Author Archives: c04432601

What are the most prevalent start-up bookkeeping mistakes?

Start-ups succeed – or fail – based on their cash flow.

If your start-up spends all its initial capital and can’t pay the bills or make payroll, then it’s going to be bankrupt This is why getting bookkeeping right is so crucial. It might not seem like a very exciting area of your business – but without it, there won’t be a business left to run.

It’s easy to make mistakes when it comes to bookkeeping, especially if you’ve not had any experience dealing with ledgers and balance sheets before. Here are four all-too-common mistakes to steer clear of:

Mistake #1: Choosing a Bookkeeping Service Without Shopping Around

When there are dozens of other tasks you’re trying to handle as the founder of a busy start-up, it’s very tempting to simply choose the first bookkeeping service you come across.

This could prove to be a huge mistake, though. As this comparison between Pilot and Bench shows, some bookkeeping services will limit your options by handling your accounts in a proprietary system (which means you can’t easily switch bookkeepers) or by only offering cash-based bookkeeping.

Mistake #2: A Poorly Defined Business Plan

If you don’t have a clearly defined business plan, you’re going to run into a whole host of potential problems, including with your bookkeeping.

Your business plan should include a cash flow forecast so that you know crucial things like what you need in the way of startup costs, what expenses you’ll need to pay in your first few months doing business, and when you can realistically expect money to start coming in.

Mistake #3: Not Monitoring Accounts Receivable

One factor that can cripple start-ups is having several late-paying clients. If you were expecting to receive $4,000 from three clients who all pay late, that’s a $12,000 hole in your finances. The impact on your cash flow could be enough to seriously damage or even destroy your business.

It’s crucial to monitor your “accounts receivable” ledger, where you have a record of all invoices issued and as yet unpaid. You need a system to follow up with clients who are late paying – perhaps an email in the first instance, then a phone call a few days later if there’s no response.

Mistake #4: Keeping Patchy or Inconsistent Records

It’s important to keep good records from the start, whether or not you plan to work with a bookkeeper. If you decide to handle everything yourself, then good records will at least make the task easier and quicker – and if you do bring a bookkeeper on board, you’ll save them a lot of time (and you a lot of money!) by handing over everything in a sensible, organized format.

This means having consistent processes for tracking expenses, for issuing invoices, for filing bank statements, and so on.

Mistake #5: Mixing Personal and Business Finances

If you’re the sole founder of your start-up, you might be tempted to use your existing checking account to receive and make payments. This is a huge mistake because it makes it very difficult to figure out which payments and expenses are personal ones and which are business ones – and it means it’s impossible to see the financial health of your business at a glance.

As soon as you start your business, you should set up a separate bank account to handle all your business incomings and outgoings separately from personal ones.

When you’re running a start-up, you’re probably wearing a lot of hats at once … and it’s understandable that some things get forgotten or mishandled in the rush. Your bookkeeping, though, is one key area you can’t afford to get wrong. Check you’re not making any of the above mistakes – and if possible, consider hiring a great bookkeeper such as McRea Woodson & Associates to keep things on track for you as you go forward.

Source: Tech Bullion

Can your business take advantage of the new TCJA income deduction?

Tax reform represents the largest change to the tax code in 30 years, and impacts virtually everybody — including business owners both small and large, who are still working to untangle the qualified business income deduction.

The new deduction is one of the biggest complexities in the Tax Cuts and Jobs Act and as tax season continues, it affords great learning opportunities for businesspeople of all sorts.

Generally, the 20 percent deduction means an eligible business owner with $50,000 in qualified business income could deduct up to $10,000. This generous tax benefit is meant to level the playing field between businesses filing as C corporations, which have a 21-percent tax rate, and small businesses paying individual tax rates ranging from 10 to 37 percent. But ever since the law passed more than a year ago, the question has been who exactly qualifies for the deduction and how it – and its limitations – are calculated.

Unpacking the consequences of the new deduction are possible. As the IRS released additional guidance, the country’s tax pros are working late nights to arm taxpayers with all the information they could need.

