Even though we have taxes due every year, we always have some questions. The tax code changes frequently, and it’s extremely complex. Here are some of the most common tax and tax season FAQs. How Can I Lower My Tax Bill? Far and away, the biggest tax questions are always some variants of “How can I lower my taxes?” and “What deductions am I eligible for?” Tax deductions and credits are the most common way to reduce your tax obligation, whether you are doing your individual or business taxes. The hard part about this question is that it’s different for everyone. A lot of your tax information comes in the form of Information Returns, the forms like 1099s, 1098s, W-2s, and others that show you what your financial activity looked like throughout the tax year. These Information Returns help you fill out the tax forms you need in order to take advantage of many of these deductions and tax credits. eFile360’s top-tier e-filing services offer you a great solution for filling out and storing these forms. What Are This Year’s Tax Changes? Every year, the IRS makes adjustments to the tax laws, processes, and procedures based on the latest government regulations, technology changes, and overall performance during the last tax season. This tax question is one that people are worried about all the time. American taxes are like a high-level puzzle: you have to put all the pieces together, solve the equations, and hopefully submit the right answers. But if the rules have changed, you may be making inadvertent mistakes. The IRS website, specifically their Newsroom, is a great way to stay up-to-date on any and all changes that are coming up during the next tax season. What’s the Difference: W-2 vs. 1099-NEC? The 1099-NEC is one of the newest Information Return forms to be (re)instated. These forms are used to calculate non-employee compensation, including freelancer and independent contractor work. W-2s are given to employees of a business early on during tax …
Lower Your Business Taxes: 5 Strategies That Actually Work
Gas prices and inflation are high and supply chain issues are driving the prices up for businesses everywhere. That means small businesses in particular are looking for ways to cut costs. And that means now is a perfect time to employ some proven strategies to lower your business taxes. Leveraging ‘Expense’ vs. ‘Depreciate’ There are many cases where you may be allowed to choose to claim business expenses as either expense (deductions) or depreciation. Your business taxes should reflect your business in its entirety, and that might mean spending some more time on those taxes or talking at length with your accounting department, CPA, or other tax services provider. When you are considering whether to expense or depreciate the assets or equipment you just bought, there are several things to think about. This mostly applies to larger purchases. For example, if you bought some used office equipment for your business and it cost you $200-300, depreciating that over a few years isn’t going to help much. But if you just spent thousands of dollars on a company vehicle, or you purchased new machinery or equipment because you are experiencing (and expect to continue experiencing) substantial growth, depreciating those assets over a few years rather than giving yourself one big year of deductions could actually be more beneficial, especially if the growth means you’ll end up moving into a higher tax bracket. Expanding Employee Benefits It may seem counterintuitive that expanding the employee benefits your business offers could result in a lower tax bill, but there are several reasons why this is possible. Keep in mind that every business’s setup is different, so it’s important to weigh the costs and viability of adding benefits to your employee’s current contract or incentives package. There are some tax laws that have taken reimbursement incentives away from individuals, but they can still be claimed on business taxes. By transferring that reimbursement to …
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Form 1099-R: What Is My Business’s Role in Filing?
We'll discuss what the Form 1099-R is and what role a business plays in its filing and reporting. What is Form 1099-R? Form 1099-R is an IRS information return that reports specific types of taxable non-employment income that taxpayers may receive outside of their regular pay or salary. Form 1099-R is used to report the withdrawals or distribution of $10 or more for the following: Retirement and profit-sharing plans IRAs – individual retirement arrangements Annuities, pensions, insurance contracts, survivor income benefit plans Disability payments (permanent and total) under life insurance contracts Charitable gift annuities Retirees are the most common recipients of Form 1099-R, but people who are currently employed may also get them for a host of different reasons. Who Files Form 1099-R? It is the employing business’s responsibility to file Form 1099-R – though, most often, the 401(k) plan manager or custodian for your organization will be the one who files this form with the IRS and then sends your employee a copy. Who Receives Form 1099-R & Why? Any and all of your employees who receive a retirement plan distribution in the amount of $10 or more should receive this form. There are some other situations that warrant a 1099-R as well, so let’s go through some of those. Those individuals who took out a loan from their employer-sponsored retirement plan, but were unable to pay it off in time, should receive a Form 1099-R as well. They’ll also receive a form if they took out a loan but left your company before they finished paying it off. There are several reasons an employee could receive a retirement distribution, and those reasons are marked individually on the form. For example, if an employee receives a distribution for more than one reason, you or your retirement plan manager or custodian will need to file a separate form with each appropriate code (there is no way to report multiple codes on a single form). Here …
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Indirect Taxes & Your Business
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 …
W-2 Compliance Insights
We are almost at the deadline for sending W-2s. If you’ve already sent them out, these W-2 compliance tips will be great for 2022 year-end. If not, you have a little bit of time left to tie things up and get them out to your employees. Employer Responsibilities As the employer who will be sending out the W-2s, you’re responsible for all the copies, as well. Copies B, C, and 2 are to be sent to your employee. Copy A goes to the Social Security Administration, Copy 1 is to be submitted to the state tax authority if applicable, and Copy D is for you to keep with your employer records. A single employer is only required to submit one W-2 per employee, even if the employee in question has worked in multiple roles. The only instances in which an exception would be made are if a single employee worked in multiple roles across different locations or if company ownership changed mid-year. In these special cases, W-2s must be issued for each different EIN (Employer Identification Number) that said employee worked for. Compliance and 2022 Changes The IRS recently published the Employer’s Tax Guide, which helps identify the items that employers are responsible for this tax season, as well as highlights the latest updates as they pertain to your business and operations. One update addresses the COVID-19 related credit given for sick and family leave wages. This credit is limited to leave that was taken after March 30, 2020, and before October 2021. The COVID-19 related employee retention credit has expired, and COBRA premium assistance payments credit is limited to coverage periods on or after April 1, 2021, through coverage periods that began on or before September 30, 2021. There are also some updates and reminders regarding Social Security and Medicare Tax, as well as deferment amounts of the employer share of these taxes. All of these insights can be found in the IRS 2022 Publication 15. Compliance Tips for 2022 Filing This year, employers are able to …
Tax Advisor Qualities to Look For
When you choose a tax advisor, you are not just choosing a contractor or service provider, you are placing all or part of your company in another professional’s hands. Here are some top tax advisor qualities to look for. They Work from Your Perspective As much as we’d all love for taxes to be more straightforward, they’re just not. And a good tax advisor will work to understand and create a tax prep strategy that takes your specific industry and business needs into account throughout the tax prep process. Since most tax laws are written to explain how you can reduce your taxes, having someone who understands these laws and how they can benefit your own taxes is a must-have trait when it comes to choosing the right tax advisor for you. One of the best ways to tell if a tax advisor is going to dive in eagerly and be committed to seeing the tax world from your business’s point of view is to ask them about their approach. If they want to know everything about you and your business, the ins and outs of your products, services, and operations, they are definitely off to the right start! They Want to Share Their Knowledge Gatekeeping may be a way to separate the experts from the amateurs, but this should not be a practice your tax advisor puts a lot of stock in. The eagerness to understand your situation is one-half of a coin that also includes an eagerness to educate. Your tax advisor should feel very comfortable sharing their expertise with you. This does two things: it helps you better understand what they are doing and what your taxes will look like, and it helps the tax advisor understand where you are at from a comprehension standpoint. Why does comprehension matter? If your tax advisor can help teach you how your taxes work, it will create opportunities throughout the year for you to implement initiatives that improve your tax outlook for the future. Availability, Availability, Availability A phenomenal tax advisor isn’t worth much to you if you …