Category: Tax Services

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Financial Tax Services

COVID-19 and Taxes: Will Your Refund be Impacted?

COVID-19 and your taxes

COVID-19 has severely impacted individuals and businesses. From the shutdowns, quarantines, and economic situation that affected people from different economic situations. These changes will also affect your taxes and tax returns.

While people are filing taxes and accounting for any economic changes that 2020 brought to their personal or business finances, there are also more things to think about. 2020 also brought in new economic stimuli and potentially unemployment that will also need to be accounted for when filing taxes. So, here are some tips to keep in mind to get the most out of your taxes and tax return.

Individuals and Families

Many individuals have been affected by COVID-19. With record unemployment and stimulus checks, families and individuals are in different economic situations than they were in 2019. These changes may impact how much money you file and how much money you can expect back.

Two stimulus checks went out in 2020 to many people. In regards to your taxes, these stimulus checks are tax-free and do not need to be noted. The IRS should already have on record that you received these payments and accounted for. These payments will not impact your tax return at all.

Unemployment rates also went up during 2020, with almost 15% of people declaring unemployment at one time. To compensate for the economic downturn that many felt, unemployment checks increased by $600 a week. Unemployment payments are taxed as income. Up to $10,200 in unemployment is tax-free.

Six states do not tax unemployment at all. If you live in one of these states then you can expect to pay less in taxes. Seven states do not tax income at all, since unemployment is taxed as income this can also result in how your taxes are filed if you live in one of those states.

Businesses and Other Entities

Businesses and other places that employ people were severely impacted by COVID-19 and the subsequent economic downturn. The government passed different stimuli and credits to help businesses stay in business and continue to employ people.

The Employee Retention Credit is refundable. Immediate access to credit is available by reducing the employment tax deposits you are required to make. If your employment tax deposits are not sufficient to cover the credit, then you can get an advanced payment.

Small businesses with 500 or fewer employees were also eligible for Coronavirus-related paid leave. Employers can receive 100% reimbursement for paid leave related to the act. This includes leave for expanded paid childcare leave and paid sick pay leave.

Conclusion

While, COVID-19 changed finances for many people and businesses, these changes in finances also affect taxes and tax returns. For many people who received credits or stimuli, those credits are refundable or not taxed. This means that many people who relied on these services to stay afloat will continue to experience assistance when filing for taxes.

Filing taxes for 2020 will be just as different as the rest of 2020, there will be many changes that will be COVID-19 specific. For many of these changes, individuals and businesses can benefit from receiving credits.     

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Financial Tax Services

How Much of a Tax Deduction Can You Claim For Charitable Donations

charitable gifts donations tax

Gifts to charitable and non-profit organizations help in so many ways. They benefit the charity itself, often by providing funds that are used in research, operations, and more. They are also one of the best ways to minimize your tax obligations. Charitable gifts are deducted in part or in whole on yearly tax return filing. This ultimately reduces your taxable income.

There are new provisions in place for the 2020 tax season that will apply to your returns filed in 2021. You need to know about them in order to take advantage of them properly when you file.

Charitable Contribution Basics

Charitable gifts are treated differently for tax purposes for a number of reasons. It can vary depending on the type of assets that were donated. For example, cash, clothing, household items, or even vehicles and boats. The rules also vary based on who the contribution is made by. Whether that is an individual, a business, or a corporate entity.

The amount of the deduction is particularly important, and usually subject to limits and ceilings. The changes to the 2020 charitable gifts deduction put in place special rules for the 2020 tax year only, which increase the deductions significantly. These changes, therefore, increase the amounts of tax benefits for donations made specifically in cash.

Some Donations Do Not Qualify

While the limits of contributions went up, you will want to ensure that your donations to charity were made to allowable organizations. The law states that the deductions are only to be used to contributions that serve a charitable purpose. This means that the recipient must have already qualified for and been granted tax-exempt status by the IRS.

These organizations most commonly include religious entities, charities operated for scientific, educational, or literary goals, and organizations that strive to prevent cruelty to animals or children. Other eligible parties may include nonprofit veteran organizations, amateur sports development entities, fraternal groups or lodge orders, and burial or cremation companies.

