Summer's a time for vacations and tax planning
It's tempting to take a break from everything this summer, but you may regret it come tax season if you push off tax planning. Here are some tips to help you keep your head in the game even when your feet are in the pool:
If you are a sole proprietor with children, consider putting them on the payroll during the summer months. Wages paid to your children under age 18 are not subject to Social Security and Medicare taxes. What's more, their earnings are not subject to federal unemployment tax until they turn 21.
If employing your children is not an option, you might still be able to score a deduction by sending them to summer camp. Day camp expenses for kids under 13 can provide a tax credit of up to 35 percent. Just remember, overnight camps do not qualify, and usually both parents must work to claim this credit.
Keep in mind that tax deductions for moving have been limited. The recent tax code changes have eliminated the moving expense deduction. That means most taxpayers will no longer be able to deduct moving expenses. There are exceptions to the new rule, so give us a call if you have questions.
Business and pleasure can mix – if you follow the rules. Perhaps your sights are set on some leisure travel. Tacking on a few fun days before or after a business trip might be a tax- and cost-efficient way to pay for a vacation. But you have to follow all the rules if you want your business travel to remain tax-deductible. Travel that is primarily for charitable work might also qualify you for a tax deduction.
No matter what your summer plans are, this is always a good time for a general tax checkup to ensure your withholdings and estimated tax payments are on target. For help with any of these issues, contact our office.
Want a profitable business? Focus on customer service
Even with the best of intentions, many companies talk up customer service but don't actually deliver. In order to really provide great customer service, every employee needs to be tuned in to how he or she can contribute to keep customers coming back again and again. This ultimately affects the net profit of any business.
Customer service includes every element of the sales transaction between your business and a customer. Though you may consider customer service just a matter of being polite to customers, it actually involves several other considerations, including:
Being truthful in advertising your product or service
Providing a product or service that meets or exceeds customer expectations
Being prompt in delivering your product or service
Letting customers know you appreciate their business
Handling customer complaints or other concerns promptly and politely
Being polite and cheerful in dealing with customers – even when they are "just looking" instead of buying
Get your employees involved
Be persistent and consistent in improving customer service. Ask your employees to compile lists of the behaviors that contribute to good customer service in your specific line of business. Then ask them to bring their lists to a staff meeting. Discuss the areas where your company could improve customer service. Decide on specific actions to take and determine who will take them, and when.
Putting your tax refund into a retirement account? Read this!
If you plan on having the IRS deposit your tax refund into one or more individual retirement accounts (IRAs), most of the hard part is already done: You've already decided that you want to save the money instead of spending it on new patio furniture or a trip to Jamaica.
Still, you're not in the clear yet. Here are a handful of possible obstacles that might mess up your tax refund on its way through the direct deposit process:
Wrong account number. If you accidentally use the wrong account number and it belongs to another customer, that mistake could take weeks or even months to correct. The IRS maintains that correct input of financial information on the tax return is the taxpayer's responsibility, so make sure you check and recheck the account numbers you are using for your refund.
Manual revisions. If the IRS gets your tax return and finds that the routing numbers have been manually revised, your direct deposit request has a higher chance of being rejected. You may get an old-fashioned refund check in the mail.
Wrong type of account. It's up to you to verify that your financial institution will accept direct deposits into an IRA. Some banks, for example, will reject direct deposits to anything other than a savings account.
Refund adjustments. Sometimes the IRS corrects a taxpayer's math or makes other adjustments that can affect the refund amount. In some cases, these adjustments may result in a direct deposit that exceeds the allowable IRA contribution amount. If so, you could be stuck with a penalty for excess contributions.
Putting your tax refund into an IRA can be a great idea, but remember: Double-check your return and be aware of the rules your bank or credit union has about IRA direct deposits.
Review your financial affairs
Now is the perfect time to review your financial affairs. You have to gather information to prepare your tax return at this time. Why not take one more step and do something positive for the well being of your wallet?
The following suggestions will help you with your financial review:
Talk to your family. You should factor in the financial decisions and goals of your spouse and children.
Put your financial goals in writing. Figure out how much money you'll need to meet each goal, when you'll need it and how you'll get it.
Create a net worth statement. Create a list of your assets and debts, and compare it to last year's statement. Are you gaining ground or losing it?
Review investment performance. Weigh your investment performance minus the effects of inflation, and compare your progress with your goals. Determine what investments are worth it and what may need to change this year.
Protect what you have. Consider the risks of your financial strategies. Your long-term goals may be unobtainable if you lose your present assets or your income potential.
