Tax Tips

Understanding how money moves in and out of a business is easier when the accounting method matches the way the business actually operates. Many individuals and small business owners start out with basic tools, track income as it hits the bank, and record expenses when they’re paid. It feels simple and familiar. But as a business grows, questions start to surface. Cash flow looks strong one month and weaker the next, even though sales seem consistent. Bills arrive at unpredictable times. Tax filings show numbers that feel out of sync with real activity. The difference often comes down to the choice between cash accounting and accrual accounting. Each method tells a different story, and understanding why the difference matters helps business owners make smarter decisions.

The choice shapes taxes, financial clarity, and day-to-day planning. It also influences long-term goals because the accounting method becomes the foundation for how owners view the health of their business.

How Cash Accounting Works

Cash accounting feels natural because it follows the timing of bank activity. When money enters the account, it counts as income. When the business pays a bill, it counts as an expense. Nothing gets recorded until cash moves. For small businesses and individuals who need simplicity, this method works well. It shows what’s available at any given moment and keeps tracking straightforward.

This approach gives an honest look at cash flow, which is something many new owners appreciate. They can see exactly what they have on hand without sorting through unpaid invoices or upcoming expenses. The method also suits service providers and sole proprietors who deal with quick payments rather than complex billing cycles. For tax purposes, cash accounting can reduce stress because the business doesn’t pay tax on money it hasn’t received yet.

But cash accounting has limits. It can hide underlying trends because it only shows what happened at the bank, not what happened in the business. A month filled with unpaid invoices may look slow, even though work was completed. A month with large expenses paid all at once may look worse than it actually is over time. 

The Mechanics of Accrual Accounting

Accrual accounting takes a different approach. Income gets recorded when it’s earned, not when the payment actually arrives. Expenses get recorded when they’re incurred, even if the bill is paid later.

For instance, if a business completes a project in March but doesn’t get paid for it until April, with accrual accounting the income still gets booked in March. The vice versa is also true. If a supplier sends materials in June but the bill gets paid in July, the cost belongs to June. So the income and expense both get booked according to the activity in real life, not the bank’s activity.

This method helps owners understand true profitability during any period. It shows patterns, reveals seasonal shifts, and makes financial reports more reliable. Banks and investors prefer this method because it offers a clearer view of operations. However, accrual accounting can feel more complex at first because it requires tracking receivables, payables, and timing differences. Some business owners hesitate for this reason, especially when they’re used to seeing everything reflected directly in their bank balance.

Why Timing Creates Different Stories

The main difference between the two methods comes down to timing. When the timing changes, the financial story changes too. Owners may look at their reports and feel the numbers don’t match their experience. In cash accounting, a late-paying client can drag down what looks like a good month. In accrual accounting, expenses may appear before the business pays them, making profit look smaller even when cash flow feels fine.

Both methods are accurate within their rules, but they answer different questions. Cash accounting answers how much money the business has right now. Accrual accounting answers how much the business truly earned or spent during a specific period. Owners who understand this difference can choose the method that best supports their goals.

How Accounting Choice Affects Taxes

Tax timing often becomes one of the biggest factors in choosing a method. With cash accounting, the business pays tax only on income actually received. This helps owners who deal with irregular payments or clients who pay slowly. If someone sends a large invoice in December but doesn’t get paid until January, the income counts in the new year. For many small businesses, this can help smooth out tax obligations.

With accrual accounting, the timing changes. Income is taxed in the year it’s earned, even if payment comes later. Expenses also follow this rule, which means a business may deduct costs in the year the expense occurs rather than the year it pays the bill. For businesses with steady billing cycles or predictable payments, this can create accurate year-end totals. For those with unpredictable cash flow, it may feel less flexible.

Some businesses are required to use accrual accounting because of size, structure, or inventory. Your CPA will let you know if your business falls under this category.

Choosing the Best Method For Your Business

Choosing a method depends on the business model, the owner’s comfort level, and the operational needs. A small service provider with quick payments may do best with cash accounting. A business that bills clients, handles inventory, or manages long-term projects may benefit from accrual accounting. Some owners choose accrual for reporting but use cash-based tools for managing daily spending. Others prefer consistency across all systems. It all depends.

Accounting methods shape how owners read their numbers, plan for taxes, and measure performance. They also affect budgeting because they determine how revenue and expenses appear throughout the year. If you’re unsure which method fits your situation or thinking about changing your approach, reach out to your CPA for guidance tailored to your goals.

by Kate Supino

Your first year of freelancing probably felt liberating. No boss, no commute, just you and your laptop making things happen. Then tax season rolled around and you got hit with a bill that made your stomach drop. Welcome to the world of estimated taxes, where the IRS expects you to pay as you go instead of settling up once a year.

The IRS Wants Their Money Quarterly

Here's the basic deal. The federal government collects taxes throughout the year, not just in April. As a freelancer, you're supposed to make payments directly to the IRS four times a year.

These quarterly deadlines fall in mid-April, mid-June, mid-September, and mid-January. You’ll want to mark these dates because missing them costs money.

The payment covers both your income tax and your self-employment tax. That self-employment tax is the killer that surprises most people. It's basically the Social Security and Medicare taxes that used to get split between you and your employer. Now you're paying both halves yourself, which comes out to 15.3% right off the top before you even get to regular income tax.

Figuring Out How Much to Pay

Calculating your estimated payments isn't exactly fun, but it's not impossible either. The IRS wants you to pay either 90% of what you'll owe for the current year or 100% of what you owed last year, whichever is smaller. If your income was pretty high last year, that percentage jumps to 110%.

Most freelancers use last year's tax bill as their starting point because it's simpler. Take what you owed last year, divide by four, and send that amount each quarter. This keeps you safe from penalties even if you end up making more money this year. You'll just owe the difference when you file your return.

If this is your first year freelancing, you don't have a previous year to reference. You'll need to estimate what you think you'll make and calculate from there. It’s usually best to overestimate rather than underestimate. Better to get a refund than owe a bunch at tax time plus penalties.