What Is The Maximum Deduction Amount You Can Claim For Your Donation

For the 2020 tax year, taxpayers who choose to claim the standard deduction can claim up to $300 in charitable gifts made in cash, used in the determination of the taxpayer’s adjusted gross income, or AGI. It is worth noting specifically, that noncash property like securities are not eligible. Neither are donations to dormant or non-operating organizations, or contributions to veterans fraternal societies, or carryforwards from previous tax years. This “above the line” deduction will generally benefit taxpayers that do not itemize.

The donation ceiling was raised for 2020 from the previous limit of 60% of any individual’s contribution base (commonly their AGI). This limit was raised to allow the contributions of non-cash donations up to the entire amount of their AGI. In some situations, individual taxpayers may be able to completely eliminate their taxable income. In many cases, this means the tax obligation would also drop to zero, meaning a refund of all taxes.

 

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Financial Savings Tax Services

How Saving for Retirement Can Reduce Your Taxes

saving for your retirement can reduce taxes

It is definitely no secret that saving for retirement is important. It is so important that the government even offers a tax credit for those that choose to save for the future. Worth up to $1,000 for an individual tax-payer, or $2,000 if filing jointly, many independent adults can qualify for the saver’s credit.

Who is Eligible for the Saver’s Credit?

To receive this credit, you must be 18 years old, not enrolled in school full-time, and not be claimed as a dependent. You also must make a contribution to an IRA or other eligible retirement plan and fall within specific income thresholds.

As far as your contributions go, you can only claim contributions of new money. Any money that was a rollover from an existing account does not count towards your eligible contributions.

Your income must be underneath the following thresholds to get the credit:

  • Head of Household: $48,750 in 2020; $49,500 in 2021
  • Married, Filing Jointly: $65,000 in 2020; $66,000 in 2021
  • Other Filing Statuses: $32,500 in 2020; $33,000 in 2021

How Your Saver’s Credit Value is Determined

Those that qualify for the saver’s credit can receive up to $1,000 ($2,000 for married couples that file jointly). The value of your credit is based upon how much you contributed to your 401(k), Roth IRA, SARSEP, SIMPLE IRA, 403(b), or 457(b) plan. You may be eligible for 10%, 20%, or 50% of the maximum contribution amount, depending on your adjusted gross income and your filing status.

Saver’s Credit Rates

Married Filing Jointly

  • 50% of contribution: $39,000 or less in 2020; $39,500 or less in 2021
  • 20% of contribution: $39,001 – $42,500 in 2020; $39,501 – $43,000 in 2021
  • 10% of contribution: $42,501 – $65,000 in 2020; $43,001-$66,000 in 2021

Head of Household

  • 50% of contribution: $29,250 or less in 2020; $29,625 or less in 2021
  • 20% of contribution: $29,250 – $31,875 in 2020; $29,626 – $32,250 in 2021
  • 10% of contribution: $31,876 – $48,750 in 2020; $32,251 – $49,500 in 2021

Other Filers

  • 50% of contribution: $19,500 or less in 2020; $19,750 or less in 2021
  • 20% of contribution: $19,501 – $21,250 in 2020; $19,751 – $21,500 in 2021
  • 10% of contribution: $21,251 – $32,500 in 2020; $21,501 – $33,000 in 2021

With many credits, the math to figure out how much you are getting can be a bit tricky, but not with this one. Based on your income, your credit is worth 10%, 20%, or 50% of a cap on the amount contributed of $2,000 for an individual filer, or $4,000 for married couples who are filing together. If you are a single filer with an income of $18,000 and you contributed $1,000 to your Roth IRA, your saver’s credit would be $500.

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Financial Tax Services

Taxes Made Simple: 3 Tips for Quick and Easy Filing

taxes made simple

Many people think that filing their taxes is a complicated process. The IRS is known for collecting your money and auditing if something is wrong, and you don’t want to be audited. If it’s your first time filing taxes, it is easy to be intimidated by all of the forms and situations that are available to file for.

Filing taxes does not have to be needlessly complicated though. For many people, taxes do not have to be difficult. By following some simple steps, you can file your taxes simply and without worry.

Gather All of Your Tax Documents

Having your tax documents prepared will help your filing go by faster. As your tax information comes in, store them in the same spot that you can access easily when you’re ready to file. This will also simplify what kind of taxes you need to file and how you will file them.

