Friday, January 30, 2015

7 Tax Time Retirement Savings Tricks

Ashlea Ebeling for Forbes writes: What if you could boost your retirement savings, courtesy of Uncle Sam? Some of the most generous provisions of the tax code are incentives to save whether via a workplace 401(k), an Individual Retirement Account, a Roth IRA, or one of many retirement plans for the self-employed. Yet year after year taxpayers fail to take advantage or make costly mistakes.

Here are some tricks to make the most of the breaks, and traps to watch out for, courtesy of David Prokupek, chief executive officer of the Jackson Hewitt tax prep chain. “A lot of people like handholding, especially around retirement; it’s a lot of math,” he says.
Why worry about retirement at tax time? You can fund an IRA for 2014 until April 15th and a SEP-IRA (for the self-employed) until Oct. 15th—the due date of your 1040 with extensions. And it’s a good time to review your 401(k) workplace retirement contribution choices for 2015 to make sure you’re saving enough to grab any employer matching money and to consider making extra catch-up contributions if you’re 50 or older.

SNIP, the article continues @ Forbes, click here to continue readings....
Posted on 9:49 AM | Categories:

Understanding Income and Tax Brackets

Frank Addessi for The Simple Dollar writes: There is a good reason so many people seek professional help with preparing their income taxes. It’s because the tax is complicated, and at the heart of the convoluted system are tax brackets.

Federal income tax rates are divided into seven brackets that are based on income and range from 10% to 39.6%. If that was the whole story, understanding federal income taxes would be a breeze –but that’s not the whole story.

How Many Tax Rates Are There?

Let’s start with some scary numbers: Your income will be taxed at more than one of 28 possible tax rates. Now, take a deep breath as we start to unpack the whole thing.
There are seven federal income tax brackets: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. And there are four different filing statuses:
  • Single: This applies to unmarried people.
  • Married filing jointly: For married couples who are combining their income on a single tax return.
  • Married filing separately: Married couples who are each filing their own federal income tax return.
  • Head of household: This applies to individuals who are considered single for filing purposes and provide more than half the support for a child and are able to claim that child as an exemption.
There you have it, seven tax rates multiplied by four filing statues equals 28 possibilities. You’re not subject to all those possibilities, because you can only file your return using one status. However, it’s possible that you will be taxed at up to seven different rates, depending on your income.

Income Tax Name Games

Much of the confusion about taxes comes from the terms used to discuss them.
Tax brackets: These are most easily understood when you recognize them for what they are. Each tax bracket includes two amounts: a base amount and a ceiling amount. Any income that falls in between those two numbers means you are in that tax bracket.
RateSingleMarried JointlyMarried SeparateHead of Household
10%Up to $9,075Up to $18,150Up to $9,075Up to $12,950
15%$9,076 – $36,900$18,151 – $73,800$9,076 – $36,900$12,951 – $49,900
25%$36,901 – $89,350$73,801 – $148,850$36,901 – $74,425$49,901 – $127,550
28%$89,351 – $186,350$148,851 – $226,850$74,426 – $113,425$127,551 – $206,600
33%$186,351 – $405,100$226,851 – $405,100$113,426 – $202,550$206,601 – $405,100
35%$405,101 – $406,750$405,101 – $457,600$202,551 – $228,800$405,101 – $432,200
39.6%More than $406,750More than $457,600More than $228,800More than $432,200
Marginal tax rate: When you hear people say they’re in the 28% tax bracket, they are referring to their marginal tax rate. Your marginal tax is based on your “last dollar” of income. That means if you are single and earned $200,000, your marginal tax rate would be 33%.
SNIP, the article continues @ The Simple Dollar, click here to continue reading....
Posted on 9:07 AM | Categories:

The 6 best free finance apps / Balance the books with these top free finance tools

Max Slater-Robins for TechRadar.com writes: The tired old finance software of the past has been replaced with the finance software of the present. Gone are the tricky interfaces hindered by the need to perform difficult calculations by yourself. In their place we have slick programs that are genuinely helpful when working out what you are spending your hard earned cash on.

If, like me, keeping track of finances is most important at the end of the month when money is tight, these apps will be for you. Helping keep you flush with cash from payday to payday, the following apps are just what you need.