Your state probably wants estimated payments too. Some states piggyback on the federal deadlines while others do their own thing. Check your state's revenue department website or ask a tax professional what applies to you.

What Happens If You Skip Payments

The IRS charges an underpayment penalty when you don't pay enough throughout the year. It's not technically a penalty but interest on the amount you should've paid earlier. The rate changes quarterly based on the federal short-term rate plus 3%.

These penalties aren't huge, but they're annoying. If you owe $3,000 at tax time and should've been making quarterly payments, you might face a penalty of $100 to $200 depending on the interest rates that year. Not devastating, but not money you want to throw away either.

Some freelancers decide to just skip estimated taxes and eat the penalty. They'd rather keep their cash flow intact during the year. If you have a really good year and owe $15,000 instead of $3,000, that penalty suddenly hurts a lot more.

Keeping Track of Income Throughout the Year

The toughest part of estimated taxes is that your income probably bounces around. Some months you're swimming in client work. Other months are dead quiet. It’s okay to guesstimate. Make your best guess based on the clients you have lined up and what you earned in similar months before. If you land a huge project mid-year that's going to push your income way up, increase your next estimated payment to compensate.

The IRS does let you adjust your payments each quarter if your income changes significantly. You're not locked into paying the same amount all four times. A lot of freelancers pay more in quarters when they had good income and less in slower quarters.

Keeping decent records helps enormously here. You don't need fancy accounting software, but you should track what's coming in each month. A simple spreadsheet works fine. When you can see your income trends, estimating taxes gets easier.

Deductions Make a Real Difference

Don't forget that you're paying estimated taxes on your profit, not your gross income. Every legitimate business expense reduces what you owe. Home office deduction, equipment, software subscriptions, professional development, health insurance if you're self-employed... all of that comes off your taxable income.

A lot of new freelancers overpay their estimated taxes because they calculate based on gross income and forget about deductions. Keep receipts and track expenses as you go. When you sit down to figure out your quarterly payment, you'll have a realistic picture of your actual profit.

Some expenses are easy to forget. Mileage for business trips, client meals, that professional conference you attended, the portion of your internet bill used for work. They add up faster than you'd think.

Setting Money Aside Is Crucial

Here's what works for a lot of freelancers. When client payments hit your account, immediately move 25% to 30% into a separate savings account labeled "taxes." Don't touch that money except to make your quarterly payments.

This system prevents the painful scenario where you owe $5,000 in estimated taxes and have to scramble to find the money. The tax burden feels less harsh when you've been setting money aside all along. It's already gone in your mind.

The exact percentage depends on your tax bracket and deductions. A CPA can help you dial in the right number for your situation.

Let Your CPA Do the Work

Estimated taxes confuse even experienced freelancers. The rules have exceptions, special circumstances, and enough complexity that DIY-ing it can lead to mistakes, which is why you need a CPA.

They can also set you up with a payment plan that matches your actual income pattern instead of forcing you into four equal payments. Some months it makes sense to pay more, others less.

Your tax situation gets more complicated as your freelance income grows. At some point, trying to handle everything yourself stops making financial sense, and it’s time to call in your CPA for assistance.

by Kate Supino

Divorce changes almost every part of life—your routines, your relationships, your finances, and often, your sense of direction. Amid the emotional and logistical toll, it’s easy to overlook how significantly a divorce can also change your tax situation. From filing status to claiming dependents, taxes after divorce come with new rules and frequently, new decisions.

Understanding what to expect ahead of time can help you avoid surprises and start your next chapter with more financial stability and less stress.

Your Filing Status Will Change

The first—and most immediate—impact divorce has on your taxes is your filing status. If your divorce is finalized by December 31 of the tax year, you’re considered “unmarried” for the entire year. That means you can no longer file jointly with your ex-spouse, even if you were still legally married for most of the year.

Instead, you’ll file as either Single or Head of Household, depending on your circumstances. Head of Household status may offer better tax brackets and a higher standard deduction—but only if you meet specific criteria, including having a dependent who lives with you for more than half the year.

Choosing the correct status isn’t just about checking the right box. It affects your tax rate, the size of your refund (or bill), and your eligibility for certain credits. If you’re unsure, a CPA can help determine which category fits your situation best.

Child-Related Tax Benefits Require Clarity

One of the most common points of confusion after divorce is who gets to claim the children. Only one parent can claim a child for tax purposes in a given year, and that claim comes with several valuable benefits—including the Child Tax Credit, the Earned Income Tax Credit, and potential education credits.

In general, the parent who has primary physical custody (the child lives with them more than half the year) gets the right to claim the child. However, this can be reassigned if both parties agree and sign IRS Form 8332.

These agreements are best addressed clearly in your divorce settlement. If nothing's formally arranged, misunderstandings can easily arise—and so can complications at tax time if both parents try to claim the same dependent.

Asset Division Can Trigger Hidden Tax Consequences

During divorce, dividing assets often feels more like a negotiation than a math problem—but taxes play a quiet role in the background. Not all assets are taxed the same, and their long-term value can vary once tax consequences are considered.

For example, one spouse may keep the marital home while the other receives an investment account of equal value. But when the investment account is eventually liquidated, it may trigger capital gains taxes—while proceeds from the sale of a primary residence may be partially or fully excluded from tax.

Don’t just look at the size of the asset—look at what you’ll owe when you use it later. Having a financial advisor or tax professional review the proposed division can help you avoid costly surprises.

Selling the Family Home May Create a Tax Event

If you and your ex-spouse decide to sell the family home as part of the divorce, the IRS may treat that sale as a capital gains event. Fortunately, many people qualify for the home sale exclusion, which allows you to exclude a certain amount in gains if requirements are met.

You typically need to have owned and lived in the home for at least two of the past five years to qualify. If both spouses meet that requirement and the sale happens while you’re still filing jointly, you may be able to use the full exclusion amount. 