And while the new deduction generally allows some small business owners to deduct 20 percent of their qualified business income on their personal tax return, it’s also useful to know what it doesn’t allow.

In addition to knowing the limitations for certain types of businesses and for taxpayers with higher incomes, taxpayers should know the qualified business income deduction does not affect the taxpayer’s adjusted gross income or self-employment tax due calculation. The deduction is limited for taxpayers with taxable income of more than $157,500 for single filers and more than $315,000 for married couples filing jointly.

Though the change to the tax code presents a lot to learn, one thing will always remain certain: every tax situation is unique, and there’s no shame in asking for help – especially when the stakes are this high.

5 smart tax moves you can still make for your 2018 return

The filing deadline is April 15, but it’s not too late for some savvy strategic moves

With the April 15 deadline for filing your 2018 Form 1040 only a few days away, it’s still not too late to make some moves that will save taxes on last year’s individual federal income tax return. And maybe on your 2018 state return too.

Here are five tax-saving ideas that can potentially be implemented with 2018 returns:

1. Choose to deduct state and local sales taxes

If you live in a jurisdiction with low or no personal income tax or if you owe little or nothing to the state and local income tax collectors, you have options. You can potentially claim itemized deductions on last year’s return for either (1) state and local general sales taxes or (2) state and local income taxes. But not both.

However, this option only applies if you have enough itemized deductions to exceed your allowable standard deduction for 2018 (generally $24,000 for married joint-filing couples, $12,000 for singles and those who use married filing separate status, and $18,000 for heads of households).

The other X factor: under the Tax Cuts and Jobs Act (TCJA), you cannot deduct more than $10,000 for all categories of state and local taxes combined or $5,000 if you used married filing separate status.

If you would benefit from choosing the sales tax option, you can use an IRS-provided table (based on your income, family size, and state of residence) to figure your allowable sales tax deduction. But if you hoarded receipts from your 2018 purchases, you can add up the actual sales tax amounts and deduct the total (subject to the overall $10,000/$5,000 limitation) if that gives you a bigger write-off.

Even if you use the IRS table, you can add on actual sales tax amounts from major purchases like motor vehicles (including motorcycles, off-road vehicles, and RVs), boats, aircraft, and home improvements. In other words, you can deduct actual sales taxes for these major purchases on top of the predetermined amount from the IRS table.

2. Make deductible IRA contribution

If you’ve not yet made a deductible traditional IRA contribution for your 2018 tax year, you can do so between now and April 15 and claim the resulting write-off on your 2018 return, assuming you qualify. If so, you can potentially make a deductible contribution of up to $5,500 or up to $6,500 if you were age 50 or older as of Dec. 31, 2018. Ditto for your spouse if you are married.

There’s a catch: you must have enough 2018 earned income (from jobs, self-employment, or taxable alimony received) to equal or exceed your IRA contribution(s) for the 2018 tax year. If you are married, either you or your spouse (or both) can provide the necessary earned income.

The other catch: deductible IRA contributions are phased out (reduced or eliminated) if last year’s income was too high and you and/or your spouse participated in a tax-favored retirement plan last year. (See No. 5.)

3. Make deductible Health Savings Account (HSA) contribution

If you had qualifying high-deductible health insurance coverage last year, you can make a deductible HSA contribution of up to $3,450 for self-only coverage or up to $6,900 for family coverage. I covered this possibility in an earlier column.

4. Add up health insurance premiums and medical expenses

If you are an itemizer for 2018, you can potentially claim an itemized deduction for qualifying medical expenses, including premiums for private health insurance coverage and premiums for Medicare health insurance. Specifically, you can claim an itemized medical expense deduction for 2018 to the extent your total qualifying expenses exceed 7.5% of your adjusted gross income (AGI) for the year.

(For 2019, the deduction threshold is scheduled to rise to a daunting 10% of AGI unless Congress extends the 7.5%-of-AGI deal.)

Since the TCJA greatly increased the standard deduction amounts for 2018 to 2025, fewer individuals will be itemizing on their 2018 returns. But having significant medical expenses may allow you to itemize and collect some tax savings.

