debts, college debts and your mortgage. List the minimum payments and the whole amounts due. List the smallest whole amount due first and the largest debt last. With money you've assigned to pay off debt, pay the smallest debt first. Take the minimum amount you were paying on that debt and add it to the funds to pay off the next debt. Continue to make the minimum payments as you pay this Debt Snowball.
4. Contact Smith Accounting and Tax We have a plans in place to help you focus on what you do best. Let us do the accounting for you. Give us a call! 804-677-9716
June is National Safety Awareness month and Smith Accounting and Tax wants to give you a few safety tips while shopping and surfing online. ·
1. Shopping Online Safety - While you are shopping online, before you make a purchase, be sure to look in the companies address bar for the secure server status. In the beginning of the address it should always start out with HTTPS:// the "s” after http signifies that the site is secure. Additionally, you will see a lock next to the browser. Below is an image of an example secure site at Amazon using the Google Chrome Browser. There are other browsers out there that you may use instead of Google, so it may look different than the image provided. But the bottom line is, if you are about to make a purchase- make sure the address bar has an "https” and there is a lock in place. ·
2. Passwords: ·Never share your passwords.
a. Keep them in a safe place offline, for example in an external hard drive on an excel worksheet.
b. Use 8 or more characters that include numbers, letters and symbols. Use upper and lower case letters.
c. You can get creative and spell out certain words with symbols. For example, if you your pass phrase you wanted to remember was CarWash! You can cleverly make it more secure by replacing the some of the letters with symbols. C@r W@$|-|! d. Don’t reuse the same password fordifferent platforms. If you do get hacked on one platform they will have access to the others. ·
Watch out for key-loggers. Did you know that you can monitor every keystroke that is typed on a computer with a software program? Every detail can be recorded, from keystroke, to websites that are visited and what software is used. This type of invasion of privacy happens when you are using a public computer or on public WiFi. Also, if you happen to download a virus by clicking on a malicious link in an email or website. Make sure you have adequate security programs on your computer to help protect against these malicious software invasions. Also, when you are using a public computer, just don't enter your sensitive information. ·
So, stay safe out there and be careful!.
Q & A with Chris Smith
Q: I have a capital gain from a stock this year, what will be the effect?
A: Regarding an investment which you have an accumulated loss, it may be advantageous to sell it prior to year-end. As this will help offset the gain on the stock sale. If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year.
Q: Should I use the standard deduction or itemize?
A: It depends. Smith Accounting and Tax recommends that you choose a method that will result in the most deduction for you.Sometimes the value of your itemized deductions might be more than the amount you'll receive as a standard deduction. This is usually the case if you have a home mortgage and have lived there for less than half the years in the mortgage.Otherwise, it's better to claim the standard deduction.A few items not to forget: State Taxes paid during the previous tax filings and don’t forget some of those taxes that are on your closing statement when you buy a new home.
Have you heard?
Smith Accounting and Tax LLC received the 2016 Best of Mechanicsville Award this year! The award was announced on March 25th 2016 and was deemed the best of the best in the Accounting services category by the Mechanicsville Award Program. This award is significant as it acknowledges companies that have achieved incredible success in their community as well as having a strong customer following. Each category was strictly analyzed and sources of information were gathered from all mediums before making a firm decision.
The 2016 Mechanicsville Award program says that "we focus on quality not quantity”. Winners were chosen off of third party data, reviews, polls as well as other internal information during the qualifying process. Smith Accounting and Tax LLC is so proud to have won this award and continuously focuses on bringing the very best financial services to the local area every single day.
Just in case you are unfamiliar with the Best of Mechanicsville Award program, the program was established to work exclusively with small business owners in order to promote success and achievement within the entrepreneur circuits. Businesses recognized have helped the community tremendously through their services as well as given the area an economic boost.
If this is the very first time you have heard of Smith Accounting and Tax LLC, or have used our services before, we are proud to serve you when it comes to your financial needs. We work on keeping our services affordable so you don’t have to worry about escrow accounting, bookkeeping, payroll, taxes, controller /CFO services, and consulting. We are here to take care of everything for you. Feel free to contact us anytime. We have over 20 years of experience with continuous knowledge in the ever changing realm of taxes.
We look forward to becoming your favorite financial service in the Mechanicsville area for years to come.
Spring Cleaning Your Finances
With warmer weather approaching, we know your mind is on other things besides tax paperwork. As eager as you may be to clear out your closets and other spring cleaning tasks, your tax papers need some tidying up as well in order to prepare for the new fiscal year. It’s important to know what’s crucial to save and toss as well as organizing your important documents desk chore.
