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Tax Advice, tax preparation

Tax Advisor: Understanding Tax Implications of Remote Work

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Remote work, since the pandemic, has transformed the traditional office landscape. Thanks to technology, employees can now work from anywhere, blurring the lines between home and office. This new flexibility offers many benefits, but it also raises important questions about the tax implications of remote work. 

As remote work becomes more commonplace, both employees and employers need to understand the tax rules that apply to this evolving work arrangement. Here are some tax implications for you and your tax advisor to keep in mind:  

  1. State Income Tax Considerations. If you live and work in D.C., Northern Virginia, or Maryland, you may be subject to taxes in both locations. *** Here’s how it works:
  • Tax Home vs. Work Location: Your “tax home” is typically where you live, while your “work location” is where your employer’s office is located. If they are in the same state, there’s usually no issue. However, if you’re working remotely from a different state, you may need to file income tax returns in both states.
  • Reciprocity Agreements: Some neighboring states have reciprocity agreements that allow residents of one state to work in another without paying income tax to the work state. These agreements can simplify the tax situation for remote workers.
  1. Tracking remote work days. For tax purposes, it’s essential to keep accurate records of where you work. The number of days you work in different states can impact your tax liability. Some states have a “day counting” rule that triggers tax obligations if you work there for a certain number of days within a tax year.
  2. Deductions for home office expenses. The tax implications of remote work also extend to home office deductions. For tax year 2013, the IRS introduced a simplified home office deduction method, allowing eligible taxpayers to deduct $5 per square foot of their home office space, up to a maximum of 300 square feet. For those who qualify, this deduction can help offset some of the costs associated with remote work, such as internet, utilities, and office supplies. However, to be eligible, your home office must be used exclusively for work purposes, and you must meet specific criteria outlined by the IRS.
  3. State sales tax obligations. If you’re running a remote business from your home, you may also have to consider state sales tax obligations. Many states require businesses to collect and remit sales tax on sales made to customers within the state. If you’re conducting sales remotely, you’ll need to navigate the rules and regulations regarding sales tax in both your home state and any other state where you have customers.
  4. Employer considerations. Employers also face tax-related challenges with remote work arrangements. They must determine their tax obligations in the states where remote employees reside and work. Additionally, they may need to address payroll tax issues, unemployment insurance, and compliance with various state labor laws.
  5. Impact on tax credits and deductions. Remote work can affect eligibility for certain tax credits and deductions. For example, the Earned Income Tax Credit (EITC) and Child and Dependent Care Credit (CDCC) depend on factors like income and work-related expenses, which may change when working remotely. Similarly, retirement account contributions and deductions may be impacted by changes in income and work arrangements. 
  6. Seek professional guidance from a tax advisor. Navigating the tax implications of remote work can be complex, especially if you work in multiple states or have specific deductions and credits in mind. To ensure compliance and optimize your tax situation, seek the assistance of a qualified tax advisor. 

Remote work offers flexibility and convenience, but it also brings tax considerations. Understanding the tax implications of remote work is essential for employees and employers to avoid surprises come tax season. 

A.K. Burton, PC, has experienced accountants who can help you do your tax preparation and remote work. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area. 

*** For more information on marriage and taxes, visit the Tax News website. 

Tax Advice, tax preparation

Tax Planning: How to Do Estimated Tax Payments

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Tax planning is an essential aspect of managing your personal or business finances. 

One key element of tax planning is ensuring that you meet your tax obligations throughout the year. For individuals and businesses that don’t have taxes withheld from their income, estimated tax payments are important to staying compliant with the tax laws. 

Here are five ways to make your estimated tax payments.