Timing the sale and understanding the ownership requirements can help reduce or eliminate your capital gains tax liability.

Retirement Accounts Require Careful Handling

Dividing retirement savings takes careful planning. IRAs, 401(k)s, and pensions each come with specific tax rules that must be followed to avoid penalties.

If you’re transferring part of a qualified retirement plan from one spouse to another, the process must be done through a QDRO to prevent early withdrawal taxes. IRAs don’t require a QDRO, but the transfer must still be executed properly, usually via a trustee-to-trustee transfer.

Failing to follow the correct procedure can result in unexpected tax bills for the recipient—and sometimes for the person making the transfer. This is one of those areas where you want everything in writing and verified by professionals.

Tax Withholding May Need Adjusting

After divorce, your household income and expenses likely look different. Your tax withholding should reflect that change. If you were previously having taxes withheld based on a joint income, you may now need to adjust your W-4 form with your employer to avoid overpaying—or underpaying—your taxes.

It’s also a good time to revisit estimated tax payments if you’re self-employed or have investment income. Even small changes in your filing status or number of dependents can affect your estimated payment schedule.

Checking in with a tax advisor or using a withholding calculator can help you recalibrate and avoid surprises come filing season.

Plan Ahead For Next Year—Not Just This One

The first tax return after divorce often brings the most noticeable changes, but it’s just the beginning. The way your taxes look going forward—from deductions to credits to tax brackets—will be shaped by the decisions made during the separation process.

Try to think long-term when making financial and tax-related decisions in your settlement. Will you be able to continue claiming a dependent in future years? Are you prepared for the tax impact of selling property or liquidating assets? Thinking a few steps ahead can provide more flexibility down the road.
Divorce may signal the end of one chapter—but it also marks the beginning of a new one. Understanding how the process affects your taxes helps you step into that new chapter with more clarity and confidence. While the details can feel overwhelming, you don’t have to navigate them alone.

The smartest move you can make? Bring in a CPA early. With their guidance, you’ll be better prepared to manage tax changes, avoid missteps, and focus your energy on building what comes next.

by Kate Supino

Losing someone close to you is never easy. The grief comes in waves, often when you least expect it. And just when you're trying to navigate those emotions, you're handed a pile of paperwork and deadlines—many of them involving taxes. Few people are prepared for that moment, yet it’s one most families will eventually face. Knowing what to expect can make this difficult chapter a little less overwhelming.

Who Takes Care of the Tax Matters?

After a death, someone has to step in and manage the person’s financial and legal affairs. This person is usually named in the will as the executor or personal representative. If no one is named, or if there’s no will at all, the court appoints someone to handle the estate.

If that person’s you, it’s understandable to feel unsure at first. What you’re doing, essentially, is wrapping up a financial life—filing one last tax return for the individual, paying off remaining debts, and making sure what’s left is handled responsibly. The IRS, and often the state, will expect that certain forms and deadlines be met. You don’t need to know everything from the start, but it helps to understand the general path forward.

Filing the Final Tax Return

Even after someone has passed, the government still expects a tax return to cover the portion of the year they were alive. This final personal income tax return, usually a Form 1040, covers January 1 up to the date of death. If they had income during that time—whether from a job, Social Security, or investment accounts—it gets reported just like it would in any other year.

If the person was married, the surviving spouse may be able to file jointly that year. Otherwise, the executor files the return on behalf of the estate. Be sure to indicate on the return that it’s the final one. In most cases, a copy of the death certificate will be attached.

Other Returns You May Need to File

Depending on the estate, you might also need to file additional forms. For example, if the estate earns money after the person has died—say from a rental property, savings account, or investment—you’ll likely need to file a separate estate income tax return. This is known as Form 1041.

In addition, some states have their own requirements. There might be a state income tax return to file, and in a few states, estate or inheritance taxes may apply. The rules vary widely depending on where the person lived or held property. If you're not sure where to start, this is a good time to ask a CPA for help.

Will the Estate Owe Estate Tax?

Most families won’t owe federal estate tax. For 2024, the federal exemption is over \$13 million per person. That means if the total value of the estate is less than that, there’s no federal estate tax due.

However, about a dozen states have their own estate or inheritance taxes, and their exemption levels are often much lower. Even if the estate doesn’t owe anything to the IRS, you might still need to file a state estate return or pay tax on certain inherited assets. It's one of the many reasons why careful planning—and accurate records—matter during this process.

Watch Out for Taxable Inheritances

Not everything you inherit is tax-free. Some types of income, especially from retirement accounts like traditional IRAs or 401(k)s, may be taxable when you withdraw them. The tax treatment depends on who the beneficiary is and what kind of account it was.

Spouses generally have more options when it comes to inherited retirement accounts. They may be able to roll the funds into their own IRA. Non-spouse beneficiaries, however, may have to follow a specific timeline for withdrawing the money—and those withdrawals are usually taxed as income.

What’s a Step-Up in Basis—and Why It Matters

One key tax benefit to understand when someone passes away is the step-up in basis. When you inherit property—like a home or stocks—the cost basis usually resets to the fair market value as of the date of death. That means if the asset appreciated significantly while the person owned it, you may owe far less in capital gains taxes when you sell it.

Let’s say your parent bought a house for $120,000 decades ago, and it’s now worth $350,000. Instead of being taxed on the full gain if you sell it, your basis “steps up” to the current value. That can be a big advantage—and a good reason not to rush into selling inherited property without first speaking with a tax advisor or real estate professional.

Keep Good Records of Estate Expenses

While you're settling the estate, you may find yourself handling repairs, paying outstanding bills, or covering attorney and CPA fees. These costs can often be deducted from the estate’s income tax return—if you document them properly.

It’s easy for expenses to blend together during this time. That’s why it's important to keep everything organized. Set up a separate bank account for the estate if needed, and keep clear records of every transaction. Save receipts, copies of invoices, and proof of payment. Having everything in order will make it much easier to prepare any tax returns and protect yourself from personal liability.