Some of the documents you will want to have are

  • W-2s
  • 1099s
  • Tax forms that report incomes
  • Tax deductions
  • Receipts

This information being readily available will help you streamline your taxes. When you have all of your information in front of you, it will be much easier to know where you need to go and what you qualify for. 

Don’t Forget About Gig Economy Income

More people are relying on making money through the gig economy. Whether you make money driving or delivering food, freelancing, or working as a consultant it is important to remember to declare that income. Some gig economy jobs also have deductions that you can note.

Some jobs have a 1099-MISC for the work done. Even if there is not a form attached, you will still need to report your income. Keeping track of your income if you make money freelancing or another gig job is crucial. You will also want to keep track of any miles you drove, supplies, and advertising costs because these costs can be deducted.  

File Electronically

Almost anything can be done online today, including filing taxes. Software exists to help make sure that you file them correctly and will tell you how much more you owe or will receive. Filing electronically will also save you postage and time.

People who file electronically also get their returns quicker. It is also easier to note your banking information so that your returns can go directly into your bank account. 

Conclusion

Filing taxes can seem daunting, especially when it’s your first time. These tips can help it go smoothly so you don’t have to worry about your them being filed correctly. With some thinking ahead, documents, and software you can file your taxes quickly and easily.

When you’re able to file them quickly, you will also receive any refunds that you’re owed quickly. Filing taxes does not have to be a scary process to go through. For many adults, it can be completed and filed in a day, that’s how quick and easy it can be.   

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Financial Tax Services

Want To Buy Stocks? How It Affects Taxes

investing in stock market and affect taxes

Stocks are hot these days and in some respects, the market is doing better than it’s ever done. Additionally, investing is easier than ever with the explosion of retail trading apps. But many people are hesitant to begin investing until they know how it’s going to impact their taxes. Here are the tax basics of investing in stocks.

Realized And Unrealized

If you open a standard brokerage account with any of the popular companies, you then deposit money and invest that money. You typically invest in a number of different stocks or funds, often referred to as “diversification”.  A few months go by, and all of your investments are up a bit.

You now have “unrealized” gains. Once you sell those investments or any part of them that has appreciated, you then have “realized” your gains. This is the same for losses. If your investments are down and you then sell them to stop your losses, you have turned your “paper” losses into “realized” capital losses.

Capital Gains

Once you invest through your brokerage of choice, and you have invested in a number of stocks. One of your stocks shoots to the moon, and you suddenly find yourself selling those stocks for a healthy sum. You now have realized your capital gains, and you will now have to eventually pay taxes on them. They’ll be listed on your upcoming 1099-B form that your brokerage will provide at the end of the tax season.

There is more, and it might be good news, it might be bad news, depending on your particular investments and gains. You’ve now got capital gains, and you need to pay taxes, but the tax rate is going to depend on how long you held that investment.

Investments that are sold less than a year after purchase are classified as short-term capital gains. These can be taxed up to 35%. However, if you keep your investments for a minimum of a year before selling, you can cut that down to 15% or less.

Capital Losses

It happened. Your investment tanked, and you lost big time. If you are still on paper, your losses are unrealized, but if you sold to stop the bleeding, then you can leverage those realized capital losses. Your capital losses can be claimed against your capital gains, to offset them and pay a lower tax rate. Additionally, if your losses cancel out your gains, you can claim up to $3k in additional losses against your income.

Dividends And Interest

Not only will you be taxed on capital gains, but you will also be taxed on dividends. These are periodic payments made to shareholders of certain stocks by the company they are invested in. You are taxed on dividends even if you do not sell any investments. The interest you can be taxed on is interest from bonds and will vary depending on the type of bond and interest that has been earned.

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Financial Tax Services

10 Mistakes to Avoid When Filing Your Taxes

10 mistakes to avoid when filing your taxes

With that awful April deadline looming, many people are getting a jump on preparing for their filings. If you are one of the millions of Americans that are filing early to get it done and over with, you might wonder what some common reason for delays or rejections are. Here’s a list of ten of the most common mistakes people make in their tax rush.

1. You Mess Up The Easy Stuff

Things like names and social security numbers need to be checked and rechecked for accuracy. Make sure the filing status is right, particularly if you’re single and qualify for head of household. These are all common reasons for rejections.

