2020 made us all look long and hard at the current state of our business industries and our personal finances. And with that came new laws and tax breaks that you may be eligible for. Charitable Contribution Tax Breaks The Taxpayer Certainty and Disaster Relief Act of 2020 allows you to take up to $300 in charitable contributions as a tax deduction for the tax years 2020 and 2021, without itemizing. This change was made to help charities that were struggling during the pandemic, which means your charitable giving benefits you while also helping spur more momentum for philanthropy in these difficult times. It’s also worth noting that if you are able to itemize your charitable giving, the CARES Act allows you to deduct 100% of your adjusted Gross Income (AGI) in 2021, rather than the standard 60% deduction rate. Credit for Health Insurance Costs If your medical expenses exceed 7.5% of your AGI, and you itemize your deductions, you can deduct them. This percentage was set to go up in 2021 to 10%, but the passing of the latest act made this lower rate permanent. Medical expenses could include things like medical office fees, dental expenses, copays, health insurance payments, eyeglasses and eye exams, and more. You can also get a refundable credit (known as the HCTC or health coverage tax credit) that equals 72.5% of premiums paid by certain taxpayers for coverage of the individual and any qualifying family members under qualified health insurance. Temporary – Full Deduction of Business Meals For 2021 and 2022, the Taxpayer Certainty and Disaster Relief Act has provided a 100% deduction for business meal food and beverage expenses, which is a big jump from previous years where the standard deduction was 50%. Keep in mind, this provision is still considered temporary. Saver’s Tax Credit If you are 18 or older and you make eligible contributions to your IRA or employer-sponsored retirement plan in tax year 2021, you can claim 10%, 20%, or 50% of your …
Tax Pro Tips for the Self-Employed
Worried you aren’t taking advantage of all the tax benefits for self-employed individuals? Here are some tax pro tips for you! Home Office & Business-Related Deductions Home office deductions are some of the most talked-about and least understood pro tips for the self-employed. The quick description of the home office deduction is this: the cost of any workspace you use exclusively for your business – even if it’s a closet in your home or a bedroom-turned-craft-or-recording-studio – can be deducted as a home office expense. And this applies to more than just the desk or computer you use. Let’s say, for example, the space you are using occupies 12% of your home. That means you can deduct 12% of the following expenses: Business percentage of deductible mortgage interest Home depreciation Utilities Homeowners insurance Annual Repairs You can also deduct the following business expenses: phone, fax, and internet. Essentially, if you can show that an expense was incurred while you were doing business (charge for a long-distance phone call, the monthly or yearly costs of owning and operating your website), it is, more often than not, deductible. Bonus: did you know you can also deduct the cost of specialized magazines, journals, and books that are directly related to your business? Here’s some more information on that. Retirement Planning Several retirement plan contributions are also tax-deductible. Contributions to SEP-IRAs, SIMPLE IRAs, and solo 401(k)s are included in this. For the 2020 and 2021 tax years, you can contribute up to $19,500 (or $26,000, with the catch-up contribution, if you're 50 or older) in deferred salary. Mileage & Business Trip Expenses When you use your car for business, your mileage for those trips is tax-deductible. For 2021, the standard mileage rate is 56 cents per mile. Using the standard mileage rate is easiest. However, after the first year of you using that vehicle for business, you can use the …
7 Strategies for Financial Organization & Bookkeeping
Whether you are an established business owner or just starting on your entrepreneurial path, bookkeeping is a necessary part of your professional journey. Here are some strategies to help you with financial organization and bookkeeping. Set Up Automatic Billing and Payments Where You Can The money that comes in and out of your business needs help getting to its destination, but that doesn’t mean you have to do everything yourself. Take advantage of – or even set up systems for – automatic billing and payments. The crux here is making sure you still monitor these systems on a less frequent, but still consistent, basis. So long as you know which expenses are coming out of which business accounts and you know you have enough funds to cover them, automatic transactions relieve some of your stress and give you peace of mind knowing your essentials are taken care of. Break Up the Work Procrastination is the spice of life. It’s easy to tell yourself “I’ll do a little bit every day” when you are planning out your next week or month, but the execution doesn’t always work out that way. Set up a time in your day (preferably) or week to go through your transactions, enter the necessary data, and gather or organize documents. We all know how it feels to put something off for just a little too long and then be staring down the barrel of a mountain made of paperwork. Keep Your Files Organized While having one perfect system for keeping all finances and other business-related records would be ideal, the reality is much more nuanced. Your business may have a storefront that accepts a variety of payments like cash, checks, credit, and debit. And perhaps your online store runs through Paypal or Square. That’s a lot to keep track of. It’s important to develop a strategy early in the year to ensure that your records – whether paper, pdf, or something in between – are organized and easily referenced. Issues will arise, and it’s better to have things in order before …
Continue Reading about 7 Strategies for Financial Organization & Bookkeeping →