Give Yourself Time—And Ask for Help

Tax deadlines don’t stop for grief. Unfortunately, many of the responsibilities that follow a death are time-sensitive. Returns are still due. Interest and penalties still accrue. But that doesn’t mean you need to shoulder everything alone.

Accountants, estate attorneys, and financial advisors are used to walking families through this process. Even if you don’t have a large estate to manage, reaching out for professional guidance can help you avoid mistakes that might delay probate, cause tax issues, or create conflict among heirs.

You don’t have to become an expert overnight. You just need someone to help you navigate the steps one at a time.

Don’t Rush Big Financial Decisions

In the weeks and months after a loved one dies, there’s often pressure to move quickly—whether it’s selling a home, closing accounts, or distributing money. But unless there’s an urgent reason, most decisions can wait. In fact, pausing before making major financial moves often leads to better outcomes.

If you’re inheriting money or property, talk with a CPA before making withdrawals or selling assets. There may be tax implications you haven’t considered. With the right timing, you might save yourself or the estate a significant amount.

Handling taxes after a death is never easy—but it doesn’t have to be confusing. With good records, clear communication, and the right guidance, you can move through the process one task at a time. While grief can’t be rushed, taking care of these details is a way of honoring someone’s life—by making sure what they built is handled with care.

by Kate Supino

Few things create as much anxiety among taxpayers as the possibility of an IRS audit. However, the reality of audits is often far less alarming than you might assume. While it is important to file accurate returns and follow tax laws, the likelihood of an audit is lower than most people think, and those who take a proactive approach to tax compliance have little to fear.

Understanding how IRS audits work, why they happen, and how to minimize audit risk can provide peace of mind and help taxpayers stay prepared in the rare event that an audit occurs.

How Likely Is an IRS Audit?

The chances of being audited are actually quite low. In recent years, the IRS has examined fewer than one percent of individual tax returns, with the percentage even lower for those who earn moderate incomes and file straightforward returns. While audit rates do fluctuate based on IRS resources and enforcement priorities, the majority of taxpayers never receive an audit notice. Certain factors, however, can increase the likelihood of an audit.

Common Triggers for an IRS Audit

Although audits can be conducted randomly, most occur because of specific issues flagged by the IRS. Unreported income is one of the most common triggers, as the IRS receives copies of W-2s, 1099s, and other tax forms directly from employers and financial institutions. If a taxpayer fails to report income that the IRS already knows about, an audit may follow. Claiming significantly higher-than-average deductions relative to income can also attract attention. 

Self-employed individuals and business owners who report repeated losses, especially for multiple years, may be scrutinized to determine whether they are running a genuine business or attempting to claim deductions improperly for what is actually a hobby. Businesses that handle large amounts of cash, such as restaurants or salons, are often subject to greater scrutiny due to the potential for underreporting income. Similarly, claiming unusually high charitable deductions that seem disproportionate to income may prompt the IRS to verify that proper documentation exists.

Types of IRS Audits

Not all audits involve an in-person meeting with an IRS agent. The most common and least invasive type of audit is a correspondence audit, where the IRS simply requests additional information or documentation to verify a specific item on a tax return. Most of these audits are resolved by mailing the requested documents without further interaction.

A more detailed review may require an office audit, in which the taxpayer visits an IRS office to provide further explanation or documentation related to specific deductions or discrepancies. These audits are typically more focused and do not necessarily mean an entire tax return is under review.

In more complex cases, the IRS may conduct a field audit, in which an agent visits the taxpayer’s home, business, or accountant’s office to examine financial records. Field audits are generally reserved for businesses or individuals with substantial income and intricate tax situations.

There are also random audits, which are conducted as part of the IRS’s efforts to ensure compliance across various taxpayer groups. Unlike audits triggered by specific red flags, these are purely based on statistical selection. While they may seem frustrating, they do not automatically indicate wrongdoing.

What Happens If You’re Audited?

Receiving an audit notice does not necessarily mean a taxpayer has done something wrong. Many audits result in no additional tax liability or only minor adjustments. When the IRS selects a return for audit, it provides clear instructions on what information is needed and how to respond.

The key to handling an audit is to remain calm and organized. The first step is to review the tax return in question and gather the necessary documentation. Your CPA can help with this. The IRS typically requests income statements such as W-2s, 1099s or bank statements, along with receipts and invoices for deductible expenses. Business owners may need to provide business records, while individuals claiming charitable deductions should have proof of contributions. If claiming vehicle expenses, maintaining a mileage log is crucial, and any other supporting documents related to tax return items may be required.

Once the requested information is compiled, responding to the IRS in a timely manner is essential. Ignoring an audit notice will not make the issue go away and may result in penalties or additional scrutiny. If errors are found in the tax return, the IRS will provide a report detailing any adjustments and additional taxes owed. In cases where the taxpayer disagrees with the findings, there are options to dispute the results, including filing an appeal.

How to Minimize Your Audit Risk

While no taxpayer can completely eliminate the possibility of an audit, several strategies can significantly reduce the chances of IRS scrutiny. The most effective approach is to maintain accurate records and ensure all income is reported correctly. Keeping thorough documentation for deductions and credits can help support claims in the event of an audit.

Working with a CPA can also help ensure accuracy and compliance with current tax laws. Tax professionals are familiar with common audit triggers and can help taxpayers avoid errors that might raise red flags. Filing returns on time and avoiding last-minute submissions can further reduce audit risk, as rushed filings are more prone to mistakes.

It’s also important to follow IRS guidelines when claiming deductions, especially those that are frequently audited, such as business expenses, home office deductions, and charitable contributions. Ensuring that all claimed deductions are legitimate and properly documented will help avoid issues.

For business owners, separating personal and business finances is critical. Maintaining a dedicated business bank account and using accounting software to track income and expenses can make tax reporting more precise and reduce the likelihood of errors.

