Year-end transactions to boost your tax refund

year-end transactions to boost your tax refund

As the end of the tax year approaches, it is probably time to start thinking about year-end transactions to boost your tax refund. Of course, it is a good idea to manage your income and expenditures throughout the year in such a way as to ensure the best possible tax breaks. However, when you come towards the transition from one year to another, it is important to time your transactions carefully so as to lower your tax bill. Here are some tax refund tips to help you. 

Lower your tax bill with careful timing

It is possible to minimize taxes year-to-year by making certain payments at just the right time. It is important to know when to make payments to increase expenses and tax deductions and push receipts to create income at the end of the tax year. As a rule of thumb, you want to move income into a year of lower taxes and move expenses into a year of higher taxes. 

Timing payments at year-end

The usual strategy for a small business is to lower the current year’s taxes by deferring income and prepaying expenses. However, this may not be the right path for everybody. If you are going to be in a higher tax bracket for the following year, then it might make sense to take the opposite approach. 

Expenses that can lower your tax bill 

If you are looking for some readily available ways to decrease your tax liability for the current year, you can consider making some or all of the following expenditures, which you can deduct against your income taxes.

  • Deductible gifts and donations
  • Purchase assets – you can deduct against the depreciation on these assets
  • Pre-pay some of the next year’s expenses. That way, you can deduct the expense for the current tax year.

You can also delay income to next year so that you are not liable to be taxed on it in the current tax year. This does not mean receiving a check and then only cashing it next year – you have still received that payment. The way to delay income is to hold off on sending bills to clients until the start of the next tax year.

The assistance of an experienced certified public account (CPA) can help you lower your tax liability easily and legally. Georgen Scarborough is a firm of CPAs based in Vienna, Virginia. Contact us if you need tips on year-end transactions to boost your tax refund.

3 Key Skills to Look for in an Accountant

1-3 Key Skills to Look for in an Accountant

Your accountant is going to know every little detail about your finances – a topic that is considered taboo in polite society! How on earth do you choose someone who you need to trust with your short and long-term goals, your legacy, your compliance with tax legislation, your business’s financial performance, and more?

Being in this business has taught us that there are three major skills a great accountant has:

1. CPAs Know the Accounting Basics

This seems too obvious to state, but the accountant must know the basic principles of the profession. A great example is the matching principle. This principle states that the related revenues and expenses must be matched in the same period to link the costs of an asset or revenue to its benefits.

Another is the convention of conservatism, or doctrine of prudence. This is a policy of anticipating possible future losses but not future gains. It states that when choosing between two solutions, the accountant should select the one that will be least likely to overstate assets and income.

2. CPAs Know Tax Regulations Backwards and Forwards

There’s no quicker way for a business to fall on hard times than to run afoul of tax regulations. Tax laws differ from state to state and so it is critical that your accountant is entirely familiar with the tax legislation that is in effect where your business is registered and derives most of its income.

Not only will this keep you out of trouble, but it could also be to your company’s benefit as there may be credits and other advantages of which you are unaware. A good accountant will have a thorough knowledge of the best business practices for your field to ensure tax optimization.

Certified public accountants are as well-versed in tax regulations and loopholes for individuals’ needs.

3. CPAs Provide Customer Service

The old stereotype of an accountant has long ceased to exist in real life. Gone are the days of colorless old men entering numbers into huge books with their sharp pencils. The world of accounting has become exciting and has attracted bright and interesting professionals.

Your accountant needs to interface with the Board of your business and understand the work that you do as well as the people that you are. They also need to understand your goals and the legacy you would like to leave. The financial side of your life should be a joy and not a grudge.

Certified Public Accountants

Discover what superior accounting professionals can do for your business. Contact Georgen Scarborough Associates, PC to help you navigate your personal and business finances.

President Biden’s proposed tax laws – what they mean to you

1-How are President Biden’s tax laws likely to affect you_

How are President Biden’s tax laws likely to affect your finances for the next four years?

When he was on the election trail in 2020, the president made his tax policy quite clear in a series of statements and speeches. Even before he spelled out the specifics, it was apparent which way his administration would go: higher taxes for corporations and the very wealthy and some much-needed relief for everybody else. Now that he is beyond his first 100 days, it is time to look at how these general policy statements will translate into actionable laws and how they will affect you. Here are five of the most important tax plans that the Biden administration has in store:

1. Higher maximum rate

Biden said that he would raise tax rates on all individuals earning more than $400,000 a year. In more concrete terms, the top individual tax rate on ordinary income has increased to 39.6% from the 37% rate that has been in effect since 2017. So, if you fall into that tax bracket, you can expect to pay 2.7% more on your federal taxes.

