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  • Deducting Summer Day Camp Expenses

    Are you using summer day camps for child care soon? Here are some tips for you to help you next winter during tax season. First, keep in mind that summer camps can be used toward the dependent care expense deduction - as long as both spouses work or attend school. (A single parent would also have that same burden - you must have earned income or be a student in order to deduct care expenses). If you are not working, and not a student, you may not take the deduction. Second, be sure to request the summer camp's EIN today. You will need the EIN to complete form 2441 (dependent care expenses) and many summer camps are shut down over winter, with no one available to answer the phone. Company EINs aren't readily available online, and most summer camps will not voluntarily include it in any formal statement to you. While you won't receive a tax form from the day camps, a ledger of your family's tuition charges and payments is certainly helpful for your tax preparer. Finally, you cannot use the tuition for overnight camps toward the expense deduction. Only camps that your child attends during the day time qualify for the deduction. After reading this, have you considered that you may have qualified for dependent care expense deductions from 2018 or 2019, and didn't take them? We at Heritage Income Tax are able to assist you with filing an amendment and claiming that refund of taxes paid. Give us a call today (513) 900-9513.

  • Should your small business elect to be taxed as an S-Corporation in 2021?

    This article isn't meant to substitute for the advice of a tax practitioner. If you are considering changing your small business's entity type, please consult your personal tax practitioner or call our office at (866) 316-1860 or arrange for a video chat with me at https://heritageincometax.com/book-online. You've been running a small business for a few years and are shocked at the amount of taxes that you're paying. Let's face it: sole proprietors (or single-member LLCs) and partnerships pay 15.3% tax towards self-employment taxes alone, and then the profits are also taxed as income at the federal, state, and sometimes the city level. I've had a few folks in tears in my office when their failure to make estimated quarterly payments caught up with them. Not pretty. So, you begin your research into the world of tax strategies. You conduct internet searches, hit the library, watch some business guru videos on YouTube, chat up a friend, or your barber, and someone inevitably mentions the amazing tax savings you might enjoy as an S-Corporation. So you look up the filing requirements and they are deceptively simple. Complete a form 2553 and send it to the IRS, and you now can write off your profits free and clear of self-employment taxes. Right? Not so fast! Let's review the basics of an S-Corp. First, S-Corps become their "own" company. You as the former sole proprietor now are employed by your own S-Corp. This has a few consequences, both positive and negative. It's up to you to decide if the financial advantages outweigh the reporting and payroll compliance requirements and then proceed cautiously, with professional assistance. Wages vs Distribution [W-2 income vs K-1 Distribution] S-Corp profits are taxed as ordinary income, and not subject to employment (FICA) taxes. This used to be a shady strategy: Pay yourself a giant distribution from your S-Corp, and ignore the payroll tax requirements. However, the IRS caught on to this a while back and issued rules about how S-Corps must compensate their employees. Reasonable Salary S-Corps are required to pay employees (even the sole shareholder) a reasonable salary. This means that the IRS may audit your business and evaluate if you've paid yourself enough salary - I will explain the reasoning for this later on. A reasonable salary can be estimated between the 25th and 75th percentile of what similar positions in your region are paid. Anything too low and the IRS may reclassify your distributions from the K-1 portion of your income as "salary" and charge you the delinquent FICA taxes, plus penalties and interest. Payroll Tax Requirements Your salary (and any other employee-shareholder's) will be W-2 reported income, so whatever you're paid will be subject to federal, state, and FICA withholdings (social security and Medicare taxes). You may also live and work in a city/municipality that charges income taxes, so those taxes must be withheld as well. Your S-Corp must maintain compliant payroll - paying you regularly, filing forms 941 or 944, and making quarterly payroll deposits to the federal government. Failure to do so will trigger a 10% penalty if all you choose to do is report your wages in quarter 4. Maintaining payroll costs time and money or both. You can use a payroll company such as Paychex or Gusto to automatically manage your withholdings but again, this is a cost you must consider. Typical payroll expenses for a very small business run between $29 and $300 per month. Filing Corporation Informational Tax Returns Tax returns for S-Corporations are more expensive, complicated, and time-consuming to prepare. (My tax practice charges no less than $1000 for an 1120S. This price does not include the taxpayer's personal 1040.) S-Corporations do not actually pay any income taxes - the shareholders report their share of the profits once the S-Corp has filed an informational return (a 1120-S). The 1120-S includes schedule K-1s for every shareholder and W-2s for every employee. Employees who are also shareholders will receive both a W-2 and a K-1. The K-1 is the way you will report your fair share of income and expenses to the IRS. It is not necessary to have the same tax preparer prepare both the 1120-S and your personal taxes, but you may be able to get a better price by hiring one tax practitioner to prepare both. It is not a good idea to try to prepare an 1120-S yourself, unless you are trained in business tax preparation. These returns are much more likely to be audited by the IRS, and an untrained person will quickly become confused about allowable expenses vs. separately stated items. An S-Corporation vs Sole Proprietor/Schedule C Cost Comparison Calculator If you are interested in a business planning video chat, I have a beautiful excel spreadsheet created by a fellow tax professional friend of mine. She is graciously allowing me to use it with my clients to help them decide if the costs of S-Corporation payroll and tax preparation are worth the tax advantages of the election. Please call me at (866) 316 1860 or self-schedule using our Calendly App for a video chat. I will share my spreadsheet results with you and assist you in making an informed decision about this election.