Toss Worthy Documents
After filing your taxes, you are probably worried about getting rid of an item too soon in case the IRS calls your filing into question. Paperwork that is ok to go into the trash bin is bank statements, credit card bills, retirement account statements, pay stubs, and utility bills. All of these items are ok to shred after being held for a year. When disposing documents, it’s important to shred anything that has crucial banking information to prevent identity theft.
Paperwork to Keep
There are certain pieces of paperwork that you should never get rid of as long as you own the assets. Information like car titles, warranties, appliance manuals, house payments, mortgage information, and insurance policies are all keepsake documents; no exceptions. Medical bills also file into this category as insurance companies are notorious for keeping poor records.
Cleaning Tips to Consider
Consider investing in a fireproof safe for your home for important documents like wills, deeds, and certificates. No one wants to think of having to face a disaster but it is always better to be prepared and safe. Create a brand new tax file for all important receipts and deductible items to go into. This is an easy way to make sure everything is in one place for the next tax filing season which can make the initial process quicker. Make sure that for the upcoming year all of your information is completely updated in the folder you create. Having accurate reports, receipts, credit card information and other miscellaneous important items can help ease any confusion.
Spring cleaning isn’t a favorite task when the seasons change, but it is vital aspects of our lives, especially our finances. If you need assistance in spring cleaning your taxes, contact Smith Accounting and Associates today. We can help get you organized so you won’t be overwhelmed!
Keeping Your Tax Returns Safe and Protected Online
Tax season is under full swing and while we are sure you are rushing to get your tax submissions taken care of, it’s important not to forget to submit your information securely. Modern technology has made it easier than ever to file taxes, receive refunds, and store information. Because of this ease, cyber thieves prey on tax returns and steal millions of confidential information each and every year.
When filing online, it is crucial to make sure that the platforms you are using are completely secure. One of the easiest ways to tell is to look for an "s” in http. This "s” means that the website you are browsing on is secure. You can place important and sensitive information on them. Websites that have an https work to encrypt everything that is posted on their site, which makes it more difficult for thieves to hack into. Information that is encrypted on https sites, (such as credit card numbers, bank accounts, and social security numbers) are impassible from hackers and can not be intercepted.
Protecting your accounts and identity is a priority your family will thank you for focusing on. No one wants to be a victim of cyber theft. As important as making sure the websites and internet tools you are using are secure, it’s also essential to pay attention to how you save your receipts, claims, and records. The IRS loves to ask questions regarding tax claims, so having one’s files accessible and in order is useful. Many PC and tax filing experts adamantly oppose to storing your tax information on your computer desktop. Keep all of your files on an external hard drive so that they are not susceptible to virus’s and malware that can infect your files, destroy them, or accessible to thieves.
Tax season is a stressful time of year. Don’t make it harder on yourself by not being careful about where you are placing your confidential information. Smith Accounting and Tax is here for you year round when it comes to your accounting needs. Have a question about a claim or filing a return? Contact us on our secure site.
We are ready to assist and serve you.
4 Financial Resolutions You Need to Commit to in 2016
A new year has begun and the list of goals for self improvement are at their peak. Many resolutions include, "feeling healthier, losing weight, and self improvement”. With such an emphasis on health, it’s important to not forget about your financial wellbeing. Here’s four financial resolutions you can keep for the new year and beyond.
Build an Emergency Fund
One of the most important things you can do is to have an emergency savings. Accidents and life events don’t wait until it’s convenient. Work on placing a small amount of a paycheck every month into a separate savings account. When (not if) disaster strikes, you and your family are prepared.
Strengthen Your Credit
Taking time to work on building up your credit scores is great for future purchases. As intimidating as it seems, enhancing your credit can be done easily. Start by always paying your bills on time, pay off small balances immediately, and watch your credit card balances every month. These habits will increase your score and leave your bank account fuller.
Automate Your Savings
One of the easiest ways to build your savings account is to set up your bank to withdraw an amount from your paycheck every month. Before you know it, paying for the new car or T.V. just got a bit easier. As a bonus, you won’t be worried about not remembering or having enough because the deposit has already been done for you.
Open a Roth IRA
Your savings account can only accrue so much. Opening a Roth IRA is a great way to invest and let your funds grow without being taxed. A Roth IRA isn’t like a 401(k) because you are able to place investments where you want (without lengthy restrictions) and retrieve funds when needed.