For most taxpayers, an IRS audit is unlikely and should not be a source of overwhelming concern. By filing accurate tax returns, keeping organized records, and ensuring compliance with tax laws, individuals and business owners can significantly reduce their risk of being audited. Even if an audit does occur, proper documentation and professional assistance can help resolve the situation smoothly.

Rather than fearing an audit, taxpayers should focus on proactive tax planning and accurate reporting with the help of a CPA. With the right approach, tax compliance becomes a routine part of financial management, allowing individuals and businesses to focus on their goals without unnecessary stress.

by Kate Supino

Did you know it’s possible to make your vacation time tax deductible? But before you drag down the suitcases from the attic and pack the family SUV, you should know the legalities of doing this to comply with the IRS. Never do anything that’s against the law, and if you have any questions or confusion about any deductions, consult with your CPA. Here are some tips for making vacation time tax deductible—legally.

Bring Family to Conventions

Business conventions are often held in locations that tourists find attractive, like Las Vegas, Miami, Boston, New York City and similar cities. As long as your attendance can be justified as benefiting your business, you can deduct certain travel expenses. And, while you’re at it, you can bring along the family to the destination, combining business with pleasure. Your family’s travel expenses won’t ordinarily be deductible. However, if you employ your family members in a full-time, part-time or contractor capacity, and their attendance will also benefit the business, then their travel expenses might also be deductible. Just make sure they actually attend the business convention events, so everything is on the up and up.

Schedule Meetings in Attractive Locales

There’s no law stating that you have to meet with business associates and prospective clients in a dull conference room. You can deduct business meals and some travel expenses for business meetings as long as the purpose of the meeting is business. This is a great way to enjoy a vacation-like experience while getting work done and enjoying a legal deduction.

Extend Your Stay 

Take maximum advantage of the tax deduction for travel to and from your destination by extending your stay. Staying extra days for leisure doesn’t invalidate the deduction, but costs for those additional days won’t be deductible.

Avoiding Trouble

Business travel deductions are fairly complex, so it’s best to handle everything through your CPA. Here are some tips to avoid any trouble with your business travel tax deductions.

Keep All Receipts

Don’t throw away any receipts, even if you think they’re too small or insignificant to make a difference. Every receipt can help show that your trip was business-related. 

Keep All Documentation

Don’t rely on digital copies when it comes to the IRS. Print out flight itineraries, hotel reservation confirmations, convention reservation confirmations and everything else related to your trip. These documents help to back up your receipts.

Stay Organized

When traveling, it’s easy to lose track of receipts and other documents, but try to come up with a way to keep everything together. A large manilla envelope works well, then when you get home you can organize everything into categories for your CPA.

Avoid Lavish Spending

Even if your business trip was all business and no pleasure, the IRS only allows reasonable expenses as deductions. Having a $10,000 celebratory dinner over signing a new client is probably not going to fly with the IRS. Verbatim, the IRS says that travel expenses must be “ordinary and necessary.” Try to imagine if you’d be able to readily explain the expense face to face with an auditor, and that will give you some motivation to avoid lavish spending.

Take Notes

Are you wanting to deduct a meal where you and a prospective client are discussing what you bring to the table? Afterward, write down some meeting notes about what was discussed. This can help to validate any deductible expenses that might be questioned later on. 

Use a Business Credit Card 

Using a business credit card for travel expenses is a smart way to manage tax-deductible costs. It simplifies record-keeping by keeping all business-related expenses separate from personal ones, making it easier to track and report deductions. Many business credit cards also offer rewards, cash back or travel perks, such as discounted flights or hotel stays, which can further reduce expenses. Additionally, features like detailed monthly statements and integration with accounting software streamline financial management. Be sure to save receipts and ensure every charge aligns with IRS guidelines to maximize deductions and maintain compliance during audits.

Make Sure it Benefits the Business

When planning a tax-deductible trip, ensure the activities directly benefit your business. The IRS requires a clear connection between the expenses and your company’s goals, such as generating income, building professional relationships or expanding operations. Attend relevant conferences, meet with clients, or explore new markets to validate the business purpose. Document how each activity supports your growth, whether through meeting notes, contracts or follow-ups. If the trip appears to be primarily for personal enjoyment, deductions may be denied. By focusing on activities that enhance your business’s success, you can confidently claim travel-related tax benefits while staying compliant with regulations.

Work With a CPA

Partnering with a CPA is essential when navigating tax-deductible travel. A CPA can help you understand complex IRS rules, ensuring your deductions are legitimate and well-documented. They’ll review your plans to identify which expenses qualify and advise on separating personal costs from business-related ones. Additionally, a CPA can assist in creating an accurate paper trail, such as tracking receipts and maintaining detailed itineraries. Their expertise helps minimize the risk of audits and penalties, offering peace of mind. By working with a CPA, you can maximize your deductions while ensuring compliance with tax laws, allowing you to focus on growing your business.

The business tax deductions for travel can be a great way to make you and your family’s vacation time tax deductible. But it’s always important to stay on the side of the law. A good rule of thumb is to be conservative, but you can go over this with your tax professional, who will always make sure you’re compliant with IRS rules.

by Kate Supino

Being married brings many advantages besides having someone to help fold the laundry or comfort you when you’re having a rough day. Tax benefits are another benefit, although people don’t get married to save on taxes, thankfully. But in the U.S., if you do happen to be married, you should know that there are a great number of tax benefits to be had. Your CPA can tell you all about it during your next appointment. In the meantime, here’s a closer look at the tax advantages of marriage and how they can benefit couples at various stages of life.

Filing Jointly vs. Filing Separately

When you file a joint return, both incomes are combined, and you’re taxed according to the joint tax brackets, which tend to be more favorable than the individual tax brackets. For example, in 2023, married couples filing jointly can earn up to $89,450 and stay in the 12% tax bracket, while single filers would be pushed into a higher tax bracket with that same level of income. Filing jointly typically results in a lower overall tax liability.