2. Itemized deductions

The president intends to limit the tax benefit of itemized deductions to 28% for high-income individuals. This means that, if you fall into the 39.6% tax bracket, every dollar of allowable itemized deductions will reduce your tax bill by no more than 28 cents.

3. New credits for home buyers

Eligible first-time homebuyers are set to be entitled to a new refundable tax credit of the lesser of 10% of the purchase price or $15,000. A major plus is that qualified individuals can collect the credit at the time of the purchase of the home, rather than waiting until they file their tax returns.

4. Increased corporate federal income tax

The Tax Cuts and Jobs Act (TCJA) of 2017 reduced the corporate income tax rate from a maximum of 35% to a flat 21%. The Biden administration will not return this rate to its pre-TCJA level, but will raise it to 28%.

5. Increased child and dependent care credits

The Biden tax plan includes provisions to double the minimum refundable child care tax credit from $2,000 to $4,000 for one child. This applies to families earning less than $125,000 a year. Families that earn between $125,000 and $400,000 per year will receive reduced credits.

There are several other tax reforms forthcoming from the Biden administration. To understand how each of them affects you (or doesn’t, as the case may be), you should enlist the help of certified public accounts. Based in Vienna, Virginia, Georgen Scarborough helps individuals, families, estates, and trusts to manage their tax affairs. Contact us for more information on our services and how we can assist you with your taxes in light of President Biden’s new tax laws.

What Tax Bracket Am I In?

federal income tax brackets

Did you know that there are a whopping seven different federal income tax brackets and that each one has its own marginal tax rate?

Determining which tax bracket you are in is dependent on your 2020 taxable income and your filing status, i.e. Single Filer, Married Couples Filing Jointly or Separately, Head-of-Household Filer.

Tax Bracket Table 

The table below refers to the 2020 tax brackets:

  Taxable Income in US$
Tax Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% Up to $9,875 Up to $19,750 Up to $9,875 Up to $14,100
12% 9,876 – 40,125 19,751 to 80,250 9,876 to 40,125 14,101 to 53,700
22% 40,126 – 85,525 80,251 – 171,050 40,126 – 85,525 53,701 – 85,500
24% 85,526 – 163,300 171,051 – 326,600 85,526 – 163,300 85,501 – 163,300
32% 163,301 – 207,350 326,601 – 414,700 163,301 – 207,350 163,301 – 207,350
35% 207,351 – 518,400 414,701 – 622,050 207,351 – 311,02 207,351 – 518,400
37% Over $518,400 Over $622,050 Over $311,025 Over $518,400

It’s Not as Bad as It Seems 

Before you calculate the appropriate percentage of your income – take note that it is not a straightforward flat rate, which works in your favor.

For example, a single person with a 2020 taxable income of $100,000 does not pay ($100,000 x 24% =) $24,000. Rather, the taxable income is broken down into the applicable tax brackets that would have applied as your income accumulated:

The first $9,875 of your income is taxed at the 10% rate = $988.

Next you work out the difference between the top figures in the following rates. In this case, $40,125 – $9,875 = $30,250. That amount falls into the 12% rate, totaling ($30,250 x 12% =) $3,630.

Keep going: $85,525 – $40,126 = $45,400. That amount falls into the 22% rate, totaling ($45,400 x 22% =) $9,988. The final step is: the difference between your total income and the bracket maximum, i.e. $100,000 – $85,525 = $14,475. Only that amount will be taxed at the 24% rate = $3,474.

Add up all the tax amounts ($988 + $3,630 + $9,988 + $3,474) and your total due is $18,080. ($5,920 less that a flat rate of $24,000)

If you are still confused about which tax bracket you are in, or for any other tax tips, visit our website or contact the tax experts at Georgen Scarborough today.

Four ways to improve your financial statements

Financial Statement

Financial Statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance, and liquidity of a company. The financial statements are used by investors, market analysts, and creditors to evaluate a company’s financial health and earnings potential.