Smith Accounting and Tax is here to help with all of your financial New Year’s resolutions. Our strategic partners are the best in the field and can help you plan and manage your finances, so this year can be the best one yet. Contact us and lets put your resolutions to work.
Your Options When You Owe the IRS but Can't Fully Pay - April 7th 2015
Effects of the current economy show in your bank account and on your brow.
If you simply do not have the money to pay your bill in full, you have several options:
• Ask for more time. If you are temporarily unable to pay your tax liability, you may be eligible for a short-term—up to 120 days—extension. You pay nothing extra for this request, which you can make online.
• Make regular payments. If another 120 days still isn't enough time, you can request an installment agreement. If you owe less than $10,000 in the tax alone (not including penalties and interest), and you meet the IRS's strict qualifications, you may be able to pay off your liability in monthly installments. If you owe $25,000 or less and can pay your liability within 60 months, you may qualify for a "streamlined” installation agreement. Finally, you can apply for a more traditional type of installment agreement, which requires extensive financial disclosure and a detailed financial analysis.
• Make an offer. Called an "offer in compromise,” the IRS may allow you to provide less than full payment. Grounds for acceptance of your compromise are stringent, and the penalties can be long term.
• Declare hardship. If you can show that collection of the tax debt would cause a financial or other hardship for you or your family, the IRS may suspend collection of your debt for one year, at which time it will reexamine your situation. Penalties and interest, however, will continue to accrue during the suspension period.
• Declare bankruptcy. Filing for bankruptcy could halt IRS collection actions. However, filing bankruptcy has serious consequences and should be considered carefully.
Smith Accounting and Tax Receives 2014 Best of Mechanicsville Award
MECHANICSVILLE November 25, 2014
Smith Accounting and Tax has been selected for the 2014 Best of Mechanicsville Award in the Payroll & Payroll Tax Preparation Services category by the Mechanicsville Award Program.
These are local companies that enhance the positive image of small business through service to their customers and our community. These exceptional companies help make the Mechanicsville area a great place to live, work and play.
Various sources of information were gathered and analyzed to choose the winners in each category. The 2014 Mechanicsville Award Program focuses on quality, not quantity. Winners are determined based on the information gathered both internally by the Mechanicsville Award Program and data provided by third parties.
7 Unusual Tax deductions
Business owners should strive to take advantage of every possible deduction in order to minimize their tax liability. While the IRS provides a short list of don’ts (for example, you cannot deduct anything illegal such as traffic tickets), it doesn't offer a definitive list of tax deductions available to businesses.
The tax forms for businesses to use to declare income and expenses list all of the broad categories of accepted deductions. These are all the "ordinary and necessary” business expenses that the IRS states you may deduct. However, it’s that last line, the one entitled "Other deductions,” where creative minds begin to work to come up with often overlooked write offs. Here is a list of seven unusual but usable business deductions that have passed IRS audits (however does not guarantee it will pass in the future):
1. Pet Food. If you own an animal that serves a useful purpose at your place of business and cannot be construed as a family pet that you simply bring to work every day, you may have a valid write off of food, vet bills, training, toys and any other expenses associated with the care of the animal. The animal must have a job: a cat who keeps down the rat population, a security dog, a herding dog.
2. Body Oil and Sunscreen. A pro body builder was allowed a deduction for body oil used to make his muscles glisten under the lights. However, the IRS disallowed special dietary foods and supplements, which by the way, would not be deductible as medical expenses either. A tennis pro may write off sunscreen products as they fall under the category of protective gear.
3. Breast Augmentation. A stripper once increased her breast size and attempted to write off the bill as a medical expense and the IRS disallowed the deduction, claiming it falls under the category of cosmetic surgery which is not deductible.
However, the agency allowed the deduction as a bona fide business expense. This would also reduce her self-employment tax whereas if taken as a medical deduction it would not.
4. Law Suit Settlements. If your business is sued and you lose, you may be able to write off the settlement amount as well as the legal fees you incurred.
5. Freebies. Gifts you give to customers are allowed as business deductions. You can spend up to $25 per gift per recipient (including employees).
6. Payments to Family Members. You may be able to hire your children to work in your business without incurring a payroll tax liability if they are under the age of 18. You may even hire your significant other to help out and take the write off. Don’t forget to issue a W2 or 1099 and conform to the rules for determining whether the worker should be classified as an employee or a contract worker. A payroll services or accounting company will help you with these formalities.
7. Landscaping and Housekeeper. If you have a home office, you may deduct the cost of a housekeeper to keep the office area clean. And if you regularly meet clients at your home office, you may deduct a portion of landscaping costs as well. The place has got to look good, right?