  1. Determine if you need to make estimated tax payments. Individuals and businesses that expect to owe $1,000 or more in taxes after subtracting any withholding and refundable credits can make estimated tax payments. This applies to self-employed individuals, freelancers, independent contractors, and business owners whose income is not subject to withholding.
  2. Calculate your estimated tax liability. Estimate your income and deductions for the current tax year. Consider factors such as self-employment income, investment income, and any other sources of taxable income. Deductible expenses and credits should also be taken into account. You can use last year’s tax return as a starting point and adjust for any significant changes.
  3. Determine a payment schedule. For most individuals, estimated tax payments are due quarterly. The payment due dates are typically April 15, June 15, September 15, and January 15 of the following year. However, if any of these dates fall on a weekend or a holiday, the deadline is shifted to the next business day.
  4. Calculate each payment. Divide your estimated tax liability by the number of payment periods to calculate the amount of each estimated tax payment. For example, if you have four payment periods, divide your estimated tax liability by four to determine the amount for each payment. It’s important to note that estimated tax payments are based on a pay-as-you-go system, so it’s ideal to make equal payments throughout the year to avoid penalties and interest.
  5. Submit your payment. The most convenient method is to make an electronic payment through the IRS Electronic Federal Tax Payment System (EFTPS). *** This allows you to make secure online payments directly from your bank account. You can also pay by phone using the EFTPS Voice Response System or by mail using Form 1040-ES and a check or money order payable to the United States Treasury. Be sure to include the payment voucher from Form 1040-ES with your payment.
  6. Keep track of your payments. Maintain a record of the dates, amounts, and payment methods used for each payment. This documentation will be useful when filing your annual tax return, as you will need to report your estimated tax payments accurately.
  7. Review and adjust as needed. Regularly review your estimated tax payments and reassess your tax situation. If your income or deductions change significantly, you may need to adjust your estimated tax payments accordingly. It’s better to make adjustments as you go rather than underpaying and potentially incurring penalties at the end of the year.

Estimated tax payments are an important aspect of tax planning for individuals and businesses with income not subject to withholding. By following these steps, you can make your estimated tax payments on time to avoid penalties. Consider consulting a tax preparer or utilizing tax software to ensure accuracy and to receive guidance tailored to your specific tax situation.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you do your tax planning and file your tax returns and represent you to the IRS. We do individual and business tax returns. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information on making estimated tax payments, visit the EFTPS page on the IRS website. 

Small Business Accounting, tax preparation

Tax Planning: Little-Known Expenses That are Tax-Deductible

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Tax returns are done for most US citizens. There are still millions of Americans and their accountants who are still working on their 2022 tax returns. ***

There are many deductions that filers forget or don’t even know are eligible. Billions of dollars are paid out by taxpayers that could have been saved. Your tax advisor is aware of these tax deductions as they are required to be updated on all new tax laws.

Here are some little-known expenses for your tax planning that may be tax-deductible:

1. Job Search Expenses: If you’re searching for a job in your current field, you may be able to deduct certain job search expenses, such as transportation costs, resume preparation, and employment agency fees. These deductions may be available even if you don’t get the job.
2. Professional Development Expenses: If you’re looking to improve your skills or education in your current field, you may be able to deduct the expenses associated with professional development courses, seminars, and conferences.
3. Jury paid. Most employers will pay employees’ salaries while they are serving on a jury but ask that they turn over their jury fees to the company. This income has to be reported as taxable income. If you gave that income to your employer, you could deduct the amount, so you aren’t taxed on that money.
4. Moving Expenses for Work: If you move for work-related reasons, you may be able to deduct certain moving expenses, such as transportation costs, storage expenses, and lodging costs. The distance between your new home and your new job must meet certain requirements, and there are other eligibility criteria to consider. If you’re an active-duty military member who is relocating, you can deduct these expenses as long as the government doesn’t reimburse you. The move must be permanent and ordered by the military. The deductions include gas, lodging, moving trucks, and shipping your cars and pets.
5. Home Office Expenses: If you work from home, you may be able to deduct certain home office expenses, such as utilities, internet expenses, and office equipment. The space must be used regularly and exclusively for work purposes to qualify for the deduction.
6. Investment Expenses: If you have investments, you may be able to deduct certain investment expenses, such as advisory fees, custodial fees, and other expenses related to managing your investments. If you have any mutual fund and stock dividends, they are automatically reinvested in extra shares, each reinvestment increases your tax basis in the stock refund or mutual fund. This reduces the amount of taxable capital when you sell your shares. 7. 7. Reinvested dividends which you subtract from the proceeds of sale to determine your gain means you will overpay your taxes.
8. State tax paid. If you owed taxes when you filed your 2021 state tax return in 2022, then you can include that amount with your state tax itemized deduction on your 2022 return. You may also include your state income taxes withheld from your paychecks or paid with quarterly estimated payments. Limited to a maximum of $10,000 per year.