OpenOffice Calc

OpenOffice has become known for its excellent work when it comes to free, open source rivals to Microsoft's Office suite and Apple's iWork products. OpenOffice Calc is no different, offering Excel level spreadsheets for free.
The main benefit of OpenOffice Calc is its versatility: the software is just as comfortable pulling in a tonne of enterprise data as it is charting your weekly food shop spend, so if your needs change, OpenOffice Calc can deliver.
While OpenOffice Calc does have plenty of high-end features, it is also accessible to anyone who has ever used Excel, as the user experience is very similar. Documents can also be exported in Excel or Numbers formats, so there will never be an incompatibility situation.

AceMoney Lite

Developed by MechCAD, AceMoney Lite is a professional grade money management app that allows you to track your spending and see where your money goes, track investment performance, work with up to 150 currencies while automatically syncing their exchange rate from the Internet, and track the deadline for bills, among a myriad of useful functions.
According to MechCAD, "AceMoney Lite makes organising personal finances and home budgets a breeze", and from my experience this is certainly true. AceMoney accurately tracked my investments and where my money was going, helpfully breaking the latter down into different categories (which helpfully come bundled with the software).
AceMoney Lite is free for up to two accounts. If you need more, there is a paid-for version available on MechCAD's website.

Bargain Price Refueling

Anyone who drives a car knows that fuel is expensive, however economical youare.That'sre Bargain Price Refueling comes in, offering a comparison of all your local petrol stations at the click of a button.
Collecting data from thousands of petrol stations, Bargain Price Refueling offers both numerical and graphical representations of how much each petrol station charges for the two main fuels—petrol and diesel—with legacy costs included.
If you like to get the best deal when driving, and make your money go further, Bargain Price Refueling is for you.

GnuCash

Designed to be used by small businesses, accountants and more advanced users, GnuCash is a powerfule account managing program designed for Windows, Linux and OS X. It has a range of different features that make it a strong contender for the go-to finance app on any platform.
With the ability to track stocks and investments, support double entry accounting and manage scheduled transactions, GnuCash works well for household finances as the interface is simple and easy to grasp. Searching for a specific payment is also made simple in GnuCash, enabling the user to search through thousands of transactions instantly.

RQ Money

RQ Money is billed by its developers as being one of the best financial aids out there. Built as a very light program with speed in mind, RQ Money offers the features of the high end programs with less of the clutter. Even better, it's completely portable – there's no need for installation, and it's small enough to fit on a USB stick, meaning you can use it wherever you go.
The interface is helpfully designed to be easily accessible for those who don't know the ins and outs of accounting too intricately, while also providing a full suite of features that will keep even the pros happy.
Another strength of the program is that there is no need to installhuge amounts of software just to get it to work. In fact, just unzip the downloadable folder and you're away: quick, simple and easy.

Checkbook

Balancing a chequebook is a long and laborious process that can take up many unnecessary hours. Luckily, Checkbook from Dataware solves this problem. Just like a physical chequebook, the user inputs their outgoing cheques into the simple interface and at the end of the month Checkbook will balance the books for you, saving hours of time and stress.
The simple interface is incredibly user friendly and the programme is designed to be far simpler than the more complex clients on the list, choosing to focus in on one issue rather than providing a solution for them all. So if you're looking for a simple solution to a specific problem, give Checkbook a try.
Posted on 8:47 AM | Categories:

Important Tax Basics for Freelancers

Chloe Della Costa for Wall Street Cheat Sheet writes: Whether you are wholly self-employed or moonlight as an independent contractor, there are quite a few steps to remember when filing your taxes. In addition to annual returns, most freelancers must make quarterly estimated tax payments, depending on the amount of freelance income earned. Most self-employed individuals choose to set aside a portion of their income to prepare for estimated tax payments. Remember, self-employed people are often taxed at a higher rate than company employees, because they are accountable for their full share of payroll taxes. If you have numerous clients, variable income, and complex expenses, you might consider hiring a professional to file for you. But with careful research, planning, and record keeping, it is completely feasible for freelancers to file their own taxes.

What do you think?