Open your mind to all the potential deductions you can enjoy in your business. If the intent is business, the cost is likely deductible by the business. As with all deductions, make sure you keep receipts and cancelled checks or credit card statements. And for the most unusual deductions or other questionable deductions such as travel, meals, and entertainment, be sure to include plenty of documentation to prove business intent in the event you are audited. And run your ideas by Smith Accounting and Tax
first to make sure the deductions will fly.
7 Reasons Your Small Business Should Use Accounting Software
During tax season, many business owners provide me their tax data in various ways: boxes of receipts, clumps of expenses stapled together with adding machine tape totaling each type of expense, or a listing of income and expenses in a spreadsheet format. When the information is fed to me by these means, I often wonder what expenses may have fallen through the cracks. I often have to ask after some deductions that appear to be missing such as bank charges and credit card interest.
But when a client sends over a computerized accounting file that has been kept up to date and includes cash and credit card purchases, I’m fairly confident that every eligible deduction will be included on the tax return.
I encourage all serious business owners to keep their books on computerized accounting software; Smith Accounting and Tax has packages to help with this; contact us
. Aside from completeness of data, there are other good reasons to track your business’s financial transactions using accounting software:
Bank reconciliation made simple. You don’t miss deductions when you reconcile your bank account on computerized software. The account won’t balance if you don’t post the bank charges or the missing receipt for that debit card transaction at the office supply store.
Easy input. If you don’t like keyboarding in your transactions, most banks will allow for a direct download of your bank account data. With a few keystrokes, you can enter an entire month’s worth of transactions. Tracking credit cards used in the business can be simple and you will remember to post the finance charges. Reconciling the credit card balance in the same way you reconcile the bank balance to the statement will ensure that all transactions are accounted for.
Formalized financial statements. A computerized accounting software program can provide profit and loss statements and balance sheets that are necessary to evaluate your business’ progress. If you are seeking financing for your business, you must present investors with financial statements.
History of the business. There is nothing more educational and satisfying then bringing down a comparative income statement to compare your current year activity with prior year(s). A spreadsheet program can give you this as well, but the data entry is clumsy and more prone to inaccuracies. Speaking of spreadsheets, you can always dump your data from the software to your spreadsheet program in the event you want to play with the numbers and do projections. This process is especially important when trying to hit it rich with a sale of your business.
Customer history and aging. Using a software’s invoicing feature allows you to track your customers’ purchasing history and payment habits. Aging reports can be generated to facilitate collection efforts. In fact, you can note collection attempts in a special "Notes” box on the customer profile screen.
Vendor history and aging. Rather than simply cutting checks when bills are due, you can use the accounts payable system to track bills as they arrive and plan for cash flow. Using software will also provide you with reports for each vendor. It makes it easy to locate prior payments and invoices.
Audit-proof the books. Whenever I’ve dealt with IRS auditors and the agent sees that the books have been kept on a formalized accounting software, especially by a professional bookkeeping service, the audit tends to be short. The agent will run a cursory review of the bank statements and if things line up with the software, he or she may take a sampling of expenses to audit, rather going line by line.
Whether you are looking for accounting services in Mechanicsville or surrounding areas, or Tax Preparation in Mechanicsville or surrounding areas, or a comprehensive small business accounting provider in Mechanicsville or surrounding areas; contact Smith Accounting and Tax.
Is this lunch a tax deduction??
When you're a small business owner, pretty much any meal is a tax-deductible business meal, right? Not
necessarily. For additional help with the topics in this blog or any other accounting and tax services in Mechanicsville, VA, contact us
The IRS has very specific rules for what is, and what isn't
, considered a business meal for tax purposes. And unfortunately for many small business owners, eating lunch at your desk will most likely not be considered a tax-deductible business meal.
So what are the rules for when a meal can also be a write-off?
When It's a Travel Expense
However, it's worth noting that your tax "home" is not necessarily your real home. For example, if you live in a different city than where you work, you can't claim your meals while at work as travel expenses; for the deduction, your tax "home" is considered to be the city where your main place of business or work is located, regardless of where you live.
Travel expenses are also only deductible when you are away from home for "a period substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away."
This means that if your job requires you to travel to other areas during the day as part of your normal daily activity before returning home, then meals purchased during this daily travel would not likely be deductible as travel expenses.
When It's a Business Entertainment Expense
The second (and most commonly misunderstood) way of deducting meal expenses is the business entertainment
expense deduction. Here's what you need to know:
• Meals are only deductible as an entertainment expense when provided to a customer or client.