These are just a few examples of little-known expenses that may be tax-deductible. However, there are many other deductions and credits available that can help reduce your tax bill. It’s important to do your tax planning with a qualified tax advisor to ensure that you are taking advantage of all the deductions and credits that you’re eligible for while also complying with all applicable tax laws and regulations.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you plan your tax, file your tax returns, and represent you to the IRS. We do individual and business tax returns. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** You can find these deductions and other tax information on the IRS website.

Small Business Accounting, tax preparation

Small Business Tax Preparation: Now Is the Time to Do Your Year-End Tax Planning

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There are less than two months left in 2022. If you are a small business owner, it’s more than likely, you are looking forward to 2023. With the holiday season in full swing, it’s easy to want to wind down, but now may be the best time to plan for taxes in the new year. There are many ways to optimize your taxes, but one of the most impactful things you can do is to consider changing your business’s legal structure.

There are 5 main types of tax entities in the United States:

  1. Sole proprietorship
  2. Partnership
  3. Limited Liability Company
  4. C Corporation
  5. S Corporation

Depending on the stage your business is in, one structure may make more sense than the other.

The IRS defines a sole proprietor as someone who owns an unincorporated business by himself or herself.

A partnership is when two or more people engage in a trade or business where each contributes money, property, labor, or skill and shares in profits and losses.

A Limited Liability Corporation or LLC is a slightly more complex structure than a proprietorship and partnership. It protects members’ personal assets from the organization’s debts and liabilities.

A C Corporation has shareholders exchange money or property for ownership of the organization.

Lastly, an S corporation elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Each structure has its advantages and disadvantages. So, it’s important to consider the following when deciding to change your business structure:

If you are a sole proprietorship

    1. Benefits include:
      1. Pass-through entity status (passing income straight to the owners)
      2. Fewer reporting requirements
      3. No corporate business taxes
    2. Disadvantages include:
      1. Lack of protection for personal assets separate from business
      2. No perpetual existence (Owners, for legal and tax purposes, are directly linked to their business)

If you are a partnership

    1. Benefits include:
      1. Pass-through entity status
      2. No corporate business taxes
    2. Disadvantages are:
      1. Lack of protection for personal assets separate from the business
      2. No perpetual existence

If you are a Limited Liability Corporation

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. No corporate business taxes
      3. Flexibility to be taxed like a corporation, partnership, or sole proprietorship
    2. Disadvantages are:
      1. No perpetual existence
      2. Subject to state laws 

If you are a C Corporation:

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. Perpetual existence
    2. Disadvantages are:
      1. Double taxation (Taxes are paid for corporate income and an owner’s income)
      2. More reporting requirements

If you are an S Corporation

    1. Benefits include:
      1. Protection for personal assets separate from the business
      2. Pass-through entity status
      3. Perpetual existence
      4. No corporate business taxes
    2. Disadvantages are:
      1. Not available in all states
      2. Strict standards to qualify

Depending on your situation, it’s worth considering changing your business structure to maximize tax benefits.

While there are many other areas to ponder when doing year-end tax planning including estimating your net income, analyzing possible deductions for this and next year, and many more, determining whether to keep or change your business structure can make a significant difference.