On the flip side, filing separately can limit the tax breaks you are eligible for. Couples who file separately are often disqualified from claiming important deductions and credits, such as the Earned Income Tax Credit (EITC), education credits like the American Opportunity Credit and Lifetime Learning Credit, and deductions for student loan interest. Additionally, couples filing separately face stricter limits on certain deductions, such as the deduction for medical expenses.

Every situation is different, so don’t just automatically file jointly. Talk to your CPA for advice about how best to file.

Marriage Bonus: The Benefit of Lower Tax Rates

One of the most well-known tax benefits of marriage is the “marriage bonus,” which occurs when a couple’s combined income is taxed at a lower rate than if they had filed as individuals. This is particularly advantageous for couples where one spouse earns significantly more than the other.

For instance, if one spouse earns $100,000 a year and the other earns $30,000, their combined income of $130,000 would be taxed at a lower average rate if they file jointly. As individuals, the higher earner would be taxed at a higher marginal rate, while the lower earner’s income might be taxed at a much lower rate. Filing jointly smooths out these tax brackets, often reducing the overall tax liability for the couple.

Higher Standard Deduction

One of the biggest tax benefits for married couples is the higher standard deduction available to those who file jointly. For the 2023 tax year, the standard deduction for married couples filing jointly is $27,700, compared to $13,850 for single filers. This means that married couples can exclude a larger portion of their income from taxation, which often results in a lower tax bill.

The higher standard deduction is particularly valuable for couples who do not itemize their deductions. With the higher threshold, many married couples find that the standard deduction provides greater tax savings than itemizing their deductions. However, for those who do itemize, combining certain expenses, such as mortgage interest, charitable contributions, and medical expenses, can push them over the standard deduction limit, allowing for even greater savings.

Access to Spousal IRA Contributions

Another meaningful tax advantage of marriage is the ability to contribute to a spousal IRA. Normally, individuals need earned income to contribute to a traditional or Roth IRA. However, if one spouse doesn’t work or earns significantly less than the other, the working spouse can make contributions on behalf of their non-working spouse. This allows both spouses to benefit from tax-advantaged retirement savings, even if one spouse doesn’t have earned income.

Child Tax Credit and Dependent Care Credit

If you’re a couple with kids, marriage also opens the door to several family-related tax benefits. One to note is the Child Tax Credit (CTC), which provides a credit of up to $2,000 per qualifying child under the age of 17. The credit begins to phase out for couples earning more than $400,000. In addition, up to $1,500 of the CTC can be refundable, meaning you can receive it even if you owe no taxes.

The Dependent Care Credit is another valuable benefit for married couples with children. This credit allows you to claim up to 35% of qualifying childcare expenses, up to a maximum of $3,000 for one child or $6,000 for two or more children. This credit can help offset the costs of daycare, after-school care, or even summer camps, reducing the overall tax burden for working parents.

Estate and Gift Tax Benefits

Marriage provides significant estate and gift tax benefits that can help couples preserve wealth and pass it on to future generations. Married couples can transfer an unlimited amount of assets to each other during their lifetime or upon death without incurring federal estate or gift taxes, thanks to the unlimited marital deduction.

This deduction allows couples to transfer wealth between themselves without triggering gift taxes, regardless of the amount. Additionally, married couples can double the amount they can give to others without paying gift taxes. For the 2023 tax year, the annual exclusion amount for gifts is $17,000 per person, meaning a couple can give $34,000 to an individual (such as a child or grandchild) without incurring gift taxes.

Health Insurance and Flexible Spending Accounts

Marriage can also provide tax savings related to health insurance and medical expenses. Many employers offer health insurance plans with more favorable rates for married couples or families than for individual coverage. In some cases, one spouse’s employer may offer better coverage or lower premiums than the other’s, allowing the couple to save money on health insurance.

Married couples may benefit from Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs). FSAs and HSAs allow individuals to set aside pre-tax dollars to pay for qualified medical expenses, reducing their taxable income. Married couples can contribute more to these accounts, particularly if both spouses have access to them through their employers.

Being married offers numerous tax benefits that can help couples reduce their tax burden and maximize their financial well-being. From lower tax rates and higher deductions to access to family-related credits and estate tax benefits, marriage can provide significant advantages at tax time. Couples should take the time to evaluate their financial situation, consult with a CPA, and explore all the potential tax benefits of marriage to optimize their returns and ensure they’re taking full advantage of these opportunities.

by Kate Supino

Failing to file your taxes for several years can feel overwhelming. Whether you missed deadlines due to life circumstances, a misunderstanding of tax obligations, inability to pay your tax liability or simply procrastination, you may be worried about the consequences of not filing. You should be, because the IRS takes a dim view of tax evasion for any reason. But there’s good news, too. You don’t have to flee the country or look over your shoulder for the rest of your life. It’s always possible to resolve the issue and get back on track. 

Understanding the Consequences of Failing to File

Once you start thinking about getting back on track, make haste to do it. Right now. Contact your CPA to start the process, because if the IRS catches up with you beforehand, you may have a hard time. Well, you will have a hard time. People have even gone to jail for not paying taxes. But let’s not think about that right now.

Accumulated Penalties and Interest

When you don’t file, the IRS may charge a failure-to-file penalty. This penalty typically starts at 5% of the unpaid taxes for each month your return is late, with a maximum penalty of 25%. As if that wasn’t enough to ruin your day, interest accrues on unpaid taxes from the time they are due until the full amount is paid. 

Loss of Refunds

If you're owed a refund but fail to file your return within three years, the IRS may not issue the refund. This means you could lose out on money that is rightfully yours. Filing late can still allow you to claim your refund, but only within that three-year window. This may sound like some kind of punishment your parents might have doled out for coming in late after a night out, but really, three years is kind of reasonable. 