How to enhance the usefulness of your financial statements

  1. Consider the format of your financial statements. This tiny detail can make a tremendous difference. Providing investors with easy-to-read financial information in the financial statements is essential to achieving your objective of capable, confident, and well-informed investors.
  2. Make sure to include an operating and non-operating presentation. It is important to consider the effects of both operating and non-operating components of the income statement. Due to the material nature of non-operating items, they are typically reported separately from operating items in a company’s financial statements.
  3. Review peer organizations’ financial statements for best practices. A review of other organizations’ financial statements is a great place to start when updating your own.
  4. Modify your footnotes. Financial statements are easier to read and understand when you identify what information is relevant to your investors, prioritize it appropriately, and present it in a clear and simple manner. In some cases, this includes additional information that is useful for investors and, in other cases, removing information that is immaterial.

Financial statements are intended to provide investors with information that is useful for making investment decisions. These statements need to be updated annually and should be prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). 

Contact Georgen Scarborough Associates today for information on how we can help you with your financial statements. 

Business accounting strategies for bank reconciliation

Bank reconciliation

Bank reconciliation is what happens when your business needs to prove or document its account balance. It is the comparison of your monthly bank statement to your internal accounting records. Sometimes these balances do not match and the business needs to identify the reasons for the discrepancy and reconcile the differences.

How to deal with discrepancies when doing bank reconciliation 

There are three reasons why your bank statement and accounting records might disagree. 

  1. Omission. This refers to transactions that appear on the bank statement, but have not been recorded in the accounting records. Such as a customer payment that has bounced, interest received, bank charges and bounced checks. The difference needs to be eliminated by adjusting the company’s accounting records before the preparation of bank reconciliation.
  2. Timing differences. This refers to transactions that are recorded in the bank statement and the accounting records in different periods. For example, an outstanding check which you send to your supplier, but it doesn’t get cashed until the following month. Another timing difference is a “deposit in transit” which is used to categorize monies that have been received but have not yet cleared the bank. Keep track of timing differences that may otherwise cause difficulty in reconciling the company’s cash balance on its financial statements to its monthly bank statements.
  3. Errors. The last reason is accounting errors such as missing receipts, making an entry twice, entering the incorrect number, and neglecting to add interest earned. The best way to correct errors in accounting is to add a correcting entry. A correcting entry is a journal entry used to correct a previous mistake.

For assistance with your bank reconciliation, contact Georgen Scarborough today. Georgen Scarborough is a full-service accounting firm that can customize a suite of accounting and financial management services, such as bank reconciliation, tailored to your needs.

The effects of business restructuring on your financial statements

business restructuring

The economic global impact of the COVID-19 pandemic has been disastrous. It has caused a slowdown in global trade, disruption in supply chains, and changed tourism flows. Over three million Americans filed for unemployment benefits as COVID-19-induced layoffs increased around the US. The full repercussion of COVID-19 and the subsequent lockdown may only be properly understood once all this has passed. 

The impact by industry varies as every finance function has to consider the unique aspects of the company’s financial statements along with their ability to produce quality financial reports with workforces that may be distributed and disconnected due to health and safety considerations.

A company may choose to restructure as a means of preparing for a sale, buyout, merger, change in overall goals, or transfer to a relative. 

Renegotiating financial contracts helps businesses that are short of cash in two ways. First, it allows them to realign the financial and contractual burden associated with their financial obligations so that it matches their current values and cash flows. Second, it facilitates the addition of new capital into the business.

What costs are involved when restructuring your company?

Restructuring Cost refers to the one-off expenses which are incurred by the company in the process of reorganizing its business operations with the purpose of the overall improvement of the long-term profitability and working efficiency of the company and are treated as the non-operating expenses in the financial statements.

The following restructuring costs are considered when calculating restructuring charges:

  • Furloughing of employees 
  • Closure of existing manufacturing plants
  • Shifting of company assets 
  • Writing off or sale of assets
  • Purchasing of new equipment
  • Diversifying business into a new market

To learn more about business restructuring contact Georgen Scarborough to schedule your consultation.

Help from an accountant when filing for bankruptcy

bankruptcy

Bankruptcy can happen to anyone and is not necessarily due to financial irresponsibility. It is often due to job loss, divorce, illness, to name a few. Many people worry that bankruptcy will be a permanent or long-term setback, which is not the case. Your credit score can change in just two to three years after your discharge (most people are discharged after 9 months; however, the bankruptcy will show on your credit history report for 6 years after that date). Bankruptcy

Bankruptcy provides a financial fresh start by eliminating debt that you may have struggled for years to repay. A Certified Public Accountant can help you with areas that your attorney may not be sure about, such as: determining eligibility and discharge, knowing exactly when you should file, procure an offer in compromise, and represent you to the IRS.