• In general, only 50% of the cost of the business meal can be deducted; other rules limit "lavish or extravagant" meals and other expense deductions.
• Business entertainment meals must either be directly related to your business (meaning the main purpose of the meal was business, you engaged in business during the meal, or you had more than a general expectation of getting a business benefit from the meal), or associated with the active conduct of your business and taking place directly before or after business discussions.
In simpler terms: Meeting your friend for lunch on your lunch break isn't a business lunch just because you talked about what you did at work that day. The meal must have more than just a tangential or trivial relation to your job, or it might be disallowed as a deduction.
To learn more about how tax laws may affect your business' bottom line, we also help with tax planning and tax preparation in Mechanicsville and surrounding areas.
"A firm understanding of finances and business performance is crucial for a small business to be successful," said Steve Strauss, president of TheSelfEmployed.com. "Managing finances is a challenging process and many business owners are often unaware of the tools and resources available that can help them make smart decisions and, ultimately, improve their bottom line."
3 Mistakes and the Government will call on you
There are three accounting mistakes a business can cause an immediate government call to your business.
1) Non Payment of Payroll Taxes - Smith Accounting and Tax will handle all government reporting with our Payroll Services
2) Non Payment of Sales Tax - Smith Accounting and Tax will handle all government reporting with our normal monthly accounting services
3) Non Payment of Use tax - Smith Accounting and Tax will handle all government reporting with our normal monthly accounting services
Smith Accounting and Tax can help keep you out of the cross hairs. Contact us for a free consultation.
2.6B hrs spent on filing taxes...Let Smith Accounting and Tax reduce your time
People in the United States spend an estimated 2.6 billion hours to file their tax returns each year, and spend $33.6 billion to comply with tax law, according to a new report.
Filing individual tax returns occupies the largest share of time and money, imposing compliance costs of 7.7 billion hours and $170.4 billion, according to new analysis from the conservative-leaning American Action Forum. An estimated 150 million people filed tax returns this year.
The individual tax code is accompanied by 199 different forms, and the estimated time it takes to process all those returns is at an all-time high. The paperwork burden reported by the Treasury Department reached a new record in 2012 and 2013, and is 47 percent higher than what was reported in 1995.
The analysis comes as lawmakers in both parties agree that the tax code has become overly complicated. However, efforts to reform the tax code and simplify it have repeatedly run into a difficult political reality, and have struggled to gain traction in Congress.
AAF’s analysis indicates that the complex nature of the code carries a real economic burden, as complying with it pulls billions of hours and dollars from the economy that could have been used on other purposes.
IRS data indicates that filing individual tax returns carries the highest compliance cost, but the agency also only tracks costs for five of its 874 recording and recordkeeping requirements. All told, the IRS reports just $33.8 billion in compliance costs, almost all taken up by the filing of individual returns.
AAF applied the average hourly cost of a civilian employee to the IRS’s remaining projects, and found that compliance costs could reach a total of $170.4 billion, which is five times higher than what the IRS reports for compliance costs.
All told, the IRS has 897 different forms required for various tax circumstances, and individual returns account for 22 percent of that total.
The top five largest requirements from the IRS — individual returns, bond tax credits, partnership tax returns, depreciation and amortization, and S corporation tax returns — account for roughly two-thirds of the total man-hours the IRS says the tax code demands.
AAF’s analysis also found that the Treasury’s job of processing tax returns means it by far imposes the largest paperwork burden on people. The Treasury Department reports 7.7 billion in paperwork compliance time, compared to just 600 million hours reported by the Department of Health and Human Services, which is the second-ranked government department in the category.
Did you feel the Self Employment Tax pain?
Was Tax Preparation eye opening? Do you feel like you are paying too much in self-employment taxes
? You’re not alone, especially
considering the rate
for 2013 is higher than it has been the past few years.
If you make self-employed income, there’s not a lot you can do to avoid this tax completely. However, you can check with your CPA or tax service provider (Smith Accounting and Tax provides this consultation for free
) to see if changing your business structure to a corporation or LLC that’s taxed like an S Corporation can help lower your SE taxes. S Corporations might cause the need for payroll services
, so that needs to be weighed in the overall picture as well.
Why Cash Flow Is King (and Other Lessons in Small-Business Finance)
Nearly a third of new employer firms fail within the first two years
, according to the Small Business Administration.