IRS Enforcement Actions

The IRS has various tools at its disposal to collect unpaid taxes. If you haven’t filed in several years, they could take enforcement actions such as placing a lien on your property, garnishing your wages, or even levying your bank accounts. In extreme cases, criminal charges can be filed, though this is rare and typically reserved for individuals who willfully evade taxes.

Step 1: Gather Your Documents

The first step in getting back on track is to gather all the necessary documents to file your tax returns for the missing years. This might take some time, because you’ll need records of your income, including W-2s, 1099s, and any other sources of income during those years. Additionally, make sure to collect documentation for any deductions, credits, or expenses you can claim, such as mortgage interest statements, receipts for charitable donations, and medical bills.

You may have to get creative with this process, thinking about where you can access all those records. But if you don’t have all the paperwork, the IRS may help you retrieve some of this information. You can request a transcript of your earnings from the IRS, which includes wage and income information that the IRS received from your employers and other income sources. 

Step 2: File for Each Missing Year

The next step is to prepare and file your tax returns for each missing year. It’s a good idea to consult your CPA at this stage, as they can help ensure accuracy and identify any deductions or credits you may have overlooked. 

If you're unable to pay the full amount owed right away, file the returns anyway. Filing your returns stops the failure-to-file penalties from growing. 

Step 3: Communicate with the IRS

Reaching out shows the IRS that you are serious about resolving the issue and can help you avoid more severe enforcement actions. If you owe back taxes and can't afford to pay them all at once, there are several options available:

Payment Plans

The IRS offers installment agreements that allow you to pay your tax debt over time. You can apply for a short-term payment plan (up to 180 days) or a long-term payment plan (monthly payments). These plans come with interest and late payment penalties, but they can provide relief if you’re unable to pay your balance immediately.

Offer in Compromise

In some cases, the IRS may agree to settle your tax debt for less than the full amount owed through an Offer in Compromise (OIC). To qualify, you’ll need to prove that paying the full amount would cause financial hardship or that the total amount is more than you could reasonably pay. The OIC process is rigorous, so working with a tax professional will take a big load off your plate.

Currently Not Collectible Status

If your financial situation is dire, you may qualify for Currently Not Collectible (CNC) status. This means that the IRS will temporarily halt collection efforts due to your inability to pay. However, interest and penalties will continue to accrue during this time, and the IRS will review your financial situation periodically.

Step 4: Stay Informed and Seek Professional Help

Tax laws change frequently, and staying informed about updates can help you avoid future issues. For example, changes in tax credits or deductions may affect how much you owe or are entitled to claim. Regularly reviewing your tax situation, especially when significant life events occur (such as getting married, buying a home, or having children), can help ensure that your tax returns are accurate and up-to-date.

A tax professional can provide valuable advice and guidance, particularly if you’ve fallen behind on your taxes. They can help you navigate IRS procedures, maximize deductions, and represent you in case of an audit or other tax-related issues.

Falling behind on your taxes can be stressful, but it’s not a situation without a solution. By gathering your documents, filing for the missing years, communicating with the IRS, and taking steps to prevent future issues, you can get back on track. Whether you choose to handle the process yourself or seek professional assistance, the key is to take action sooner rather than later. With the right approach, you can resolve your tax issues and start sleeping at night again.

by Kate Supino

Renting out a vacation home can be a lucrative venture, but it comes with a complex set of tax rules that homeowners must navigate to remain compliant and maximize their financial benefits. Learn more about the essential aspects of vacation home rental rules, including clarity and guidance for prospective and current vacation home landlords.

Introduction to Vacation Home Rentals

Vacation home rentals have surged in popularity, thanks in part to platforms like Airbnb, VRBO, and others, facilitating easier access to a global audience of travelers. However, the income generated from these rentals isn't free from tax obligations, and the IRS has specific rules based on the usage pattern of the property.

Understanding the IRS Rules

The tax treatment of your vacation home depends on how often you rent it out and how much you use it personally. The IRS categorizes vacation homes into three groups based on usage: personal use, rental use, and mixed-use. Understanding these distinctions is crucial for tax purposes.

Personal Use Versus Rental Use

1. Personal Use: A property is considered used for personal purposes if you or any other owner uses the vacation home for more than 14 days or more than 10% of the total days it was rented at a fair rental price, whichever is greater.

2. Rental Use: If you rent out your property for more than 14 days a year and personal use does not exceed 14 days or 10% of the total rental days, the IRS considers your property a rental property. This designation significantly impacts your tax reporting and deductions.

Tax Implications and Reporting

1. Reporting Rental Income: All income received from renting out your vacation home must be reported on your tax return, regardless of the number of days rented.

2. Deducting Expenses: The ability to deduct expenses related to the rental depends on the classification of your property. Deductible expenses may include mortgage interest, property taxes, insurance premiums, maintenance costs, and depreciation.

Mixed-Use Vacation Homes

Properties that are used both as a personal residence and a rental property fall under the mixed-use category. For these homes, you must allocate expenses between rental and personal use based on the number of days used for each purpose.

Deduction Limitations and Rules

The IRS places limitations on deductions based on the property's classification. For properties considered personal residences, rental expense deductions cannot exceed rental income. However, for properties classified as rental properties, you can deduct rental expenses in full, subject to passive activity loss rules.

Special Situations and Exceptions

1. Renting for Less Than 15 Days: If you rent your vacation home for fewer than 15 days per year, you do not have to report the rental income, nor can you deduct any expenses as rental expenses.

2. Real Estate Professional Status: If you qualify as a real estate professional under IRS rules, different tax benefits and deductions may apply, potentially allowing you to deduct rental losses against other income.

Keeping Accurate Records

Maintaining meticulous records is vital for vacation home owners. Keep detailed logs of rental and personal use days, along with receipts and documentation for all expenses. This documentation is crucial for tax reporting purposes and in the event of an IRS audit.

