Ask an Accountant

Ask an Accountant

I haven’t received my W-2 yet, what should I do?

04 February 2016
W-2 forms should be mailed out by the end of January. If you don’t have it by mid-February, you should get in touch with your employer to make sure that it was mailed. If you can’t get a copy from them, contact the IRS after February 23. Read More

Questions about Capital Gains?

18 December 2015
Here are some things to consider. 
  • The tax rate on net capital gains is a sliding scale from zero to 20 percent depending on the taxpayers’ income level. For most taxpayers, the tax rate on capital gains (and qualified dividends) is no higher than 15 percent. 
  • Beware of the wash sale rules: buying and selling the same, or substantially same, stock within 30 days results in disallowed losses.
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Are You a High Earner?

14 December 2015
  • If your income is six figures or more, you should anticipate possible liability for the 3.8 percent net investment income (NII) tax calculated on net investment income in excess of your modified adjusted gross income (MAGI). Threshold MAGIs for the NII tax are $250,000 in the case of joint returns or a surviving spouse, $125,000 for a married taxpayer filing a separate return, and $200,000 in any other case. 
  • Keeping income below the thresholds is worth exploring and planning for the NII tax requires a very personalized strategy.
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Things to keep in mind as 2015 comes to a close.

11 December 2015
Life changes: 
  • Did you get married or divorced? 
  • Have a child? 
  • Buy a home? 
  • Change jobs or retire? 
  • Additionally, try to predict any life events in 2016 that might trigger significant income or losses, as well as a change in your filing status.
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Be on the Lookout:

08 December 2015
As of mid-November, there are a number of legislative bills in Congress.  Many of these bills have tax provisions included in them.  The AICPA expects the following items to be addressed:
  1. Revisions to the Affordable Care Act.
  2. Not renewing the ability of taxpayers to exclude cancellation of debt on their personal residence from ordinary income.  Currently, the maximum amount of debt cancellation (on a personal residence) exclusion is $2 million on a qualified principal residence.
  3. Hope and Lifetime Learning Credits are set to expire.
  4. Teachers (primary and secondary levels) will no longer be able to deduct $250 for classroom expenses.
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What are some important things to consider when starting a new business?

19 August 2015

Are you starting a new business? Congratulations!

Here are 5 tips to help you get off to a good start:

The success of a new business venture certainly depends on have a marketable product and the ability to create a demand for that product.  However, not knowing what your tax responsibilities are can sink even the best ideas.

  1. Business Structure.  Determining the type of business structure you will have is one of the first decisions that a new business owner must make.  There are two classes of business structure―tax and legal.  Common legal business structures include: sole proprietor, corporation, LLC, partnership and several others.  Tax structures are much fewer in number and include sole proprietor, corporations, Sub Chapter S corporations, and partnerships.   The type of tax business structure you choose will determine not only which tax forms you will file but also the type of tax you will pay (other than income). 

  2. Business Taxes.  Yes, Virginia there is more than one type of business tax. Typically we think of four types of federal business taxes: income tax, self-employment tax, employment tax and excise tax. There are advantages and disadvantages to each tax business structure you choose and most of the time, your choice of structure determines what type of tax you (or your business) will pay.  “Do I need to make estimated tax payments?”  “Do I owe any state taxes?”  “What are self-employment taxes?” and “What is flow-through income?”  These are just a few of the questions that should immediately come to mind if you are starting a business.  A tax professional can best guide you on the business structure that works best for you.

  3. Employer Identification Number (EIN).  “I don’t have any employees (and don’t plan to have any) so I don’t need an EIN, right?”  Maybe so, maybe no.  An EIN is essentially a social security number for your business.  The need for an EIN has nothing to do with whether or not you have (or ever plan on having) employees.  You may want to get an EIN for federal tax purposes as it provides a degree of further separation between the business owner and the business entity itself but it is not always mandatory to have an employer identification number. Talk with your tax preparer to help determine if you should apply for an EIN. 

  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method from year to year. The two that are most common are the cash and accrual methods.  Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them (money in, money out).  Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them (I sold it but haven’t been paid for it or I bought it and haven’t paid for it yet).  This is true even if you get the income or pay the expense in a later year.  Your tax professional should be able to explain the differences between the two accounting methods more fully and help you determine which method best suits your business situation.

  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

    The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

    Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees.  Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

    The Affordable Care Act has a large impact on businesses and you should consult your tax professional for guidance in meeting the requirements of the Act.

Source:  IRS Tax Tip 2015-15

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I don’t have enough deductions to itemize, how can I save money on my taxes?

30 June 2015
It has often been said by accountants and tax professionals that the short answer to any tax question is “It Depends” and that is certainly true with the above question.  Tax planning is not a one size fits all approach.  No matter who you are--just starting out, kids still at home, an empty nester or retiree--tax planning should be done with a tax professional who understands your individual situation and goals as well as the intricacies of the most current tax laws and how those laws can best be applied to save you money.  Consult a CPA today to determine the best tax strategy for you. Read More

If I pay my employees on January 2, 20X2 for the work week ended December 31, 20X1 can I deduct those wages and related taxes in year 20X1?

29 June 2015
No.  Payroll is strictly calendar year and date based.  In the above example, the earnings would not be included in expenses for calendar year 20X1 NOR would the earnings be included in the employees’ W-2 statement for year 20X1. Read More

What is the difference between a cash basis taxpayer and an accrual based taxpayer?

26 June 2015
A cash basis taxpayer only reports income or expenses that he or she has actually received or paid out as opposed to an accrual based taxpayer which reports sales on account (sales made but money not collected for) and accounts payable (expenses incurred but not paid). Read More

If I receive a check for a sale on December 29, 20X1 and wait to deposit it until January 3, 20X2 then I do not have to declare the income until I file my taxes for year 20X2, right?

25 June 2015
Wrong.  IRS considers this constructive receipt of the income and requires that those funds be included as part of the income for 201X.   Read More
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