Let’s discuss the impact and implications of indirect taxes on your organization. Direct vs. Indirect Taxes Before we talk about how indirect taxes shape businesses, let’s break down the difference between direct taxes and indirect taxes. According to the IRS, “a direct tax is one that the taxpayer pays directly to the government. These taxes cannot be shifted to any other person or group. An indirect tax is one that can be passed on – or shifted – to another person or group by the person or group that owes it.” Examples of direct taxes include things like income taxes, property taxes, and taxes on assets. Indirect taxes include things like sales tax, value-added tax, and other excise duties, where a tax is collected by the seller but paid by the buyer. Most indirect taxes are paid by consumers, not by the supplying business. The Impact of Indirect Taxes Indirect taxes are often used by governments to encourage – or discourage, in the case of sin taxes – certain behaviors in consumers. For example, taxes imposed on items being imported can help push US consumers to think more carefully about buying American-made products. These products are often cheaper because the extra indirect tax does not apply to them. This, of course, depends on the costs associated with making and shipping a product within the US versus from country to country. Indirect taxes also allow businesses to allocate certain financial burdens, operations, and cost analysis away from the business itself and onto your customers, easing your financial burdens and increasing revenue. But the digital transformation that has been in the works for years before COVID is going to create a lot of new obstacles and opportunities. The Emergence of NFTs Non-fungible tokens are becoming more and more popular, as is cryptocurrency. NFTs are unique digital assets whose ownership is demonstrated and verified via DLT (distributed ledger technology). Because NFTs are difficult to classify, they are …
IRS Audit Triggers for Small Businesses
Your personal and business operations are too precious to be threatened by an IRS audit. Today, we wanted to talk about the biggest IRS audit triggers for small businesses. Mistakes Though there are few audits triggered by mathematics mistakes, the IRS has a computer trigger called the Discriminant Information Function (DIF) that scans tax returns and looks for certain things like duplicate information, and other mistakes. For example, a person or business with $100,000 in income likely won’t have $60,000 in charitable deductions, and DIF can catch that. Most mistakes that individuals and businesses make most often include writing Social Security and Tax Identification numbers incorrectly. Luckily, a good second look at your tax forms once they’ve been filled out can save you a lot of headaches. Home Office & Self-Employment One of the biggest audit triggers is the misrepresentation of home office items and self-employment expenses or income. Home office and home business deductions were difficult to navigate before the pandemic forced a lot of people to work remotely. There are a lot of rules you must follow for your expenses, equipment, and office space. It’s also important to note that your office and home business equipment must be used exclusively for your business for them to qualify for the deduction. Because of the complexity, the IRS often sees the home office section of the tax return as an opportunity for audit. If you plan to take advantage of these deductions for your business, you should also be prepared to prove that these items (from cars to tablets to other materials and utilities) were used solely for business purposes. Missing Income Gig workers are more prevalent than ever, which means the IRS is looking for unreported freelance and independent contractor income, either from your business payment perspective or the freelancer’s reporting. High Deductions Claiming deductions that seem disproportionate to your or your …
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ACA 2022: What You Need to Know
The ninth annual ACA open enrollment period started on November 1, 2021, and it runs through January 15, 2022. This period is longer than it has been previously. Because of that, we also wanted to run through the latest changes and updates for ACA 2022. Changes to Choices and Premiums As with previous years, marketplace premiums are changing for 2022. They will be about 3% lower than 2021. 32 more insurers are participating in the marketplace next year as well, bringing the total to 213. According to KFF, consumers in the marketplace will have a choice of almost 83 health plans in 2022, up from 46 plan choices in 2021. The American Rescue Plan Act also changed the healthcare marketplace plans and premiums. ARPA, among other things, extended eligibility for premium tax credits to include people with income levels more than 400% of the federal poverty level (FPL). When broken down, consumers on these plans end up contributing a maximum of 8.5% of their income toward the benchmark silver plan. Active Renewal Is Your Best Bet If you or your employees are currently enrolled in a 2021 marketplace plan, you can let the Open Enrollment period pass and you will automatically be moved to a similar plan for 2022. But active renewal is still your best bet when it comes to ACA 2022. If you allow the marketplace to passively enroll you in a similar program to previous years, you may end up paying more in monthly premiums because the 2022 ARPA changes aren’t optimized for your ideal plan. Extremely Low-Income Enrollment For individuals with very low income levels (up to 150% FPL), a new monthly enrollment opportunity will be available. These opportunities will include zero-premium plans with greatly reduced deductibles. State-Based Marketplaces This year, three states have launched state-based marketplaces in Kentucky, Maine, and New Mexico. The Future of ACA Marketplace Enrollment Due to a special COVID-based enrollment period that ended in August of …
Get Ready for 2022 Tax Season: Best Practices