Before making this decision, it’s best to consult an accountant for proper guidance.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you get the ball rolling with yearend tax planning for your small business. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

  1. https://www.forbes.com/sites/davidrae/2022/11/03/7-smart-year-end-tax-planning-moves-for-small-business-owners/?sh=6b5bc47d47f3) 
  2. https://www.irs.gov/businesses/small-businesses-self-employed/business-structures
  3. https://www.netsuite.com/portal/resource/articles/business-strategy/business-structure.shtml 
Non-Profit Accounting, tax preparation

Tax Preparation: Estimated tax payments due and 990 extended deadlines

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Being tax-exempt doesn’t mean your organization is exempt from filing an annual tax return. 

For most tax-exempt organizations, the deadline to file Form 990 would’ve been May 15. If you’ve filed an extension, you’re extended filing date may be fast approaching next month.

Not sure where to start? 

Step 1 – Collect all your information 

While each organization is different and may require different things, it’s best to have the following information on hand

  • IRS tax-exempt status and type
  • EIN
  • Estimated tax payments made (amounts and dates)
  • Organization’s mission and why it is exempt
  • List of program accomplishments
  • Information for each officer current and former (name, address, title, compensation, benefits, hours worked per week, etc.)
  • Financial Records (unrelated business income, revenue, balance sheets, fundraising reports, supporting organizations, records of contributions, records of grants, audited financial statements, 1099s, W2s, and more)
  • Assets (depreciation schedules, asset purchase dates, cost, proceeds, mileage on business vehicles, and more)

Step 2 – Select and fill out the right form

There are multiple versions of Form 990 and what form you choose largely depends on factors such as your organization’s gross income and assets.

Here are different 990 variations that you may need to file:

  1. Form 990-N
  2. Form 990-EZ
  3. Form 990
  4. Form 990-PF
  5. Form 990-T

If you have a tax-exempt organization and haven’t filed yet, it’s best to file now.

Still, lost? A.K. Burton, PC is here to assist in all your tax preparation needs. Please contact our office with your tax documentation organized and we can help you file your tax return based on your organization’s needs. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

https://www.nonprofitexpert.com/nonprofit-questions-answers/unrelated-business-income-tax-return/ 

https://www.taxact.com/tax-information/tax-planning-and-checklists/990

https://www.expresstaxexempt.com/form-990-due-date/#:~:text=If%20your%20organization%27s%20accounting%20tax,deadline%20is%20October%2017%2C%202022.

Small Business Accounting, tax preparation

Extended business tax deadline 1065, 1120S: What information do you send your tax preparer?

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If you are reading this, chances are you are a business owner, who filed an extension, getting ready to file, but you need guidance on what to do next.

Also, you may be worried because the extension deadline is approaching, and want to be prepared.

You’ve come to the right place. 

With the extension deadline quickly approaching, it’s best to file our return as soon as possible.

The original deadline passed (March 15, 2022) for partnerships, S corporations, or LLCs taxed as partnerships. If you filed an automatic six-month extension, your deadline is September 15, 2022.

When you do meet with your tax preparer, here’s a list of items to get you started as to what you need to bring:

If you have it:

  • a copy of your books (for example accountant’s copy of QuickBooks)
  • applicable spreadsheets

Income documents including:

  • Receipts from sales and services (example: forms 1099-k, 1099)
  • Accounts receivable records
  • Business checking/savings accounts interest (forms 1099-INT)
  • Investment income documents (including form 1099-DIV)
  • Additional income (including rental income, tax credits, etc.)

Forms related to Costs of Goods Sold (if applicable)

Expenses documents include:

  • Advertising
  • Phones (landline, fax, or cell phones related to business)
  • Computer & internet expenses
  • Transportation and travel expenses (include taxi fares, tax, tips, food, gas, and all expenses incurred to facilitate any business trips)
  • Commission and fees
  • Labor expenses paid to subcontractors and independent contractors
  • Depreciation
    • Cost and first date of business use of assets
    • Any records for using assets for personal activities
    • Documentation of prior year depreciation
    • Sales price and disposition date of any assets sold
  • Intangible assets (copyrights, etc.)
  • Business insurances
  • Interest expense (can include mortgage, business loan, or any investment expense)
  • Professional fees (lawyers, accountants, consultants, tax preparers, etc.)
  • Office supplies expenses
  • Rent expenses (if applicable)
  • In-home Office expenses (if applicable)
  • Payroll including wages, benefits, and other employee expenses
  • Repairs, maintenance of office facility, etc.
  • Total mileage 
  • Business mileage
  • Estimated taxes paid
  • Other business-related expenses

Every business is different, so it’s best to contact a tax preparer to know if there are any items not listed you may need.