(For 2018, the standard deduction amounts are generally $12,000 for single filers and those who use married filing separate status, $24,000 for married joint-filing couples, and $18,000 for heads of households.)

Key point: If you are self-employed or an S corporation shareholder-employee, you can probably claim an above-the-line deduction for your health insurance premiums, including Medicare premiums. And you don’t need to itemize to get the tax-saving benefit. Ask your tax adviser for details.

I hope you can use at least one of these ideas on your yet-to-be-filed 2018 return. If so, and if you are pressed for time, you can always extend your return to Oct. 15, 2019 by filing IRS Form 4868. You can print it out from the IRS website.

5. More tips for deductible IRA contributions

• You and/or your married spouse must have 2018 earned income at least equal to what you contribute for the 2018 tax year.

• If you turned 70½ last year, you cannot make an IRA contribution.

• If you are unmarried and in 2018 participated in a tax-favored retirement plan (an employer-sponsored plan or a self-employed plan like a SEP or SIMPLE-IRA), your eligibility to make a deductible IRA contribution for last year is phased out between adjusted gross income (AGI) of $63,000 and $73,000. AGI includes all taxable income items and selected deductions such as the ones for self-employed health insurance premiums, HSA contributions, and alimony paid.

Key Point: For 2019 and beyond, only alimony payments required by pre-2019 divorce agreements can be deducted, but this change does not affect alimony payments made in 2018.

• If you are married and both you and your spouse participated in retirement plans in 2018, your eligibility to make a deductible contribution for last year is phased out between joint AGI of $101,000 and $121,000. Ditto for your spouse’s ability to make a deductible contribution.

• If you are married and only one spouse participated in a plan in 2018, the participating spouse’s eligibility to make a deductible contribution for last year is phased out between joint AGI of $101,000 and $121,000. The non-participating spouse’s eligibility is phased out between joint AGI of $189,000 and $199,000.

• If you are unmarried and did not participate in a plan last year, your AGI is not an issue. You can make a fully deductible contribution, assuming you have enough earned income to cover it.

• If you are married and neither you nor your spouse participated in a plan last year, you can both make fully deductible contributions, assuming you have enough earned income to cover them.

Source: Market Watch; Author: Bill Bischoff

Taxes From A To Z 2019: V Is For VITA

If you’re wondering whether you can claim house office expenses or whether to deduct a capital loss under the new law, you won’t want to miss a single letter.

V is for VITA.

The Volunteer Income Tax Assistance (VITA) program offers free in-person help for eligible taxpayers. VITA is offered at nearly 12,000 preparation sites across the country and typically focuses on tax assistance for low- and moderate-income taxpayers and the elderly. To qualify, generally, you must make $55,000 or less, or fit one of the other criteria: persons with disabilities, the elderly, and individuals with limited English proficiency who need assistance in preparing their taxes.

VITA centers, as well as Tax Counseling for the Elderly (TCE) centers, are staffed with volunteers. Volunteers receive training and spend hours assisting taxpayers with many tax questions, including those related to the Earned Income Tax Credit (EITC). I know: I used to be a VITA site volunteer.

The TCE program offers free tax help for taxpayers who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors. The IRS-certified volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.

While VITA volunteers are trained in many areas, they will not prepare all returns and schedules. Specifically, VITA volunteers will generally not prepare a Schedule C (Profit or Loss from Business) showing losses, a complicated Schedule D (capital gains and losses), a form SS-5 (request for Social Security Number), a form 8606 (non-deductible IRA), form 8615 (minor’s investment income), a form SS-8 (determination of worker status for purposes of federal employment taxes and income tax withholding) and parts 4 & 5 of form 8962 (Premium Tax Credits). Additionally, volunteers may provide limited assistance for Sale of Home (form 1099-S), Self-employed Income (form 1099-MISC), Cancellation of Debt (form 1099-C), Health Savings Accounts (form 1099-SA), prior year returns and amended returns. Remember that these folks are volunteers and they have lots of taxpayers to assist. If your tax return is complicated, or if you need special assistance, you should make an appointment with a professional tax preparer.