Smart Ideas for Spending Your Tax Refund
As of May 6, the IRS reported they are holding 29 million tax returns, which means many Americans are still waiting for their refunds. So let’s talk about some smart ways to spend your refund when it comes. Invest in Your Side Hustle or New Business Many people created side hustles in 2020 or started thinking about starting that business they’ve been dreaming about. Why not make that refund money fuel for that dream? Investing your tax refund into a side business is a great way to diversify your income and start building up your new business! Focus on Your Debt Another great way to put your refund to work is to contribute a lump sum to one of your big loans or credit card bills. Paying down those debts with your refund can decrease the total amount of interest you’ll pay over the lifetime of that debt source. Put It in a Retirement Account Saving for retirement is always important, and after a year of income and job loss, it’s also a smart idea to take that refund and put it into a 401(k) or another retirement account. If you don’t have anything pressing that needs to be paid (big debts or upcoming expenses), putting that extra money into your future is always a solid plan. Put It toward Your House Saving for a home? Use that refund to increase your down payment amount. Looking to sell your home in the next few years? Take your refund and choose a home renovation project that you can put that money toward. Make Forward-Looking Investments There are tons of great options for investing in your future. This can include real estate, a tech startup, or stocks. It can also mean putting that money to use by spending it on products and services that either make your life easier or save you money in the long run. Update old appliances in your house – maybe you need a new refrigerator or air conditioning unit that is more energy-efficient. Research meal delivery kits that save you time and money on groceries, or purchase those big-ticket items that …
Continue Reading about Smart Ideas for Spending Your Tax Refund →
Minimum Income Requirements: How Much Money Do I Have to Make to File Taxes?
It’s been a year of job changes and layoffs. Let’s discuss minimum income requirements and how much money you have to make to file taxes. Minimum Income Requirements & Tax Status Let’s get right to it. Not everyone has to file taxes, and the need to file is based on minimum income requirements. If you don’t meet the minimum income requirements, you don’t have to file a tax return. Here are a few things you’ll need to have to determine your minimum income requirements: filing status, federal income tax withheld for the year, and basic information to help calculate your gross income. For taxpayers under the age of 65, here are the minimum income requirements by filing status: Single: $12,400 Married, filing jointly: $24,800 Head of household: $18,650 Married, filing separately: $5 Qualifying Widow(er): $24,800 For taxpayers 65 and older, the minimum income requirements are: Single: $14,050 Married, filing jointly: $26,100 and $27,400 if both are 65 or older Head of household: $20,300 Married, filing separately: $5 Qualifying Widow(er): $26,100 There are also a handful of parameters that mean you have to file a tax return, regardless of income: You made a self-employment net income of at least $400 You got any health savings account, Archer Medical Savings Account, or Medicare Advantage MSA distributions You currently owe taxes on IRA, health savings account, or other tax-favored accounts You owe alternative minimum tax You made more income than $108.28 from a church or church organization You owe recapture taxes You owe Social Security or Medicare tax on tips that you didn’t report to your employer or that your employer didn’t already take out of your pay You had advance payments of the premium tax credit made for you, your spouse, or a dependent who received insurance marketplace health coverage You had advance payments of the health coverage tax credit made for you, your spouse, or …
5 Tax Hacks for Small Businesses
Running a small business is an Olympian feat, so why not take the easy road on some of those complicated tax items? Here are some great tax hacks for small businesses. Pay Attention to the Tax Calendar One of the easiest ways to save money on your taxes as a small business is to make sure you don’t miss any tax deadlines throughout the year. Often, missing a deadline results in penalties and extra fees, which take money out of your business or your pockets. Mark important dates on a physical or electronic calendar, and set up automatic payments if you can. Start Planning For Retirement Have you set your retirement goals? If you haven’t you should. If you invest more into your retirement today, you can often end up with larger tax benefits. Make the most of your expenses by looking into the benefits of upping your retirement savings this year. If You Can, Go for the Home Office Deduction The home office deduction is a tricky one. But that doesn’t mean it isn’t worth looking into. If you have a home office, whether it looks like a professional office or it’s a modified closet, you can take this deduction if you use that space solely for your business. That means the kitchen table, family laptop setup will not be eligible. But if you have electronics or office furniture that you use for the sole purpose of doing work for your business, it is included in the deduction. There is a new, easier caveat to the home office deduction: rather than figuring out a percentage of your expenses to deduct based on the home space you use for your business, you can simply multiply the square footage of your office (up to 350 feet) by $5, and just deduct that dollar amount. Do Some Good Research on Deductions and Tax Credits There are always ways to optimize your business to secure refunds, or at least to avoid owing taxes after filing. Whether you want to take a deep dive into the IRS tax code or you want to invite your favorite tax professional to lunch, …