Leveraging Tax-Advantaged Strategies

1. Depreciation: Depreciation can be a significant deduction for rental properties, allowing you to recover the cost of the home over time. Understanding how to calculate and claim depreciation is essential for maximizing your tax benefits.

2. 1031 Exchange: Under certain conditions, you may be eligible to defer capital gains taxes if you sell your vacation rental property and reinvest the proceeds in another rental property through a 1031 exchange.

Consulting with a Tax Professional

Given the complexities of tax rules surrounding vacation home rentals, consulting with a CPA or tax advisor is advisable. A professional can help you navigate the tax implications, ensure compliance, and strategize for tax efficiency based on your specific circumstances.

Rental Agreements

Clear, detailed rental agreements are essential for managing guest expectations and protecting the homeowner's interests. These agreements should outline rental terms, house rules, cancellation policies, and any other conditions of the stay. A well-crafted agreement can help prevent disputes and ensure a smooth rental experience for both parties.

Renting out a vacation home offers a valuable opportunity to generate income, but it requires careful attention to tax rules and regulations. By understanding the IRS's classification of your property and the associated tax implications, you can make informed decisions that maximize your rental income and minimize your tax liability. Accurate record-keeping, strategic tax planning, and consultation with tax professionals are key components to successfully navigating the vacation home rental landscape. Whether you're a seasoned landlord or considering renting out your vacation home for the first time, a comprehensive understanding of these rules will equip you with the knowledge needed to make the most of your investment.

by Kate Supino

More people are engaging in remote contract work than ever before. Remote contract work offers almost as many advantages to workers and companies as full-time employment. However, this sea change from traditional in-house work to remote contract positions not only alters the way work is done, but also affects both the tax obligations and opportunities for workers. The tax implications of remote contract work are complex, so the advice of a CPA is strongly recommended. In general, however, here is a broad outline of those implications.

What is the Tax Status of Remote Contract Workers?

Remote contract workers are not considered employees, according to the IRS. In many cases, their tax status is “independent contractor.” As an independent contractor, there are certain tax obligations that the worker shoulders themselves. This includes paying both income tax and self-employment tax, which covers Social Security and Medicare contributions.

How Does the IRS Define Independent Contractor?

The IRS carefully outlines the definition of an independent contractor in the tax law. The status is mainly defined by the level of control the company has over the worker in terms of behavioral control, financial control and the type of relationship between the parties.

Behavioral control refers to whether the company directs or controls how the worker does the task(s). Included in this is the degree of instruction, evaluation systems and training.

Financial control references whether the business has a right to control the economic aspects of the worker's job. It includes factors like the extent of the worker's investment, the degree to which the worker can realize a profit or incur a loss, and how the worker is paid.

Type of relationship includes things such as written contracts, provided benefits, permanency, and extent of services in relation to being a key aspect of the business of the company.

You can find the IRS definition of an independent contractor here. The reason it’s important to know if you are an independent contractor is because it directly impacts how you pay taxes and how much taxes you’ll pay. Consult with your CPA for details.

Tax Implications of Remote Contract Work

The many tax implications of remote contract work include the following:

Making Estimated Tax Payments

One of the key responsibilities of an independent contractor is making estimated tax payments on a quarterly basis. Since taxes aren’t withheld from their income, remote contract workers need to calculate and pay estimated taxes to the IRS four times a year. These payments cover income tax and self-employment tax and are due in April, June, September and January of the following year.

Failing to make these payments, or underestimating the amount due, can lead to penalties and interest charges. It's crucial for remote contract workers to keep accurate and detailed records of their income and expenses to make precise calculations. This is why many remote contract workers rely on a CPA to calculate and submit their quarterly tax payments.

Home Office Deductions

Many remote contract workers operate from a home office. The IRS offers a home office deduction that can be valuable for such workers. To qualify, the space must be exclusively and regularly used for business purposes. This deduction allows for certain expenses related to the home office to be deducted, such as a portion of rent or mortgage interest, utilities, and insurance.

There are two methods for calculating this deduction: the simplified option and the regular method. The simplified option offers a standard deduction based on the square footage of the home office, while the regular method involves more detailed accounting of actual expenses. Deciding which method to use depends on various factors, and a CPA can help determine the most beneficial option, depending upon your individual circumstances.

Deductible Expenses
In addition to the home office deduction, remote contract workers can deduct other business-related expenses. Maintaining detailed records of these expenses is crucial for accurate deduction claims. These may include, but are not limited to:

Equipment and supplies needed for work
Software subscriptions and online tools
Business-related travel and mileage
Professional development, such as courses or conferences
Health insurance premiums, if not eligible for a spouse’s plan

State and Local Tax Considerations

Tax obligations can vary significantly based on location. Remote contract workers need to be aware of the state and local tax laws that apply to them, especially if they work across state lines. This can complicate tax calculations and filings, making the advice of a CPA even more valuable.

Helpful Tips For Remote Contract Workers

Being a remote contract worker feels like freedom, but it can also feel very isolating. Here are some helpful tips as far as tax implications:

Keep all receipts - You may not be aware of all the tax deductions you’re entitled to. Keep all your receipts so that you can quickly reference the details of expenses in case your CPA finds something that you can or cannot deduct. Most people find that simply taking a picture with their phone or scanning receipts into a folder works better than having a drawer full of paper receipts.

Save for tax payments - Remember that all the money you receive from your client(s) isn’t yours; some of it belongs to the government. You could be in for a shock if you find that you don’t have enough left over to make your estimated tax payment. Consider putting a percentage of your income payments into a savings account, so you can be sure to have the money available come tax time.

Be diligent about saving for retirement - There are advantageous retirement savings plans you can still participate in as a remote worker. Your CPA might have some ideas. Just because you’re a contract worker doesn’t mean you have to have a lean retirement account.

As a remote contractor worker, you’re in a unique position as far as your taxes. Your CPA will be an invaluable resource as you navigate all the ins and outs of this role.

by Kate Supino