2. Entering Items On The Wrong Line

Make sure that if you’re filling out paper copies or Fillable Forms that you’re entering information in the right fields. Be sure your “rollover” or “contributions” on a line meant for “distributions” for example. Most tax software error checks this, but if you are preparing your own taxes, double-check.

3. Not Entering Info As It’s Been Reported To You

All taxable wages, dividends, and interest that you’ve earned and received a W2, 1099, or similar form for, needs to be reported. Enter the numbers carefully, and if you spot a mistake, you should report it to the issuer for a correction.

4. Taking The Standard Deduction Without Thinking

Many people take the standard deduction because it’s easier. However, in some situations, these people may be missing out on possible deductions by itemizing.

5. Missing Write-Offs

If you do itemize, be sure you are claiming all of the deductions that you are eligible for. Keep track of all your expenses and receipts, so that nothing is forgotten or missed. Don’t cost yourself money.

6. Skipping The State Healthcare Mandate

If your state has an individual healthcare mandate, do not skip it. The federal requirement has been eliminated, but a handful of states still require it.

7. Botching Negative Numbers

Do not use a minus sign for negative numbers. To list an amount as negative, use brackets. This is a common source of errors for Fillable Forms, but reputable tax filing software will automatically format the numbers correctly.

8. Not Paying Your Amount Due Correctly

If you owe, make sure you get credit for your payments. Include your 1040-V with your payment, whether e-filing or filing my mail. Payments can be made via federal free payment sites. The IRS also has a shortlist of authorized payment providers.

9. Forgetting To Tell The IRS How To Pay You

This one is important. If the IRS owes you money, make sure you take the initiative to list your payment preference. If you do not list your preferred payment method, they will automatically send a paper check, and who needs those delays, right?

10. Check For Typos

This is both spelling typos, as well as accuracy. Always take a few minutes to review your entire return, so that any potential mistakes are caught before they cost you time & money.

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Financial Tax Services

What is the Internal Revenue Service (IRS)?

internal revenue service

Founded in 1862 by President Abraham Lincoln, the Internal Revenue Service is in charge of enforcing tax laws as well as the collection of taxes. Under the authority of the United States Department of the Treasury, the IRS’s main purpose is the taxation of all American companies and businesses. Taxpayers can file either electronically or they can mail in their taxes. No matter how you prefer to file your taxes, the department handling your paperwork is the IRS.

What Does the IRS Do?

The overall purpose of the IRS is to enforce and uphold tax laws enacted by congress. Additional duties include:

  • Overseeing certain types of retirement plans
  • Collecting the tax returns filed by businesses and individuals
  • Issuing refunds to those that overpaid taxes
  • Conducting criminal investigations
  • Ensuring you pay whatever taxes are due

The busiest department of the IRS is likely the enforcement side of the organization. According to the Tax Policy Center, the IRS spent almost 40% of its budget on enforcement. Of that funding, 83% of it was for investigations and tax audits.

In addition to collecting taxes, they also ensure that those Americans that qualify for other tax credits, such as the Earned Income Credit, receive them. There are even educational tax credits that can help with your children’s future college education.

Owner and Leadership

The IRS has no owner but is considered the tax administrator that works for the Secretary of the Treasury. The IRS technically has no owner, they are under the direction of the Treasury. They are under the leadership of the IRS Commissioner who is appointed by the President of the United States every five years.

If you have seen the logo for the IRS, either on the website or maybe a piece of mail, you have probably recognized a few familiar elements. The logo for the IRS contains several elements that are found in other pieces of American government signage and seals.

The first and most obvious part of the logo is the eagle. This is the bald eagle, the national bird, and it is also found on many other government buildings, seals, and logos. In the logo for the IRS, it simply represents the USA.

The next component seen is the olive branch. This is another component that is present in a lot of US imagery. The olive branch represents mediation and the offering of peace. The olive branch is accompanied by the scales, another truly American image. The scales represent fair measure and justice.

History of the Internal Revenue Service

The roots of the Internal Revenue Service reach all the way back to the Civil War. It was created by President Lincoln and Congress. They were initially created to collect the original income tax to pay for the plethora of war expenses. That income tax was quickly repealed a decade later, not to be seen again until 1913, when it was included in a Constitutional amendment.