VITA and TCE sites are generally located at community centers, libraries, schools, shopping malls and other convenient locations across the country. To find the nearest VITA or TCE site near you, use the VITA and TCE locator tool available on IRS.gov, download the IRS mobile app IRS2GO (more on that here) or call 800.906.9887.

Some VITA/TCE sites do require an appointment, so check first. The information about appointments can often be found on the locator (turquoise circle below), along with hours (purple arrow below) and dates that the center will be open (hot pink box below).

VITA locator tool

VITAKPE

Keep in mind that a majority of the TCE sites are operated by the AARP Foundation’s Tax Aide program: to locate the nearest AARP TCE Tax-Aide site between January and April use the AARP Site Locator Tool or call 888.227.7669.

Some VITA/TCE sites are currently open but are still being added to the locator. The IRS encourages you to check back if the locator does not show a site near you.

When you arrive at your VITA site, you’ll need proof of ID for you and your spouse: if you’re filing a joint return, both spouses must be present at the site. Bring Social Security cards or Individual Taxpayer Identification notices/cards for you, your spouse, and/or dependents, as well as a list of birth dates (I’m a parent, I get it, it’s easy to forget). You’ll also want to have your relevant tax records available, including forms W-2, 1099, and forms 1095-A, B or C (ACA Statements), as well as any information to support deductions and credits. It’s also important to bring a copy of last year’s tax return if you filed. If you plan to have your tax refund direct deposited, you’ll also want to bring your banking info (including your routing and account numbers). For more on what to bring, check out the IRS VITA information here.

If the VITA site prepares prior year returns, and you have not yet filed, bring along information for those prior years, too. The IRS has more than $1 billion in unclaimed refunds from 2015, so don’t be shy about filing. Again, just be sure to ask in advance about prior year returns – not all sites offer services for prior years and those that do may require appointments in advance.

Some VITA sites allow taxpayers to prepare their own basic federal and state tax return for free using web-based tax preparation software with an IRS-certified volunteer as a guide. This option is only available at locations that list “Self-Prep” in the site listing.

Finally, some VITA sites offer Certified Acceptance Agent (CAA) services to taxpayers. With CAA services, you don’t have to mail your proof of identity and foreign status documents. After processing your documents, the IRS will mail your ITIN (Individual Tax Identification Number) to you, allowing you to file your tax returns.

(For more on ITINs and other TINs, click here.)

VITA is a great service for taxpayers, but it’s also a wonderful way to give back to your community. If you have interest in becoming a VITA volunteer, you can sign up here. As a volunteer, you’ll be assigned to work with a sponsoring organization, first to receive training and then to begin volunteering at a location in your community. Training is offered both online and in the classroom. Tax sites are generally open nights and weekends and the hours are flexible. You don’t have to be a tax professional to sign up.

For more Taxes From A To ZTM 2019, check out the rest of the series:

Source: Forbes; Author: Kelly Phillips Erb

Tax Day is Here!

The individual tax deadline of April 15 is fast approaching. Do you have all your tax arrangements in order? Here are five important questions that people are asking.

 

  1. What happens if I don’t file on time?There’s no penalty for filing a late tax return after the deadline if you are set to receive a refund. However, penalties and interest are due if taxes are not filed on time or a tax extension is not requested AND you owe tax.

    To avoid this problem, file your taxes as soon as you can because the penalties can pile up pretty quickly. The failure-to-file penalty is 5 percent of the unpaid tax added for each month (or part of a month) that a tax return is late.

  2. Can I file for an extension?
    If you are not on track to complete your tax return by April 15, you can file an extension to give you until Oct. 15 to file your tax return. Be aware that it is only an extension of time to file — not an extension of time to pay taxes you owe. You still need to pay all taxes by April 15 to avoid penalties and interest.

    So even if you plan to file an extension, a preliminary review of your tax documents is necessary to determine whether or not you need to make a payment when the extension is filed.

  3. What are my tax payment options?
    You have many options to pay your income tax. You can mail a check, pay directly from a bank account with IRS direct pay, pay with a debit or credit card (for a fee), or apply online for an IRS payment plan.