Purchasing software through a company such as TurboTax or H&R Block is an option that will probably be more affordable than hiring a tax preparer or accountant. Tax software can be a useful tool to help translate some of the difficult language on IRS forms and allow for straightforward online filing. Just be sure that you choose the right software package for your needs, which may change year to year. Many freelancers who were able to file with TurboTax’s “Deluxe” package last year now must upgrade to the “Home and Business” package. Once you have determined the package that fits your needs, you could even receive a large discount by purchasing your software over the phone.
What do you think?

TurboTax also offers limited guidance via a call center for general tax questions, even for people who are not using their products. Calling the IRS or state tax centers with questions can also be tremendously helpful to DIY tax preparers. The IRS website is one of the most reliable resources for tax help. Try visiting its “Self-Employed Individuals Tax Center.” The Nolo website can be helpful to freelancers as well. Nolo’s book Working for Yourself by Stephen Fishman is a useful resource, particularly for small business owners, whose taxes are even more complex.
What do you think?

Accurate recordkeeping and organization are essentials for every freelancer. Keep track of all income and business expenses, and keep receipts for all expenses you will be reporting. Do extensive research and educate yourself early in the year, as you will likely owe quarterly estimated tax payments. Here are the tax basics you need to know if you have earned income as a freelancer.
What do you think?

Quarterly estimated taxes

Generally, individuals who receive self-employment income must make estimated tax payments quarterly. If you wait until you file annual returns to pay taxes on freelance income, you are likely to be charged a penalty in addition to the taxes you owe. The federal due dates for estimated tax payments this year are April 15, June 15, September 15, and January 15, 2016. To determine the amount you owe federally, fill out the 1040-ES form. You are also likely to owe estimated tax payments at the state level. Remember, even if you have clients based in other states, you only need to file in the state where you reside while earning the freelance income. States have their own estimated tax worksheets to help determine your payments. You can make your federal payments online, but some states require you to make your payments through the mail.
What do you think?

Annual tax returns

When it’s time to file your annual returns, you will need to file both federally and at the state level. If you have lived in multiple states, make sure you have kept records of how much income you earned while living in each particular state. Be sure to research all the necessary forms you’ll need to file for your specific state. Before you start your annual return, be on the lookout for any W-2 statements or 1099-MISC forms you expect to receive, as these are due to employees/contractors by January 31.
What do you think?

If you are a part-time freelancer and received wages from an employer as well, that income should be reported on your federal 1040 form. Independent contractors also must fill out a Schedule C and a Schedule SE. If your expenses are $5,000 or less, you may be able to file Schedule C-EZ instead of the Schedule C. To find out if you can use the Schedule C-EZ, see the instructions in the Schedule C-EZ form. The Schedule SE is used figure the amount of self-employment tax owed.
What do you think?

Business expenses

Tax deductible expenses for freelancers can include computers and electronics, software, office supplies, meals with clients, travel expenses, memberships/subscriptions, reference materials, business cards, and more. If you pay for your own health insurance, you can deduct the full cost on your 1040 as a personal expense. You may even be able to deduct rent and utilities, such as your Internet bill. If you work from home, you may qualify for the home office deduction, which is available to both homeowners and renters.
Posted on 8:43 AM | Categories:

8 Steps to Prepare Your Online Business for Tax Time / step-by-step guide will help you get organized so you can get a jump start and file your 2014 tax return well before it’s due

Let's get started.

Step 1: Remember These Tax Deadlines

Tax deadlines can sneak up on you. Missing them can result in expensive penalties.
Your taxes are due on April 15, 2015 (or March 16 for corporations). Depending on the nature of your business, you may also need to submit additional documents to the IRS before that date.
Add these dates into your calendar and don’t miss a single deadline:

February 2: Forms 1099 and W2 Postmarked

If you paid an independent contractor or employee more than $600 in 2014, you’ll need to provide them with a 1099 or W2, respectively, on or before February 2. 

March 16: Corporate Tax Returns Due

Today is the deadline to file your corporate tax return (forms 1120 and 1120S), or apply for a tax extension.

April 15: Individual and Partnership Returns Due

Today is the deadline to file individual and partnership tax returns (forms 1040 and 1065), or apply for a tax extension.