We’ve already shared a few great tips to make your 2022 tax season go smoothly in this blog article. As we get closer to January, we thought we’d share some more best practices for the 2022 tax season that can help your business save money and file without errors. Don’t Forget Your Write-Offs OWLLytics has a great master list of tax write-offs for 2022 tax season. Your business needs every penny it can get- either for expenses or to put towards future investments and growth. You can write off your salaries, wages, labor, and supplies. This includes contract and freelance labor payments (typically reported using Forms 1099, specifically 1099-NEC). But everything from printer ink to advertising expenses can be written off as business expenses. Automotive expenses, rent, utilities, all of these (whether it’s a warehouse or a home office) are also eligible for write-offs. If you have a home office, you will have to calculate the square footage and deduct the appropriate amounts as it pertains to your home mortgage, rent, utilities, and internet expenses for example. Depending on your situation, all of the following are other deductions you could be entitled to: business insurance and licenses renter’s and health insurance bank and ATM fees professional organization memberships education (books, courses, workshops, online courses, etc.) business travel and lodging expenses As a general note, anything you do that could be used to help or carry out your business tasks should be well-documented so you can take advantage of all these deductions and more. Be Aware of the Latest Updates You would be surprised how many changes are made to the tax code each year, and with the unprecedented changes we have experienced nationally and globally in 2020 and 2021, you may be able to take advantage of many changes to the personal and business aspects of your tax filing in the 2022 tax season. We recently shared an eFile360 blog post with some …
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Evaluating Withholding at Year-End
The last quarter of 2021 is a great time for evaluating withholding for the year. New Items for Tax Year 2021 This year, your tax prep schedule and operations – both for personal and for business taxes – looked very different from past years. There were some good parts and some not-so-good parts. And the tax process next year will likely also be abnormal. The best practice for that is to get started early. Here are some items of interest for the coming tax season. There are several COVID-related tax items, first and foremost. The American Rescue Plan Act (ARPA) expanded the Advance Child Tax Credit and updated certain qualifications and payment management procedures. As of October 9, 2021, there were still more than 7 million unprocessed individual tax returns, which include tax year 2020 returns with errors and other returns that require special handling. Under ARPA, employers are entitled to tax credits if they provide paid leave to employees who take time off related to COVID-19 vaccinations. You can find more information on that here. Tips for Evaluating Withholding The IRS has an Income Tax Withholding Assistant for Employers tool that can help small and medium-sized businesses determine the amounts they should be withholding. The tool is available in the form of an Excel spreadsheet. Everything from regular pay to commissions and vacation pay is subject to withholding standards. Regardless of the time of year, here are some of the main instances where your business should be evaluating withholding: Early in the year to set your business on the right track Late in the year to be sure you are still on target as you head into tax prep season When the tax law changes (like with the American Rescue Plan Act changes, and other COVID-related changes) When wages change When itemizing deductions or tax credits If your business has seen a change in the percentage of employees versus gig workers being hired Types of Taxes …
Hiring Independent Contractors as an LLC
LLCs don’t always have the ability to hire a part- or full-time employee for a project. Here’s how it works when you are hiring independent contractors as an LLC. Get It in Writing Just as you should always have a clear contract when you are an employer or employee, or even just entering into a good-faith partnership for a limited time, you should know your rights and be transparent with your expectations. For your own safety and peace of mind, you should have a written contract drawn up any time you hire an independent contractor (even if that person is your family member or friend). You’ll also want to make sure you have proof of a real and separate business. Whether this comes in the form of a project estimate complete with letterhead and logo or you take a screenshot of an applicable landing page on the independent contractor’s website. Make Sure They are Considered a True Independent Contractor There isn’t a perfect set of criteria that defines what an independent contractor is. That means you have to do your research – make sure they qualify as an independent contractor. Legal Zoom has some great examples of circumstances that might raise red flags as far as determining an independent contractor’s status: A former employee is rehired to do work similar to their old job, even if temporary or part-time An intern is doing actual work, not just shadowing or learning; be sure to check the six criteria related to interns You provide the equipment, supplies, tools, or ongoing office space the worker uses The worker replaces one of your employees or supervises any of your employees The relationship is ongoing and long-term, not project-based Keep Up on Department of Labor Standards The Balance SMB recently reported that the Department of Labor has developed new standards for determining independent contractor vs. employee status. The ruling was set to go into effect in March of 2021, but currently, all regulations were frozen by …
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