There’s no single reason
for their failure. But after working with hundreds of entrepreneurs, consultant and author Richard Weinberger says "a lack of knowledge of basic finance is a common — and dangerous — mistake. Too many business owners don’t understand their own finances, and have no idea what products or services make the most profit.”
You say that many business owners don’t understand their own finances. How can they start to get a handle on this?
First, begin a financial review with your accountant. If possible, try to have at least three to five years of financial statements available. If you don’t have them, tax returns can be substituted, but they might not contain all of the information you need.
Why is it important to understand your cash flow?
Small businesses may be profitable but not have much cash. They may have made sales on credit, they’re servicing debt, they’re paying for equipment, or maybe they’ve got lease payments. If you know in advance that you may be short of cash, you can prepare. You could look for additional bank financing or try to modify the repayment terms on loans or other debts. But to do any of that, you have to be able to predict your cash flow.
Is there an easy way to understand your business’s cash position?
It’s called the quick ratio. It consists of cash, cash equivalents, and accounts receivable divided by current liabilities. It does not include inventory, because it normally takes time to work though the sales process and be converted to cash.
One key component of cash flow is how long it takes your customers to pay you. If you analyze this and see that the amount of time it takes you to be paid is lengthening, you have a problem. You may be extending credit to customers who aren’t credit worthy, or maybe you’re not putting enough effort into collections. Shortening the amount of time it takes to be paid obviously improves cash flow.
Speaking of cash, aren’t there controls a business should have in place?
Here are a few: The check signer and the check writer should not be the same person. Refunds to customers should be approved by someone other than the employee actually making the refund. When that isn’t possible, refund receipts should be reviewed daily.
With an accountant or bookkeeper working with you, you can better understand what each item on your P&L or Cash Flow means and what is driving the numbers. It is your business you need to understand what is driving the results.
Estimated Tax Payments: Should You Use Annualized Income?
Making estimated tax payments comes with the territory when you strike out on your own. If business is predictable, it’s easy enough to send the IRS a set amount on a quarterly basis. But if your income fluctuates throughout the year, how do you ensure you don’t get penalized for underpayment?
The general rule is: You may owe a penalty if your total withholding and estimated tax payments do not equal at least (1) 90 percent of the tax you owe for the current year or (2) the full amount of tax you owed the previous year, whichever is less.
Separate penalties are applied to each estimated tax payment and due date, so you could end up facing multiple penalties — or get slapped with one for underpaying in April, even though you paid the balance of what you owed in September. Underpaying is classified as missing the due date for a full payment. This holds true even if you end up getting a refund when you file your return. It isn’t a trivial problem: In 2012, U.S. businesses were assessed over $936 million in late fees for failing to file business income tax on time.
So, how can you avoid paying penalties when your income varies?
As with everything involving taxes, the IRS has a form to fill out. Follow the process outlined on Form 2210 [PDF] to determine whether you owe a penalty. (Get instructions here.) Whether you owe will depend on whether you use the regular amendment calculation or the annualized income installment method. The form will help you figure out which one best fits your business.
If your income varies during the year, then figuring your tax burden using the annualized income installment method will allow you to show why your business should be able to lower (or eliminate) one or more of the required estimated tax installments. Submitting your justification via this form — if you meet the criteria to submit it — can often get an underpayment penalty reduced or eliminated.
Filling out the annualized income method section of the form takes more time than using the quick or regular amendment method, but it gives highly volatile businesses more leeway for errors and holds out the prize of reduced penalties. You should use annualized income when calculating your estimated state income taxes as well.
Of course, hiring a good accountant to help you may save you a lot of headaches. And being able to anticipate the high and low quarters your business is likely to experience in a given year can also help you avoid penalties in the future. Regardless of how you manage your tax planning, you now know that even if you have a massive windfall in Q4 next year, you have a means to set the record straight.
Q. My two children (17 and 19) worked in 2013. What would you recommend that I do in terms of filing my taxes? The amounts were $2,500 and $3,300 respectively. Should they file their own tax return or should I include their income in my tax return?
A. Your question has two parts, so let's start with the easy one. Income from work is called "earned income" and earned income from your children cannot be included on your tax return.
The second question is: Should they file their own tax return? They may or may not be required to file. Even if they don't have to file, they would want to file anyway if they are due a refund. It is common for teenagers to work a little bit, have taxes withheld from their wages, but owe nothing at tax time. Then, they should file a tax return to claim a refund for the taxes withheld. Such refunds are generally small, so the cost of tax preparation could exceed the refund itself—or leave very little. Contact Smith Accounting and Tax for special teenagers filing discounts.