  • How to (Legally) Take a 2021 Home Office Deduction

    What is a home office deduction? If you are committed to taking every expense possible to reduce your tax liability, you may have asked yourself if it is legal to deduct the space in your home dedicated to work projects. Years ago, having an office-in-home while working as an employee might have been deducted as an un-reimbursed employee expense. However the Tax Cuts and Jobs Act of 2017 eliminated those expenses. Now, in order to take an office-in-home deduction, you must be a business owner or partner. If you are a small business owner, a home office deduction can reduce your taxable income significantly, and should not be ignored on your schedule C. The good news: Every home-related expense has a potential for factoring into the total expense of operating a home office. So it's really important to keep accurate records throughout your business year. This is great news if you pay for internet, a cell phone, air conditioning, water, sewer, and electricity. If you own a home, a home office can be depreciated. However, you cannot simply write off all these expenses. The IRS has published a document, Publication 587 Business Use of Your Home, to assist you in legally calculating these expenses. This blog post is intended to help you keep good records and provide your tax professional with adequate information to take the largest deduction possible. Where to calculate the home office deduction: Form 8829, Business Use of Your Home. Calculating the deduction using the simplified method: The office space can also be calculated using a simplified method, which does offer some advantages. This method calls for a standard deduction of $5 per square foot of home used for business (maximum 300 square feet). Any allowable home-related itemized deductions are claimed in full on Schedule A. The IRS does not allow a home depreciation deduction or later recapture of depreciation for the years the simplified option is used. If you are looking for other ways to take advantage of tax write-offs, check out my other articles for small businesses. To hire me for a consultation before or shortly after taking the plunge at being your own boss, call me toll-free at (866) 316-1860 or by setting up a virtual appointment with me today!

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  • PRICING | Heritage Income Tax

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  • WHAT TO BRING | Heritage Income Tax

    What to bring to your tax appointment This is a common question - we have provided both our standard client intake form and a printable list of documents to bring for your convenience. We will go over your forms to make sure your information is complete. Printable Questionnaire List of documents to bring Engagement Letter- Tax Prep ©2019 by Heritage Income Tax Services What to bring to your tax appointment This is a common question - we have provided both our standard client intake form and a printable list of documents to bring for your convenience. We will go over your forms to make sure your information is complete. Printable Questionnaire List of documents to bring Engagement Letter- Tax Prep Engagement Letter- Tax Advice

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