Step 2: Get Your Receipts In Order 

If you haven’t done so already, it’s time to go paperless. Storing your receipts online will save you from a mountain of paper to sort through come tax time. 
These tools will help you organize your receipts the paperless way:

Evernote (Free)

You can upload and access scans or photographs of receipts, business cards, and important documents from any device. Use the ScanSnap Evernote Edition Scanner to upload documents straight into your Evernote account.

ShoeBoxed (up to $100/month)

If you have a huge backlog of receipts to store, you can opt to mail them off in one of Shoeboxed’s ‘Magic Envelopes’, and Shoeboxed will enter all of the data for you. 

Expensify (starts at $5/month for each active user)

Payments made with connected bank cards are automatically imported, and cash expenses are added manually. Expensify’s mobile app also lets you photograph and store receipts on the go. Receipts are automatically matched with the correct expense using the service’s SmartScan technology.

Step 3: Get Your Bookkeeping up to Date

To file your taxes, you need to ensure your books are up-to-date. A clear set of books gives an accurate view of your business’s income and expenses. They’re also your first line of defense in case of an audit. 
You can use online accounting software to process your own bookkeeping. Alternatively, if you’d prefer to have a professional do it for you, look into hiring a bookkeeper either locally or online.
If the information in your books is incorrect, you run the risk of unintentionally making a false claim to the IRS. 
When it comes to getting your books up-to-date, choose a method that’s best for you based on the amount of time you have to dedicate to bookkeeping, your budget, and how confident you feel about managing your own books. 

Step 4: Submit 1099s

If you paid an independent contractor more than $600 during the tax year, you’ll need to send a Form 1099 to the contractor by February 2 and submit a copy to the IRS by February 28, 2015 (March 31 if filing electronically).

Step 5: Understand Sales Tax Requirements

Sales tax laws are complex at the best of times. You’ll want to consult your accountant on this, but let’s briefly look at how sales tax applies to online businesses
State tax requirements are dictated by a legal concept called ‘nexus’. Nexus means that a business needs to have some physical connection to a state in order to collect sales tax there. If your business develops nexus in a state, you must collect sales tax in that state.
While many businesses will only have nexus with the state they live in, there are instances where your business could develop nexus in additional states. 
Here are some examples of things that develop nexus:
  • An office
  • Employees
  • A warehouse
  • Hosting a pop-up shop or selling at a craft fair
  • Storing inventory
You are legally required to collect sales tax in any location where your business has developed nexus. Tax laws vary between states, so before you file your return, consult with a tax professional to confirm that you’re adequately meeting state sales tax requirements. 

Step 6: Consider Filing for a Tax Extension

It’s important to understand that a tax extension does not get you out of paying taxes owed by the regular deadline.
So why bother filing for an extension in the first place? Well, filing for an extension is easy and it gives you more time to file your tax return.
To file for a tax extension, you’ll need to fill out the tax extension form that corresponds with your business type (below) and estimate the amount of taxes you owe for the year. Then, submit the completed form and your payment for taxes owed to the IRS electronically or via mail on or before April 15 (March 16 for corporations). 
As long as you file before deadline, the extension is automatic. The IRS will only contact you if your application is disallowed.
Note that if you don’t make a payment for taxes owed by the regular tax deadline, you could be liable for penalties and interest, even if you’ve filed for an extension.
To file for a tax extension, use the form that corresponds with your business type:
Corporations – March 16, 2015
To qualify for an automatic 6-month extension, use Form 7004.
Partnerships – April 15, 2015
To qualify for an automatic 5-month extension, use Form 7004.
Sole Proprietors – April 15, 2015
To qualify for an automatic 6-month extension, use Form 4868.

Step 7: Check Out These Tax Deductions

The following deductions are commonly available to online sellers. 
These expenses can all be deducted on Schedule C, Form 1040, unless otherwise noted. 
Note that if your business is new, you’ll need to consult with your accountant as some of your expenses could fall under ‘start-up’ costs.