Of course, if you don’t file by the extended deadline, there is a Failure to File penalty. The basic penalty is 5% of the unpaid taxes for each month a filing is late. The maximum penalty is 25%. If the return is more than 60 days late, the minimum penalty is the lesser of $435 or 100% https://www.cpa-maryland.com/services/tax-preparation/of the tax required to be shown on the return.

Late filings can also be charged interest. Visit the IRS website to get an exact calculation https://www.irs.gov/payments/interest. 

Be prepared. File today.

AK Burton, PC serves small businesses with all of their tax needs. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

Sources:

https://www.irs.gov/payments/failure-to-file-penalty 

https://www.blockadvisors.com/tax-preparation-checklist/ 

https://www.irs.gov/payments/interest 

https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/important-tax-deadlines-dates/L7Rn92V1d 

Tax Advice

The Expectations for the 2022 Tax Preparation Season

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The holiday season has come and gone but “tax season” is always with us. This tax season may be as complicated as ever due to the pandemic and a flurry of new tax laws that came down from Congress. 

Your expectations for your personal and business tax preparation may have to be adjusted, particularly with working with the IRS (always a challenge) and the child and dependent tax credit. Here are some facts to keep in mind as you get your documents in order to file for 2021:

  1. The Internal Revenue Service (IRS): Delayed and behind 
  2. E-filing begins January 24, 2022: The IRS is already way behind in preparing for this tax season and is still working on 2019 and 2020 tax filings. These disruptions are blamed on the ongoing pandemic along with budget cuts, a shrinking workforce, and outdated technologies at the IRS.
  3. Delayed refund for returns claiming Additional Child Tax Credit (ACTC). The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
  4. The Child and Dependent Care Credit: 
    • Differences in credits for qualifying children and other dependents tax year 2021
    • Enhanced child tax credit. For 2021, the child tax credit applies to qualifying children who have not attained age 18 by the end of 2021. Also, the initial amount of the child tax credit is increased to $3,600 for each qualifying child who has not attained age 6 by the end of 2021 and $3,000 for each other qualifying child who has not attained age 18 by the end of 2021. The credit for other dependents has not been enhanced. 
    • In the know. Important abbreviations: ACTC means additional child tax credit.  ATIN means adoption taxpayer identification number.  ITIN means individual taxpayer identification number.  NCTC means nonrefundable child tax credit.  ODC means credit for other dependents.  RCTC means refundable child tax credit.
    • Delayed refund for returns claiming ACTC. The IRS cannot issue refunds before mid-February 2022 for returns that properly claim ACTC. This time frame applies to the entire refund, not just the portion associated with ACTC.
    • 2021 Child and dependent care credit information: The American Rescue Plan Act of 2021, was enacted on March 11, 2021, making the Child and Dependent Care credit substantially more generous and potentially refundable (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) only for the tax year 2021, This means an eligible taxpayer can receive this credit even if they owe no federal income tax. Your federal income tax may be reduced by claiming the Credit for Child and Dependent Care expenses on your tax return. ***

If you have been frustrated the past filing your individual and/or business in the past, this year will not be any different. We are constantly hearing from clients who are having difficulty contacting the IRS to get important information or a consultation on a previously filed tax return. 

AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS.  Call us at (301) 365-1974 for a consultation. Our office is open. Covid protocols if requested. We serve the Bethesda, Rockville, and Montgomery County, MD area. 

*** For more information on Child and Dependent Care Tax Credit, visit the IRS website.