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Financial Tax Services

What is an Effective Tax Rate?

effective tax rate

The effective tax rate is a roundabout way of saying “average tax rate”. It is the average tax rate you pay across all of the tax brackets that your income spans. Since it is an average, your effective tax rate will be significantly lower than the tax amount of your highest tax bracket. The tax rate of your highest tax bracket is also known as your marginal tax rate.

Your effective tax rate is composed of the average of your various tax rates in each increment of your income, after all the deductions that you are entitled to and claim during filing. There is a fairly simple equation that can be used to help determine your effective tax rate.

Finding Your Effective Tax Rate

Since your effective tax rate is an average comprised of the percentages for all tax brackets that the IRS uses to delineate income levels. This starts with the official tax brackets:

  • 10% – Income up to $9,875 for single, and $19,750 for married filing jointly
  • 12% – Income $9,876-$40,125 for single, and $19,751-$80,250 for married filing jointly
  • 22% – Income $40,126-$85,525 for single, and $80,251-$171,050 for married filing jointly
  • 24% – Income $85,526-$163,300 for single, and $171,051-$326,600 for married filing jointly
  • 32% – Income $163,301-$207,350 for single, and $326,601-$414,700 for married filing jointly
  • 35% – Income $207,351-$518,400 for single, and $414,701-$622,050 for married filing jointly
  • 37% – Income above $518,400 for single, and above $622,050 for married filing jointly

You might think this is starting to get a little complicated, and you’re right. It’s going to get a little worse, but you’ll be ok.

A single earner making $60k won’t pay 22% across the full amount of their earnings. They will pay 10% on the first $9,875, the 12% on the portion up to $40,125, and finally 22% on the last $19,875. That means they pay less overall taxes, and that their effective tax rate will be much less than the 22% that only affects roughly the last third of their income.

The earner in our example would end up paying $8,991 on their $60k yearly salary. This works out to about $988 on the first portion taxed at 10%, $3,630 on the second portion taxed at 12%, and $4,373 on the past portion at 22%. Since $8,991 is 14.985% of 60,000, their effective tax rate would be 14.99%.

As you can see, the numbers and bracketing can get a little complicated, and it can be a bit tedious to go through each income bracket to figure out the tax amounts for each percentage. However, knowing how to calculate your effective tax rate is important information. It can even help you determine if you are leveraging itemized deductions effectively from year to year.

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Financial Tax Services

Which Tax Software is Best for You?

tax services

Tax season is upon us and for many people, that means stress and worry about filing their taxes correctly. You want to be sure to file your taxes correctly while still getting all of the deductions and refunds that you qualify for. Using tax software can help you achieve that goal.

Tax software leads you through the entire tax process by asking questions to know what forms you should file. They will also tell you what information you need and where to find it on your tax forms. They also make it easy to file electronically so that you can get your refund quickly.

There are different tax software available and each kind of tax software is best for certain people and situations. Which one you want to use will depend on your situation and what taxes you file.  

TurboTax

TurboTax is one of the leading tax filing software companies. Their software asks you questions about how you’re filing taxes this year, how you made money, and what your year looked like financially to get you to the right places to file correctly and get the right deductions. They also account for federal and state taxes in the same filing. 

This software is easy to use whether you’re an individual or business filing taxes. It will automatically include home purchases, dependents, and other deductions so you don’t have to worry about including them. By answering the questions it asks you, you can be ready to file electronically and know that they will be filed correctly. 

H&R Block

If you want free software to file your taxes, H&R Block can help with that. They provide ease of filing without having to pay for anything. It covers federal and state taxes for many filing options without any additional charges. 

Many individuals do not have complex tax forms, they have a W-2 form and some deductions. In these situations, having a free option for filing taxes is the best option. When your taxes are easy to file, they should come with a corresponding price tag.   

Tax Slayer

As more people become reliant on the gig economy or self-employment for either a portion or for their entire paycheck, having tax software that understands that can help ensure that your taxes are filed correctly. These kinds of jobs have different tax forms and deductions that you want to account for.

Tax Slayer is affordable and will help you account for all of the ways you made money and the different deductions that you qualify for. They provide options for state and federal taxes so you can be assured that all of your tax needs are met.     

Conclusion

Filing taxes requires different needs depending on how you’re filing taxes. Some taxes are easier to file than others. There are several kinds of tax software available so you can find the right one for your situation. Filing taxes with the help of tax software makes filing taxes easy, no matter how you made money.