Home Office

To qualify for the home office deduction, you need to meet three requirements: exclusivity, regularity, and precedence. 
Exclusivity: Your working area needs to be used solely for business. 
Regularity: Your home office needs to be used on a regular basis. This doesn’t need to be every day, but it should be consistent.
Precedence: You should spend the majority of time in your home office, and conduct the most important business activities there. 
To calculate your home office deduction, you can either use the simplified method or the regular method. With the simplified method, you take a standardized deduction of $5 per square foot of your home that’s used for business, up to a maximum of 300 square feet. With the regular method, you’re required to calculate the actual percentage of your home that’s used for business by dividing the area used for business by the total area of your home.
If you calculate your deduction using the regular method, you’ll also need to fill out Form 8829.

Education

If you are taking classes or workshops that add value to your business and/or increase your expertise, they are fully deductible.

Phone and Internet Costs 

If you have a phone that’s used solely for business purposes, the cost of the phone plan is fully deductible as a utility cost. If you use your phone for both business and personal purposes, you can only deduct a percentage of the total cost of the phone bill based on how much you used your cell phone for business. For instance, if you use your cell phone 60% for business, and 40% for personal, you can deduct 60% of the associated costs. Keeping an itemized phone bill is a good way to support your claim should you ever be audited.
If you use services such as Skype or Google Voice, you can deduct these as office expenses.
Your internet bill can also be deducted as a utility cost. If you work out of a home office and use a single internet connection, you’ll need to account for personal use. Calculate the percentage of business-related use and apply it to the total. 

Web Hosting and Online Store Themes

The cost of domain registration and web hosting is deductible under other expenses. You can also deduct the cost of any online store templates or custom Shopify themes that you purchase for your business as either a software or marketing expense.

Contractor Work

The cost of hiring an independent contractor can be claimed as contract labor. 

Shipping Costs

The cost of shipping goods to your customers, such as postage and packaging costs, can be claimed as other expenses.

Vehicle Use

To deduct the business use of your vehicle, you’ll need to track your mileage for business trips. This can be done quickly with a tool such as the Shoeboxed mileage tracker. At the very least, you should record the number of miles driven throughout the year (record your odometer reading on January 1 and then on December 31), and keep a record of meetings, trips to the post office, etc. in your calendar.
Another common technique is to track business and personal mileage for a two-week period every quarter. You can use this at year-end to figure a business vs. personal use ratio.
Once you have established the total mileage driven, divide the business miles by the total miles driven, to determine your business use percentage. 

Online Service Fees

Online services used for business purposes, such as Shopify, MailchimpShoeboxed and any other appsyou use to run your business are deductible as business expenses. 

Equipment

The cost of business equipment, such as your business computer, camera, and cell phone (if you own it outright), can be recovered either via depreciation or through a section 179 deduction. In some cases, an accountant might even advise that you deduct the cost of business equipment as a standard business expense.
It is strongly advised that you work with an accountant to properly deduct equipment costs. Reason being, all of these approaches to deducting equipment costs can provide different financial benefits for your business. For example, it may be more beneficial to deduct equipment costs in one hit (using the section 179 deduction or as a standard business expense) or depreciating the cost over several years. 
What’s more, different items are depreciated using different depreciation methods, and setting up a depreciation schedule can be extremely tricky to get right.
The best way to properly deduct the cost of business equipment is to keep a record of all business equipment purchases and ask your accountant to advise you on how to deduct them in your tax return.

Professional Services

Legal and professional fees that are necessary and directly related to running your business, such as fees charged by accountants and bookkeepers, can be claimed as professional services.

Step 8: Find the Right Accountant and Ask These Questions

When looking for an accountant to help file your taxes, take into consideration how well they understand your industry, the specific needs of your business, and whether they bill by the hour or charge a flat fee. 
Once you’ve hired an accountant, ask them the following questions to see if there are other ways you can reduce your tax bill:
  1. Are there any local tax credits available? (this is a big one that entrepreneurs often miss)
  2. Does my business have nexus in any other states? Have I dealt with sales tax properly?
  3. Are there advantages to changing my business structure?

Conclusion

Taxes probably aren’t your favourite part of business ownership but with some planning and organization you can maximize your deductions and take the stress out of tax season.
If you have any questions about preparing your online business for tax time, let us know in the comments below and we’ll do our best to help you out!
Posted on 6:43 AM | Categories: