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Florida Small Business Tax Laws and Rules

Florida Small Business Tax: Here’s What You Need to Know

With Miami recently named the top city to start a small business, now is a great time to get a startup off the ground in Florida. Most small businesses start out as sole proprietorships. Compared to many other business entities, sole proprietorships are simple to set up and run. Florida small business tax rules are also favorable for business owners and state laws are generally supportive of small business startups.

But  Individual advice from a Florida small business accountant is better than any information online, as your accountant will advise you according to your situation. Still, there’s nothing wrong with learning more about your small business tax liability in Florida.

Does Florida Have a Strong Economy?

Before looking into small business taxes, it’s good to consider the Florida’s economy. One of the benefits of starting a small business in Florida is the economic growth in the state. Of all US states, Florida has one of the fastest growing economies. According to statistics from 2018, if Florida were its own country, it would boast the 17th largest economy in the world based on GDP growth.

Some of the biggest industries in the sunshine state are as follow:

  • Tourism
  • Agriculture
  • International trade
  • Aviation
  • Life sciences
  • Financial services

While business in many other industries can thrive in Florida, the above represent the industries that employ the most people, generate the most revenue and make up the biggest part of the economy.

The labor force in Florida is expanding by more than 3% annually, while the rest of the US sees little to no growth in the same area.

Florida’s economy is growing at a fast pace. It helps that state laws in Florida encourage rather than dissuade people from starting businesses. When combining all of the benefits of starting a small business in Florida, including taxes and the economic outlook, the state is ranked as the 20th best state to start a small business overall. While that listing might seem mediocre, another survey listed Florida as the sixth best state to start a small business based on startup success.

How are Small Businesses in Florida Taxed?

Most small businesses are sole proprietorships. A sole proprietorship is a company owned by a single person. The owner of a sole proprietorship will usually have full say over what happens in the business, even if a small business employs a manager to make certain decisions, the owner will retain the ultimate authority in his or her business as the only owner.

Sole proprietorships are taxed on profit. This means that business owners will need to implement proper bookkeeping strategies to calculate their tax liability. Small business profits can be calculated monthly by adding up all income. Once a business owner know their total income, all business expenses must also be tallied. Subtracting all the expenses from the total income produces the profit.

While this system seems simple enough, both state and federal tax laws are always changing. Not all business expenses qualify for full deductions – meaning business owners can only subtract part of the costs of certain expenses.

To make matters more complicated, most small businesses in Florida will pay taxes in advance on a quarterly basis. What this means, is that businesses actually pay tax based on what they expect to earn in the future, not what they’ve already earned in the past. If a business underestimates its quarterly earnings and pays too little tax, outstanding taxes will need to be paid later, often with additional tax in the form of late payment fees.

Florida Self-employment Tax Rate

Self-employment tax acts as a replacement for Social Security and Medicare tax. As self-employed business owners don’t have these employment benefits, a self-employment tax compensates.

Florida’s self-employment tax rate is 15.3% for the first $128,400 net income of small businesses. Additional business tax rules apply across different income brackets, however.

Statistically speaking, Florida ranks fourth as one of the states with the lowest self-employment tax rates.

Should You Pay Tax on Your Side Business?

Paying self-employment tax when your business in your sole source of income is expected, but what about if you’re employed with a business on the side?

Unfortunately you’ll still need to pay self-employment tax. If your business makes more than $400 annually, you’ll be liable to pay self-employment tax, regardless of whether or not you hold a full-time (or part time) job.

Florida Sales Tax Rate

Sales tax is a tax levy on all product or services your business sells. As a result, almost all small businesses will qualify for some form of sales tax. One average, Florida sales tax is currently charged at 6%.

What this means, is that you will have to account for 6% sales tax on all the products or services you sell. If you need to sell something for $100 to make your desired profit, you’ll charge a customer for $106 to account for the money you’ll need to pay in sales taxes.

Forgetting to account for sales tax is a mistake many business owners make. Always calculate how much profit your business needs to make to be sustainable, then set your rates. Once you know what you desired rate is, add a 6% sales tax on top of this amount and put the money you get towards you sales tax aside. Never spend your sales tax money. Make sure you have enough left to pay all your taxes!

To calculate how much you need to add onto the cost of your product or service to account for sales tax, use your calculator to multiply your price by 0.06%. Once you have this result, add it to your price – this is the amount you’ll need to charge customers.

For example, if you have a product you want to sell for $50, your calculations will look as follows:

$50 x 0.06 = $3

The $3 is what you need to add onto your $50 to account for your small business taxes, so you’ll be charging your customer $53 for the product you sell.

In the past few years, Florida has consistently ranked 22nd for sale tax rates – meaning the sunshine state is relatively average as far as sales tax is concerned.

Florida Small Business Tax Summarized

Florida ranks 4th as one of the states with the lowest small business tax rates. This makes Florida a great state to start a small business. Tax laws in Florida do differ based on what type of business entity you own though.

While most small businesses operate as sole proprietorships, there are other business tax models in Florida. Florida taxes corporations at an approximate tax rate of 5.5%. However, there are many variables with regards to how much taxes a business entity will end up paying.

The best way to know for sure how much tax your business should pay, it’s best to hire an accountant to analyze your books. A Florida accountant will know what tax deductions, credits and exemptions your business qualifies for.

When consulting an accountant about your business’ tax liability, it’s imperative to have thorough financial records of your business on hand. If you don’t have any financial records yet, your first step should be hiring a reliable bookkeeper for your business. Once tax season comes around, your accountant will calculate your tax liability based on your financial books.

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How to Register Your Small Business for Tax?

If you recently started a small business, or your looking to do so, tax is an important subject that you simply can’t ignore. You must know how to register your small business for tax, or whether tax registration is even necessary in for your business.

A lot of small business owners feel intimidated by tax rules, so much so that it might deter some people from starting a business altogether. The idea of an already unstable income combined with uncertainty on how to fulfil tax obligations is a major sore point.

Don’t let the fear of tax get in your way of achieving something great. Tax can seem daunting, but it doesn’t have to be. There are a few simple ways in which you can make sure that your business is paying tax the right way. One of the first ways to start, is to register your business for tax in a way that suits your industry.

Does My Small Business Need to Pay Tax?

Paying tax won’t be an issue if your business doesn’t need to, so asking the question of whether you need to pay tax is a logical place to start. Unfortunately, no profitable small business is normally small enough to qualify for tax exemption.

Very few people expect a child running a lemonade stand to pay tax on their earnings. Realistically, these earnings are too small to amount to anything significant. Similarly, if someone bakes cookies and sells them from home, it may be more of a hobby than a serious business venture, and this is likely to reflect in the earnings.

You’ll know if your small business is more of a hobby than anything else. If you’re a hobbyist, chances you’ll end up spending all your earnings to support your hobby, meaning you won’t truly have a profit, so you’re not running a business, as all your earnings go back into your hobby rather than to contribute to your personal expenses.

It should be noted that the gap for earning without being liable to pay taxes is very narrow. Even if you’re working alone without any employees as a sole proprietorship, your earnings are be taxable. This is especially true if you’re a freelancer, contractor or any other kind of service provider and you earn most of your income through your business.

If your earnings are substantial enough that you can buy groceries, pay rent or afford to cover any of your personal expenses with your business earnings, you should consider yourself to be a small business owner, which means your business is tax liable.

Different Ways to Register Your Small Business for Tax

How you pay small business tax will depend on how you registered your business with the IRS. If you’re still in the process of starting your business, here are the different ways you can register:

  • Sole proprietorship: This is the simplest business structure. It’s easy to start, seeing as you don’t need any formal registration to run your business as a sole proprietor. As a sole proprietor, you’ll be entitled to all of your business earnings, with no legal distinction between yourself and your business. The benefit of running a sole proprietorship is that it’s simple and easy, the disadvantage is that you’ll also be liable for any debt incurred by your business, meaning your personal assets are at risk.
  • Partnership: Where two or more persons decided to start a business venture together, a business is considered to be a partnership. Depending on how a partnership is registered, business partners (like sole proprietors) can be responsible for all business losses, placing their personal assets at risk. This is known as a general partnership.
  • Limited liability company (LLC): Registering an LLC is a good option for many different business owners. The main benefit of an LLC is that the business owners or any shareholders aren’t liable for business debts or legal fees incurred, protecting personal assets. Additionally, business owners have the choice whether their LLC company should be taxed as a personal proprietor, partnership, S-corporation or C-corporation.
  • Corporation: Corporations are owned by stockholders and require a set structure. Corporations can fall in either one of two categories – S or C-corporations. It’s unlikely that you’ll register your new small business as a corporation, seeing as stockholders are required to elect a board of directors for a corporation. Although some small business owners register as the sole stockholder and appoint themselves as the a single-person board of directors, this business model doesn’t lend itself well to most small businesses that are just starting out.

As mentioned above, there are different ways in which you can register an LLC for tax. While registering an LLC to be taxed as a sole proprietorship or partnership won’t change the tax rules that your business falls under, there are two unique corporate tax regimes for LLC companies. Here’s some more information about registering your business as an S or C-corporation.

  • S-corporation: With the S-corporation model, the business entity pays no income tax. Instead, the tax liability of the business tax is distributed to the S shareholders on a personal income tax level. To qualify as an S-corporation, a business must be a domestic corporation (i.e. not foreign) and have no more than 100 shareholders. Additionally, an S-corporation may only have 1 class of shares. Certain businesses, such as financial corporations, are ineligible to be registered as S-corporations.
  • C-corporation: Unlike an S-corporation, C-corporations are taxed independently of their business owners. With a C-corporation, there’s no limit with regards to how many shareholders a company may have. Furthermore, rules regarding foreign shareholders are more relaxed. Because of this, most major corporate companies are taxed as C-corporations

For most new businesses, sole proprietorship is the most popular choice. It’s easy and doesn’t require any upfront investment in terms of registering your business. Once your business expands, however, registering it as an LLC to be taxed as sole proprietorship can be a good way to protect your personal assets.

Tax Rates for Different Small Businesses

Your taxable income will differ depending on how your business is registered for tax. Here are the business tax rates:

  • Sole proprietorships pay a 13.3% tax rate
  • Partnerships pay a 23.6% tax rate
  • S-Corporation pay a 26.9% tax rate
  • C-corporations pay a 17.5% tax rate

Keep in mind that for these tax rates to apply, your business must fall within the guidelines of a small business in your industry. For new businesses, this usually isn’t a problem. Most freelancers, contractors or even healthcare professionals with a healthcare practice quite easily fall into the specifications set for small businesses. Similarly, small building contract firms, plumbers or other service providers are usually eligible to qualify for small business tax rates.

Different Kinds of Small Business Taxes

Although it can be tempting to register your business as a sole proprietorship simply to take advantage of the 13.3% tax rate, there are other taxes that small business owners must pay, which can complicate your choice.

Depending on your business model, there are different kinds of tax you might have to pay such as:

  • Income tax
  • Employment/Payroll tax
  • Self-employment tax
  • Excise tax
  • Sales tax
  • Property tax

While all businesses are required to pay some form income tax, you won’t be liable to employment tax if you have no employees, not would you need to pay excise tax if you don’t sell eligible products such as cigarettes or liquor.

If you register your business as a sole proprietorship, you’ll usually have to pay self-employment tax. Self-employment tax covers tax expenses that are normally at least partially covered by your employer, such as Social Security and Medicare. You are liable to pay self-employment taxes if you’re self-employed and your net earnings in the past year were at least $400.

How to Pay Small Business Tax for the first time?

Whether you’re starting a new business, or you already have a young startup and you need to pay tax for the first time, consulting an accountant is the best way to help you stay on track with your tax obligations.

Although owning a sole proprietorship can simplify your taxes, there are various reasons why getting an accountant is still the best choice, especially when you’re just starting out.

Firstly, you may choose to register your business under a different tax regime than sole proprietorship, which can complicate your taxes. Even if you register as a partnership, tax rules can become daunting.

Secondly, your first year or two of business will be a busy time. You’ll need to learn a lot about your industry to succeed. You’re unlikely to have enough time to learn enough about filing your small business tax correctly, which could place you at risk for penalties for late payments and other mistakes.

Most importantly, consulting an accountant is a great way to get professional, trustworthy advice on how you should register your business for tax, giving you a head start on your small business tax.

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Tax Reform Changes and How They Affect Your Tax Return

Tax is a necessary but unpopular subject for most people. While most people are more than willing to pay tax, the tax system can seem daunting and hard to navigate, especially since it’s always changing. Just when you think you’re in the swing of things, the tax rules change again.

The 2018 tax reform bill, instituted by President Trump, was passed all the way back in late 2017. This new bill is called The Tax Cuts and Jobs Act, and under it many new rules will apply this tax season.

Although the bill was passed in late 2017, you’ll only see the effects of it in your income tax by this year. Overall the bill is meant to simplify and lower the tax you pay – of course, the efficacy of the bill in lowering your personal income taxes will, among other things, be determined by whether you know how the new system works to take advantage of the changes.

With income tax season upon us, learning about the recent tax changes is going to be an essential part of getting your tax done this year. Here’s what you’ll need to know to file your taxes in 2019.

Standard vs Itemized Deductions New Rules

In the past, itemized deductions were often the best way to go if you didn’t want to overpay on tax. However, in 2019 this probably won’t be the case. That’s because the amount for standard tax deductions is now approximately twice as much as it used to be.

If you’re a little confused as to what this means for you, let’s take a step back to distinguish between standard and itemized tax deductions.

Standard and itemized deductions are two different options that allow tax payers to reduce their amount of taxable income. As an overly basic example, if someone earns $24,000 annually and they are eligible for a tax deduction of $4000, they’re taxable income would be $20,000. So instead of being taxed on all their income, they’re being taxed as follows:

annual income – tax deduction = annual taxable income

There are two different ways in which tax payers can determine what tax deduction they’re eligible for:

  • Standard tax deductions
  • Itemized tax deductions

Standard tax deductions, as the name implies, is a standard or fixed amount that can be subtracted from your annual income to determine your taxable income. This amount is set by the government and will apply to every tax payer who chooses to make use of standard tax deductions.

The benefit of going with standard tax deductions is that it’s simple, less time-consuming and generally just a lot easier than itemized deductions. Although in some cases, especially before 2019, there was a good chance choosing standard tax deductions also meant you’d end up with a smaller tax deduction. This lead to a higher taxable income – so in the end, you’d be paying more tax.

Unlike standard tax deductions, itemized deductions can differ completely from one tax payer to another. Instead of paying a standard amount, you’ll need to keep track of all your tax deductible expenses in order to list them when you file your tax. If your tax deductible expenses add up to more than the standard tax deduction amount, then putting in the extra bookkeeping effort and tracking your tax deductible expenses will be well worthwhile.

Last year, approximately 70% of tax payers took the standard deduction route. This could be because tax payers found that the standard tax deduction allowed them to pay less tax. But it could also be an indication that most tax payers don’t want to keep track of tax deductible expenses.

The good news is that the 2019 Tax Reform Law will make it much less likely that tax payers will benefit from choosing to file tax with itemized deductions. This is because the standard tax deduction has been bumped up quite a bit. For comparison, here’s how much standard tax deductions have increased since 2017:

  • For single filers the standard deduction goes from $6350 to $12,000
  • For married couples filing jointly, the standard tax deduction goes up to $24,000 from $12,700 in previous years
  • If you’re 65 or older, you can expect to add another $1300-$1600 onto your standard deduction, depending on whether you’re married
  • For heads of households, the standard tax deduction is now $18,000

But while standard deductions have gone up, itemized deductions have gone down. This is because many expenses that were previously tax deductible are now limited for deductions.

Most notably, state and local taxes (called SALT for short) were seen as a tax deductible expense with no limit. This meant filers paying high taxes in their local state could file all of the taxes paid in the state or area where they lived as a tax deductible expense. Under the new tax rules, there’s a cap as to how much state and local taxes will be deductible, and that number is sitting on $10,000. Some examples of SALT taxes include:

  • Property tax
  • Local income tax
  • Sales tax

The states that will be hit most hard by this new change will be the high tax states such as California, New Jersey, New York and Maryland. Florida, along a few other states, doesn’t currently have state taxes, so this change currently isn’t relevant locally. Many other states have some state-specific income tax, but this is limited to dividends and income from investments.

Lower Tax Across All Income Tax Brackets

The new tax bill will also reduce the percentage of tax all tax payers across different income brackets will need to pay.  Many tax payers have already seen the change resulting from the lower tax to their monthly salaries, as a lower percentage of income is now deductible.

For the highest earners, 39.6% of income was deductible in previous years, whereas this year that number has reduced to 37%. Here’s how taxes are now reduced based on annual income:

  • Single filers earning between $38,701 and $82,500 will pay will go down 3%
  • Married tax payers filing jointly who earn between $77,401 and $165,000 also drops by 3%

Generally, this will lead to lower taxes for most households. However, it should be noted that you can no longer get personal exemptions, which could negatively affect some households.

Increase in Child Tax Credit

Child tax credit has been bumped up from $1000 to $2000 per qualifying child under the age of 17. Tax payers with higher incomes will now also be eligible for child tax credit.

Another benefit of the new tax bill is that tax payers will also be eligible for $500 tax credit for very other dependent they support. These dependents could include children over the age of 17, parents, siblings or even distant relatives. This will help tax payers who are supporting a large number of dependents to save quite a reasonable amount of tax.

Some other notable changes of the 2019 tax reform is a drop in corporate tax from 35% to 21%. Another change is that medical expenses will only be deductible if they exceed 7.5% of a tax payer’s adjusted gross income.

Get Professional Tax Advice

Navigating taxes for yourself and your business can be a difficult task. The current tax reform will be in practice from its inception in 2017 up until approximately 2025 for income tax. After this, the future of income tax is still uncertain, but there’s good possibility that things will change again.

If you’re a business owner, focusing on tax could cost you precious time you could be spending to build your business. Making use a professional accountant or bookkeeping firm can save you money, hassle and time on doing your tax, allowing you to focus on growing your business and income. Call Choice Accounting Solutions to learn more about how we can help you stay current with all your tax, without the need for you to waste time learning about new changes every tax season.

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Business Taxes – Should You File Form 1120 or 1120S?

Tax time – it’s not something any business owner looks forward to, but it’s far less onerous if you prepare for it. One of the pressing questions you may be facing as a business owner is whether or not you should file form 1120 or 1120S when it comes time to pay your business taxes. Which form is right for you? What are the differences between the two? Let’s take a closer look.

C Corp or S Corp?

To answer the question of whether to file form 1120 or 1120S, you simply need to answer one question. Is your business a C Corp, or an S Corp? If you’re a C Corporation, then you’ll need to file form 1120. If you are an S Corporation, you’ll need to file an 1120S. If that’s the only difference, then why is there confusion surrounding the matter? A lot of it deals with how corporations pay taxes.

The Difference between an S Corp and a C Corp

When it comes to business taxes, there are only a few differences between S Corporations and C Corporations, but they’re pretty important distinctions. Really, it comes down to the fact that S Corporations pass their taxable income or loss to their shareholders directly.

Each shareholder must then pay income taxes based on their stated ownership in the corporation. With a C Corporation, the company pays income taxes on the income directly. There is no pass-through to the shareholders. In addition, C Corps are allowed to carry losses forward and backward, while S Corps cannot. Losses must be passed through to the owners in the year they were suffered.

Most of the other considerations here are the same. For instance, both types of corporations re required to keep personal and corporate books separate. Personal transactions should not be mixed with business. Your state of residence may also require that you file a statement of officers, and you’ll likely pay a fee. The IRS requires that both types of corporation hold annual board meetings, and that you list all working owners on payroll.
Another consideration here is the fact that 35% is the maximum corporate tax rate for a C Corp. However, shareholders in an S Corp could face taxes as high as 39.6% if they fall into the highest tax bracket for earners. The only way to offset that potential is to apply the losses from another endeavor, or to use the losses in an S Corp to offset the earnings from something else. Otherwise, you face significant tax liability.

With that being said, there are some serious differences in how the business’ money can be used. For instance, a shareholder in a C Corp can’t simply decide to draw funds and use them for whatever they want, while the owner of a sole proprietorship or a partner in an S Corporation can. The IRS counts any funds drawn outside the norm within a C Corp as dividends and double taxes them. In contrast, an S Corp shareholder is free to draw any money they might want without it being counted against them, as the IRS will ultimately tax the funds as personal income, anyway.

While this might seem to imply that filing as an S Corp is the better option for most companies, that’s not the case. For instance, understand that you cannot take the 50% gain exclusion on the sale of small business stock as part of an S Corp. In addition, only shareholders the government deems “eligible” can transfer stocks in an S Corp.

Finally, each shareholder within an S Corp will need to file additional paperwork. The IRS expects you to send in not only your standard personal income tax paperwork (generally a form 1040), but also a Schedule K-1, which will spell out your income, deductions and credits in much greater detail.

There is one additional caveat – not all corporations are able to file as S Corps. You must run a “qualifying small corporation” to do so. The IRS has stringent rules here, and you’ll need to ensure that your business meets them.

How to Change Your Filings

You may have noticed that the IRS is treating your company as a C Corporation. There is good reason for that. The IRS treats single corporation as a C Corp initially. You must take steps to change how the agency treats your company. To do that, you’ll need to file a form 2553. What’s more, you must file this form within two and a half months of founding the corporation.

Note that you will need to file this every single year that you want the IRS to treat you as an S Corp and to file an 1120S. Note that if you do NOT file form 2553, you cannot file an 1120S. The IRS will flag this activity and alert you to the fact that you’re missing form 2553. This could lead to you only being able to file at a C Corp for that year, using a form 1120, but working with an experienced tax preparer who specializes in corporate taxes can help you avoid this fate.

In the End

When everything is said and done, filing as an S Corp does have its advantages. However, there are cons to it, as well. If you’re not sure whether you should file as an S Corp or a C Corp, working with a professional tax preparer specializing in business taxes will ensure that you have access to the advice, guidance and expertise you need. Corporate taxes are a delicate matter, and really do require the help of an expert.

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How to Maximize My Personal Taxes Refund

It might seem like you’re at the mercy of the government when it comes to the size of your tax refund. After all, they’re the ones that set tax brackets, and determine what sorts of tax credits they offer. All you can do is work and hope, right? Wrong. Actually, you can do a great deal to help minimize your tax liability at the end of the year and maximize the refund you get when filing your personal taxes. What do you need to know?

Think Carefully about How You File

If you’re single, there’s not a lot you can do about how you file. You can only file as single in most cases. However, if you’re married, you have options. Most people file jointly (96% of married couples do, according to the IRS). However, that may or may not be the right choice for your specific needs. In fact, it may be better to file separately. The only way to tell is to run the numbers both ways and then make your decision. Take your time, make sure your information is accurate, and ensure that you’re considering all the credits and deductions both ways, too. You may find that your filing without your spouse boosts your income, but that they are also able to achieve a higher return by filing separately.

Invest More

It might seem a little strange, but investing (in the right vehicles) makes a huge difference in your tax liability. Note that IRAs and 401(k) contributions are the best options here because they are made with pre-tax dollars. While Roth IRAs have significant benefits, they use post-tax dollars, which means that they don’t really do much to offset your tax liability at the end of the year.

By investing more, you set aside additional money for when retirement eventually rolls around, and you also slash your adjusted gross income, which might actually drop you down into a lower tax bracket than would otherwise be possible. Even in a worst-case scenario, you’re still able to reduce your income by the amount that you invest. If you’re late to the game and just opening an IRA after the age of 50, you even get to take advantage of catch-up policies that allow you to jump past the maximum contribution limits that apply to others.

Find the Credits

When it comes to maximizing the amount of money you get back from the IRS, chances are good that you focus more on deductions than anything else. There’s nothing wrong with deductions – they provide invaluable help in reducing your tax liability. However, credits might be the more important avenue toward savings. You’ll find a host of tax credits out there, and many of them may apply to your situation. Some of the more important include the following:

  • The child tax credit
  • The earned income tax credit
  • The American Opportunity tax credit
  • The lifelong learner tax credit

There are tax credits for families that invest in solar power, those that purchase hybrid and/or electric vehicles, and many, many more. Each credit has stringent eligibility requirements, though, so you’ll need to read the fine print before claiming it. This is where a professional tax preparer can help – it’s their job to help you maximize savings while minimizing the costs of your personal taxes.

Watch the Calendar

Yes, we all know that April 15th is tax day. You doubtless watch the calendar for its approach, particularly if you’re a habitually late filer. However, there are other things to watch for on the calendar that can help you reduce what you owe and get more back at the end of the year. For instance, if you’re able to pay your January house payment in December, you can deduct more interest from your taxes. If you can get any previously planned medical procedures out of the way before December 31st, you can deduct additional healthcare related costs from your taxes, too. Even paying your property taxes early can net you a larger refund when it’s all said and done.

Itemize, Itemize, Itemize

Yes, taking the standard deduction is fast. It also works out best for a lot of people. However, that’s not true for all taxpayers, and not even true for most of them. If you can itemize, then you should do so. You’ll find that itemizing your expenses nets you a much larger return on your personal taxes than taking the standard deduction if you’re willing to put in the work. With that being said, you will need receipts to back up your claims as well as to help you estimate the expenses that you’re itemizing. Account for things like state and local taxes, charitable contributions, businesses expenses not already reimbursed and the like. You might just find that they add up to a bit more than your standard deduction.

Deduct, Deduct, Deduct

We mentioned that credits generally net you more than deductions, but that doesn’t mean you should overlook deductions. They can save you a lot of money on your tax bill. There are also quite a few that you might have overlooked ranging from church tithes to mileage on a vehicle used for nonprofit purposes to donated property and much more. Others include your home office deduction, medical and dental costs, disaster-related costs, education expenses and more.

In Conclusion

In the end, there are many ways to reduce your tax burden and increase the size of your refund when filing income taxes. However, if you’re doing your taxes yourself, there’s a significant chance that you will either overpay the government, or make a mistake that costs you a great deal of money in the long run. Working with a professional tax preparer will help ensure accuracy on your return, and that you’re not missing exemptions, deductions or credits that could further reduce your tax liability.

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What the Child Tax Credit Really Means on Your Personal Taxes

It’s important for American families to reduce their tax liability as much as possible. Strategic deductions accomplish this, combined with exemptions and credits. One of the most important credits to the American family is the child tax credit – this offers a dollar-for-dollar reduction in the amount of taxes owed at the end of the year on your personal taxes. However, many Americans are unaware of what the child tax credit really means, or how this important tool works. Below, we’ll explore that topic in greater detail.

What Is the Child Tax Credit?

The child tax credit is exactly what it sounds like – a credit on your taxes for each child you have living under your roof. Each child claimed must be your legal dependent, and they must be under the age of 17. If they’re 17 or over, or you cannot legally claim them as a dependent on your taxes, they’re not eligible for the credit. Note that this credit is not refundable, and that it reduces your liability on a dollar-per-dollar basis. However, it’s not as simple as that.

How Does the Child Tax Credit Work?

Understanding how the child tax credit works is important for ensuring that you’ve minimized your tax liability as much as possible. We’ve touched on a few things in the previous section, but let’s break it down even farther.

  • How Much: The child tax credit is good for up to $1,000 per child. Note that this does not mean that you will automatically receive $1,000 per qualifying child. Your income and other deductions/credits/exemptions will make a difference here.
  • How Old: To qualify for the tax credit, the child must have been under 17 years of age at the end of the year for which you’re filing. So, if you were filing your 2017 income taxes, your child would need to be no older than 16 years of age at the end of 2017. If he or she was older than 16 at that point, you would lose out on the tax credit.
  • What Relationship: In order to qualify for the tax credit, the child must be your legal dependent, and you must be legally able to claim them on your income taxes. Direct children (son, daughter), stepchildren, foster children, younger siblings, stepsiblings, grandchildren, nieces and nephews, and adopted children are all qualifying relationships.
  • Limitations: You’ll find that the amount offered by the child tax credit varies depending on your own financial situation and your filing status. For instance, if your adjusted gross income is $110,000 and you file married/joint, you may not be eligible for the tax credit at all. If you’re filing married but separate, you may not be eligible for the tax credit if you earned $55,000 for the year or more.

What About Standard Deductions?

It’s important to note that the child tax credit applies on top of the standard $4,050 deduction you are eligible to claim for each qualifying dependent living in your home. That means in a best-case scenario, you can claim $5,050 per dependent child in your household. However, as always, there are mitigating factors to be aware of, and even if you have multiple children who qualify for the child tax credit, you may not be eligible for the full child tax credit on each of them.

This area of tax law is complicated, and growing more so each year. The best option is to work with a qualified tax professional who has years of experience handling personal income tax returns, including child tax credits, exemptions and other tax liability reduction strategies.

What Does Not Refundable Mean?

As noted previously, the child tax credit is a nonrefundable type of credit. However, what does that actually mean? Simply put, it cannot reduce your tax liability below $0. With that being said, dependency exemptions (the standard child exemptions for your personal taxes) can reduce your liability below the $0 mark.

What Are the Qualification Requirements for the Child Tax Credit?

We’ve touched on several qualification requirements thus far, but there are quite a few others that apply. According to the IRS, in addition to meeting the age test and the relationship test, the child (or children) in question must also not have provided more than half of their own support during the year in question. You must be legally able to claim them on your tax return (no one else can claim them, and they must be your legal dependent).

They must have qualifying citizenship (a full citizen, US national or US resident alien), and the must have lived with you (under your roof) for more than half the year for which you’re filing taxes. So, if you and your spouse are divorced, and the child spends eight months with your ex-spouse, and only four months with you, then you cannot claim them.

What Is the Additional Child Tax Credit?

If the child tax credit exceeds what you owe Uncle Sam at the end of the year, you may be eligible for an additional tax credit. This is a refundable credit, and will apply to reducing your liability below the $0 mark, whereas the child tax credit will not. However, to qualify, your family cannot have earned more than $3,000 for the entire year, and you must have at least three qualifying dependents (children or other legal dependents).

In the End

Ultimately, the child tax credit provides important solutions for saving money and limiting your tax liability when filing your personal taxes. However, this can be quite complicated – just determining whether your situation meets eligibility requirements can be a nightmare. The best option is to work with a qualified tax expert with years of experience handling family tax matters. This ensures that you have access to expertise, insight and knowledge on how to best reduce your tax liability.

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Strategies for Personal Taxes: What Tax Credits Are Available to Me?

Reducing your tax liability is a crucial consideration. Without the right strategy, you could be paying Uncle Sam hundreds of dollars that should actually go into your wallet. Tax credits are important tools in developing a strategy for your personal taxes, but in order to use them correctly, you’ll need to know which credits are available to you and how they work. There are quite a few credits that you might be able to use, but they’ve undergone a few changes in recent years. Let’s take a closer look at what you should know about those tax credits.

Earned Income Tax Credit

The earned income tax credit, usually abbreviated EIC or EITC, is one of the most important tools to saving on your personal taxes. It offers a variable amount of money depending on your marital status, filing status, amount of income, and other qualification requirements. Note that the maximum available is $6,318 and only applies to those who are married and filing jointly, and have three or more children (qualifying dependents) in their home.

Child and Dependent Care Credit

The child and dependent care credit is often confused with the child tax credit, but they’re different. The CDCC offers the ability to earn a credit on your taxes based on the value of specific expenses. You’re allowed to claim up to $3,000 in expense value for 2017, but the actual amount of the credit you’re issued will depend on other factors, including your income, number of qualifying children, your filing status and more.

Adoption Credit

Have you adopted a child? If so, you may qualify for an additional tax credit. If you adopt a child without special needs, you could qualify for up to $13,570 (you’ll be credited for the amount of qualified expenses). If you adopt a child with special needs, the amount is the same. Note that if your adjusted gross income is $203,540 or higher, you will not receive the maximum credit amount, even if you qualify for it. This is the point at which phase-outs begin. If you earn $243,540 or more, you are not eligible for an adoption credit at all.

Child Tax Credit

The child tax credit is one of the single most important credits offered by Uncle Sam on your personal taxes. It offers up to $1,000 per qualifying child on top of the standard individual deduction. Note that there are quite a few qualifications here, and that this tax credit is nonrefundable. That means it cannot reduce your tax liability below $0. However, depending on the number of qualifying children you have, you might be eligible for the additional child tax credit, which is refundable, and reduces your liability below $0.

Residential Energy Tax Credit

While the US government might focus on coal, oil and natural gas, there are initiatives out there to help encourage the adoption of renewable energy and to reward those who do. The residential energy tax credit offers the ability to earn back up to 30% of the cost of your solar solution if you installed it in 2017. Note that this applies to a wide range of solar-powered systems, not only to solar home electricity systems. For example, it covers solar hot water heaters, as well as standalone solar panels that only supplement a home’s energy needs.

The American Opportunity Tax Credit

Education is a vital part of attaining the American dream, but it can be incredibly expensive. In fact, student loan debt can haunt you or your children for decades to come. The American Opportunity tax credit helps make paying for education a little less onerous. It offers up to $2,500 back on your income taxes for those paying college tuition, and either the student or the parents can earn it. 40% of the credit is refundable, too, so even if you don’t owe income taxes, you could receive a check for $1,000.

Hope Scholarship Credit

Have a student who qualified for the Hope Scholarship? If so, the Hope Scholarship tax credit gives you a way to offset education costs even more. The total allowable is $2,500, which is an amount equal to 100% of qualified tuition and related expenses up to $2,000 plus 25% of those expenses more than $2,000 but not more than $4,000.

Plug-in Electric-Drive Motor Vehicle Credit

While crude oil prices might remain manageable, the need for a long-term solution to the fuel conundrum is obvious. To that end, the federal government is offering a tax credit for those who purchase plug-in electric vehicles. There are qualification requirements in place, but it could mean that you get up to $7,500 back on your 2017 income taxes if you buy an electric car. Note that used cars the IRS will not accept used vehicles – only new vehicles.

Lifetime Learning Credit

Another tax credit designed to help learners of all ages pay for their education, this credit offers up to $2,000 back on your taxes. Note that there are quite a few rules and requirements in place to qualify for it, but the credit could mean a major reduction in your tax liability.

In the End

Ultimately, there are quite a few important tax credits out there that can help you save a lot of money when tax time rolls around. The problem is that all of them come with stringent requirements and determining if you meet those can be very difficult. A single misstep here could cost you thousands of dollars. For that reason alone, it’s best to work with an experienced tax preparer who can identify the credits that fit your needs, and help you create a sound, accurate tax strategy that will reduce your end-of-year liability.

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Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

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Value Added Tax (VAT) is a tax on consumption levied in the United Kingdom by the National Government. It was introduced in 1973 and is the third largest source of government revenue after Income Tax and National Insurance. It is administered and collected by HM revenue and customs, primarily through the Value Added Tax Act 1994. VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union.

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Financial statements are prepared according to agreed upon guidelines. In order to understand these guidelines, it helps to understand the objectives of financial reporting. The objectives of financial reporting, as discussed in the Financial Accounting standards Board (FASB) Statement of Financial Accounting Concepts No. 1, are to provide information that

Read more