    No matter how you pay your tax bill, finalize tax payment arrangements by the end of the day on April 15.

  4. When will I get my refund?
    According to the IRS, 90 percent of refunds for e-filed returns are processed in less than 21 days. Paper filed returns will take longer.

    24 hours after you receive your e-file confirmation (or 4 weeks after you mail a paper tax return), you can use the Where’s My Refund? feature on the IRS website to see the status of your refund.

  5. Oops, I forgot a tax document. Now what?
    The first thing to do is determine the impact the new information has on your filed return. For example, if you claim the standard deduction and then receive a mortgage interest statement that does not bring your expenses above the deduction threshold, there’s nothing more you need to do. Simply file the statement with your other tax documents.

    If, on the other hand, you receive something like a Form 1099 with additional income, you will need to amend the tax return to claim the income. In cases like this, please call in order to review your situation and the timing of the correction.

Leasing vs. Buying a Car

Knowing the tricks makes you a better decision-maker

There are many reasons for you to lease a car versus buy a car, but too often it is the auto dealer’s profit motive that determines which method you use rather than what’s best for your budget and lifestyle. To help you make an informed decision, here are some things to consider:

When to lease

  • You want a car with lower down payments and monthly costs.
  • You don’t like making your own vehicle repairs.
  • You prefer a new car every couple of years.
  • You don’t drive many miles each year.
  • You are not hard on your vehicle.

When to buy

  • You plan to have the vehicle for many years.
  • You are willing to drive a used car.
  • You drive more miles than a lease allows.
  • You are worried about keeping the car in excellent condition.
  • You want to work on or modify the car.

Tips to know if you decide to lease

If you think leasing a vehicle is an option for you, here are some tips to ensure you are making the best deal:

 

  • Negotiate before revealing your intentions. Negotiate the price before telling the dealer you wish to lease. The purchase price you negotiate should be the price the dealer uses in calculating the lease payments as well as an outright purchase. If it is not, this technique forces the dealer to disclose this fact.
  • Ask about the annual percentage rate (APR). Ask the dealer to disclose the effective APR built into the lease. If the dealer gives you a lease factor instead of an interest rate, multiply the lease factor by 2,400 to get a general interest rate. For example, a lease factor of 0.0025 multiplied by 2,400 returns an interest rate of 6 percent.
  • Question the residual value. Ask what the projected residual value of the car is at the end of the lease. This value is often overstated by the dealer to artificially lower your lease payment, but can impact your ability to purchase your vehicle at the end of the lease. Future residual value is an estimate and can often be negotiated with the dealer.
  • Compare with a loan. Use the negotiated purchase price to calculate your loan payments. Use this information to compare your monthly lease payment with your car loan payment.
  • Read the lease agreement! If ever there is a time to read the fine print, leasing a car is one of them. Pay special attention to early termination clauses and cost for excess miles. These two factors can dramatically impact your lease versus buy decision.

4 Key Metrics to Fortify Your Business

Even the best, well-prepared business plans can unravel quickly without a process in place to evaluate performance. Creating a scorecard with quality metrics can give you the daily insight you need to successfully run a business without drowning in the details.

Create a scorecard that works

An effective scorecard gives you a holistic view of the state of your business in one report. The report consists of key financial and non-financial metrics to provide a daily look at the health of your business. To be useful, your measures should be concise, available on-demand, and include properly targeted data to help you quickly spot trends and react appropriately.