Determine if you need the insurance you have — or if you're missing something. Don't duplicate employer-provided coverage. Review your coverage annually; don't just automatically renew policies.
Review your will and your estate plan. Did your situation change during 2017? Make appropriate changes to your will and estate plan if it did. Stay informed about the 2018 tax reform changes that affect your plan.
We can help you create an effective 2018 tax strategy for your situation. Give us a call today.
How payroll fraud happens
Unless a small business owner handles all aspects of computing and paying payroll, there is room for fraud. Even if your company has only a few employees — it does not guarantee your funds will be safe.
How payroll fraud happens
Perhaps one of the easiest payroll fraud techniques is the overpayment of withholding or payroll taxes. Your bookkeeper simply overpays the government. When the refund check arrives, the employee deposits it to his or her personal account.
In some cases, the employee will have an account at a different bank but in the company name. Such an account could be used for the fraudulent deposit of other company receipts as well.
The greater the number of employees, the easier it is for someone to pull off a scam. Perhaps the payroll clerk has invented a fictitious employee or falsifies hours or commissions for a cooperating employee who shares the stolen funds. Or perhaps the employee holds the payroll deposit funds in his or her own interest-bearing account until it is time to make the payroll deposit to the government.
How to prevent payroll fraud
Small businesses can be exceptionally susceptible to payroll fraud because they often lack anti-fraud controls that larger organizations have in place. Here's a few ways you can work toward preventing this type of fraud:
Get outside help. A payroll review by an independent accountant may help prevent employee schemes.
Divvy up duties. Even in small companies, it is possible to divide office tasks to make employee theft more difficult.
Limit payroll access. Figure out who needs to have access to payroll data. That list will likely be very small. Make sure it stays that way.
Offer direct deposit. No paper checks means less opportunities for employees to handle funds, meaning greater security all around.
Tax planning 2017: Inflation adjusted tax numbers
Each year, certain tax figures are adjusted for inflation. While most figures are unchanged versus 2016, there is more than a 7% increase to the maximum earnings subject to social security tax. Take note of these numbers for use in your 2017 planning.
The maximum earnings subject to social security tax in 2017 is $127,200. The earnings limit for those under full retirement age increases to $16,920 for 2017.
The "nanny tax" threshold remains $2,000 in 2017. If you pay household employees $2,000 or more during the year, you're generally responsible for payroll taxes. The "kiddie tax" threshold remains $2,100 for 2017. If you have a child under the age of 19 (under age 24 for full-time students) who has more than $2,100 of unearned income, such as dividends and interest income, the excess could be taxed at your highest tax rate.
The maximum individual retirement account (IRA) contribution you can make in 2017 remains unchanged at $5,500 if you are under age 50 and $6,500 if you are 50 or older.
The maximum amount of wages employees can contribute to a 401(k) plan remains at $18,000, with an additional $6,000 if you are 50 or older. The 2017 maximum contribution for SIMPLE plans is $12,500 and and an additional $3,000 if you are 50 or older.
The maximum you can contribute to a health savings account in 2017 is $3,400 for individuals and $6,750 for families. The catch-up contributaion if you're age 55 or older is $1,000.
The real definition of "dependent" may surprise you
Many people think of a "dependent" as a minor child who lives with you. This is true, but it's important to remember dependents can include parents, other relatives and nonrelatives, and even children who don't live with you.
Exemptions and your taxable income. Each dependent deduction is worth $4,050 on your 2016 and 2017 federal income tax returns. This exemption reduces your taxable income by this amount. You'll lose part of the benefit when your adjusted gross income reaches a certain level. For 2016, the phase-out begins at $311,300 when you're married filing jointly and $259,400 when you're single.
Definition of a dependent. A dependent is a qualifying child or a qualifying relative. While there are specific rules, generally, a dependent is someone who lives with you and who meets several tests, including a support test. For qualifying children, the support test means the child cannot have provided more than half of his or her own support for the year. For qualifying relatives, the support test means you generally must provide more than half of that person's total support during the year.
There are many exceptions. For example, parents don't have to live with you if they otherwise qualify, but certain other relatives do. If you're divorced and a noncustodial parent, your child doesn't necessarily have to live with you for the dependent deduction to apply. Who can't be claimed? Your spouse is never your dependent. In addition, you generally may not claim a married person as a dependent if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico for part of the year.
For a seemingly simple deduction, claiming an exemption for a dependent can be quite complex. You'll want to get it right, because being able to claim someone as a dependent can lead to other tax benefits, including the child tax credit, education credits, and the dependent care credit. Contact our office to learn who qualifies as your dependent. We'll help you make the most of your federal income tax exemptions.