Effective business metrics to consider right now

  1. Quick Ratio (financial)
    Add up your total cash, short-term investments and accounts receivable. Then divide that total by your current liabilities. This is your quick ratio. It’s a simple way to see if you have enough funds on hand to pay your immediate bills. A value of 1.0 or more means your liquid assets are sufficient to cover your short-term debts. A value less than 1.0 may mean you’re relying too heavily on debt to fund your operations or pay expenses.
  2. Retention Percentage (customers)
    First, create a list of customers who made purchases this year and a list of customers who made purchases last year. Then, remove all new customers gained in the current year. Divide the total number of customers from last year by the remaining number of customers for this year. This is your customer retention percentage. Measure this over time to see if your business is retaining or losing core customers. If you have a condensed sales cycle, you can shrink the period down further. For example, by looking at this calculation each month, you can see how it builds over the year.
  3. Asset Turnover Ratio (internal process)
    Divide your total sales by average total assets from your company balance sheet. (beginning assets plus ending assets, divided by two) for the same time period. The end result tells you the amount of sales generated for each dollar committed to your assets. The number may not reveal much by itself, but when reviewed over time, you’ll have a better understanding of whether the assets used to run your business are becoming more or less effective.
  4. Net Income Per Employee (growth)
    Divide your net income by your total number of employees for a given time period. In theory, as your workforce develops, it should generate more income per employee. Remember to account for part-time employees prior to making your calculation (e.g., a part-time employee working 20 hours per week is 1/2 an employee for purposes of this calculation). If the income per employee is getting lower over time, figure out why. Perhaps you have high employee turnover, or there is an area of your company that can benefit from training.

While each ratio may help you analyze different aspects of your business, they don’t tell you the whole story. Finding the right mix of metrics for your scorecard can take some time, but the end result is a valuable tool that can take your business to the next level.

Tax Quiz: Wild State Tax Laws

Think taxes are simple and filled with common sense? Think again! Enjoy this fun quiz to see how well you know the crazy world of state taxes.

Q: If you have a hankering for an apple or banana at work, you’ll pay an extra tax to buy fruit from a vending machine in which state?

A. Georgia

B. South Dakota

C. California

D. Oregon

A: C – California. Cold food is tax-exempt if purchased at a store, but subject to tax on 33% of this price if you purchase fruit from a vending machine. If you sell fruit in this state…good luck keeping track of the tax.

Q: Looking to finally get that “mom” tattoo on your arm? Which of these states charges a 6% tax on that tattoo?

A. Minnesota

B. Arkansas

C. Delaware

D. Texas

A: B – Arkansas. Body piercings are also taxed at 6%. So if you are waffling between getting that tattoo or a nose ring, you can eliminate taxes as a deciding factor!

Q: Have you ever looked at a tree in your yard and thought, “wow, that tree sure is exceptional”? If you have one of these “exceptional” trees on your property you might be entitled to a $3,000 tax deduction in which state?

A. Hawaii

B. Missouri

C. Maine

D. Alaska

A: A – Hawaii. Worried about how new developments were destroying the environment in the 70’s, the Hawaii State Legislature added the tax deduction for expenditures paid to maintain an exceptional tree.

Q. Next time you are at a bakery in this state and the baker lifts the knife to cut your bagel, stop them. It could be a taxable event! Can you name the state?

A. Utah

B. Wisconsin

C. Pennsylvania

D. New York

A: D – New York. Slicing a bagel meets the state’s definition of prepared food and is subject to an 8 percent sales tax. That goes for applying cream cheese as well.

Q. Looking for a long-term retirement tax-savings tip? Which state exempts you from state taxes once you turn 100?

A. Michigan

B. New Mexico

C. Rhode

D. Virginia

A: B – New Mexico. If you are 100 or older and are not claimed as dependent, you are exempt from filing and paying New Mexico personal income tax.

As you enjoy the nice spring weather, spread some of this fun tax knowledge with family and friends.

Taxes for Business Owners Are More Complicated Than Ever

Even the experts are having trouble navigating the effects of the tax reform. Find out how small-business owners can keep their bearings.

Business owner stressed while doing taxes

The first tax season where taxpayers will experience the full effect of the Tax Cuts and Jobs Act is here, and soon the economic results will be scrutinized. Business owners were a central demographic component when the bill was put together.

The idea was to incentivize small businesses, lessen their tax burden, and create growth. Whether or not this is happening is hotly contested. But, fiscal rewards aside, small-business owners should plan on taxes taking extra time and attention this year–two of the rarest commodities for busy entrepreneurs.

Below are some tips on how you can stay out of the weeds and focused on your business this tax season.

What’s New for Small-Business Owners

Corporate provisions comprised some of the most sweeping changes in the tax reform. The most critical factor in determining how your business will be taxed is the structure of your company–and which structure is best has been vastly changed by the tax reform.

For instance, the corporate tax rate for C corporations dropped to 21 percent, which is a boon to large companies but won’t have an impact on the average small business. What is big news for smaller-sized businesses is that pass-through companies can take a 20 percent business deduction.

Whether you are structured as a sole proprietorship, partnership, LLC, or S corporation, you will likely be able to take advantage of this deduction if you fall below the income thresholds ($157,500 if filing singly or $315,000 if filing jointly). However, some professional services such as legal, accounting, consulting, and several other groups are not eligible for these savings. In the end, how your company is set up makes a big difference and it may or may not be the most tax-savvy way.

If your company operates internationally, even more extensive changes are in store. For instance, the worldwide tax system is moving toward a quasi-territorial tax system, which includes a brand new repatriation tax on foreign earnings, a tax on global intangible low-taxed income, and more.

Why This Year Is So Different

If these changes sound complicated, it’s because they are. Simplifying the tax code is a complex endeavor, and the IRS is still teasing out the gray areas slowly but surely. The sheer volume of changes is overwhelming even to tax professionals who work with the Internal Revenue Code every day. The 1040 has been drastically altered, which means accountants can’t compare apples to apples anymore, and that alone stands to slow the process down.

If accountants are experiencing increased time demands due to the new regulations, you can imagine just how perplexed average taxpayers areOne study found that 28 percent don’t know what changed, and just under half of all taxpayers no longer know what tax bracket they are in. Another study found that under a third of people have updated their withholding to reflect the new tax laws. It will take a while for all of us to adjust.

This sense of overwhelm is affecting those undergoing a simple tax-filing process–to say nothing of those of us who run companies. Individual taxes are more complicated now, and that goes double for small-business owners.

What You Can Do to Mitigate the Chaos

This just might be the year to hire an accountant. Depending on how tax-minded you are, trying to keep up on the current tax regulations–let alone the regulations that are yet to come–may be more detrimental to your business.

Though you’ll save some cash on the accounting fees, the expertise an established accounting firm can offer can be worth its weight in gold. Be aware that accounting fees may be higher than typically expected because of all the extra legwork tax season requires this year.

Sometimes, a brief consulting session will do the trick if you just have a few specific questions about your situation. If you decide to go this route, reference the IRS’s resource page for how the tax reform provisions affect businesses. Other times, it’s best to leave the grunt work to the experts so that you can use your talents in the most worthwhile way: leading your company toward its next level of success.

Source: Carrie McKeegan, INC

IRS expands relief from underpayment penalty

The IRS announced on Friday that it is amending Notice 2019-11 to lower the amount of tax that an individual must have paid in 2018 to avoid the underpayment of estimated income tax penalty to 80% (Notice 2019-25). The change was made after concerns were raised that the earlier relief, which lowered the underpayment penalty threshold from 90% to 85%, did not go far enough given all the uncertainties taxpayers and tax practitioners faced after the many changes wrought by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97.

Under Sec. 6654(d)(1)(B), the required annual income tax payment an individual taxpayer is required to make to avoid an underpayment penalty is the lesser of (1) 90% of the tax shown on the return for the tax year or (2) 100% of the tax shown on the taxpayer’s return for the preceding tax year (110% if the individual’s adjusted gross income on the previous year’s return exceeded $150,000). Sec. 6654(a) imposes an addition to tax for failure to make a sufficient and timely payment of estimated income tax. The IRS, however, is entitled to waive the addition to tax in certain unusual circumstances if its imposition would be against equity and good conscience.

With Friday’s notice, the IRS is waiving the Sec. 6654 addition to tax for failure to make estimated income tax payments for the 2018 tax year otherwise required to be made on or before Jan. 15, 2019, for any individual taxpayer whose total withholding and estimated tax payments made on or before Jan. 15, 2019, equal or exceed 80% of the tax shown on that individual’s 2018 return.

To request the waiver, an individual taxpayer must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The taxpayer should check the waiver box in Part II, box A, of the form and include the statement “80% waiver” on the return.

Source: Sally P. Schreiber, J.D., Journal of Accountancy