What documents do you need when filing for bankruptcy?

Chapter 7 and Chapter 13 bankruptcy are the two most common programs you can use to reduce or eliminate your debt. The documents are the same for both, with slight variations. Make sure to check the guidelines provided by your state and your bankruptcy trustee. You will also be required to present the following documents:

  • Tax returns
  • Income documentation
  • Proof of real estate fair market value and mortgage statements
  • Vehicle registration, proof of value and insurance
  • Retirement and bank account statements
  • Identification
  • Other documents (child support, alimony, etc.)

By law, you are also required to complete a credit counseling class and obtain a certificate before you can file for bankruptcy. 

Bankruptcy is a serious decision and we do not want you to have any surprises along the way. Contact Georgen Scarborough Associates today should you have any questions regarding bankruptcy.

The PATH Act explained by GSACPA

The path act

According to the IRS, the Protecting Americans from Tax Hikes (PATH) Act was enacted in 2015. This act extends to various aspects that taxpayers should be aware of, including changes to legislation that regulate taxes and extending some laws that would have expired. The act aims to protect taxpayers against fraud. It includes provisions that may affect the taxpayer credits of individuals and businesses. This guide will take a look at those aspects. The path act

What taxpayers need to know about the PATH Act 

The PATH Act extends expired tax laws and introduced new regulations to reduce fraud and to ensure that Americans get the correct refunds from the IRS. The PATH Act now addresses regulations governing Additional Child Tax Credit (ACTC), Earned Income Tax Credit (EITC), and Work Opportunity Tax Credit (WOTC). Although the act may not change the amount of your return or when you receive your refund, it does ensure that certain tax credits are monitored more closely.

The most important aspect to recognize is that the PATH Act will not change how you complete your tax return. Although early filers may experience some delays, these delays afford the IRS opportunities to counteract possible tax fraud.

Key aspects of the PATH Act

Under the Act, some taxpayers who file early for Additional Child Tax Credit (ACTC) or Earned Income Tax Credit (EITC) may receive their refund later. These taxpayers could have to wait until after the 15th of February to receive a refund. The delay allows the IRS to verify information that can help to reduce tax fraud. All pending refunds should be released from the 15th of February, so if you don’t receive your refund within 4-6 weeks after the 15th of February, you may want to visit the IRS website to find out about the delay. 

The Act has retroactively extended the Work Opportunity Tax Credit (WOTC). This is a credit for employers who hire workers from target groups faced with barriers to employment. 

If you’re still unsure about any part of the PATH Act, or if you need more tax tips, visit our website or reach out to talk to a tax expert about your tax refund. 

Tax Tips for Summer Jobs from Georgen Scarborough

When you think of your summer job, or if you’re starting as an entrepreneur, taxes might not be at the top of your priority list, so here are tax tips that you need to keep in mind. This guide from Georgen Scarborough Associates, PC will help you to make the most out of your summer earnings without getting into hot water with the taxman.

Tax Tips for Summer Jobs and Entrepreneurs from Accounting Service Experts summer

Understand your type of income 

How your income is classified will have a significant effect on your taxes, so it is essential to understand whether you are self-employed, or if a business or company actually employs you. 

There are many forms of self-employment, including being an independent contract worker that performs services such as babysitting, cleaning services, dog walking and many more. Skilled workers such as writers, photographers and designers can also be self-employed as freelancers. The basic premise of self-employment is that you have the power to decide on work you accept, clients you want to work with and the terms of the contract. 

If you’re self-employed, your income will be reported on Schedule C or Schedule C-EZ (profit or loss from business). Self-employed taxpayers can claim business expenses that you may not even be aware of, and that differ from industry to industry. That is precisely why you need the services of a certified public accountant who knows the rules and understands the laws surrounding tax expenses and claims for different industries. 

If you are an employee of a business, your employer will deduct tax from your paycheck, instead of you having to pay estimated taxes to the IRS every year. 

Reporting Income 

Regardless of your employment status (whether you are self-employed, or employed by a company), you will have to report income from all sources on your tax return. There is a threshold for income that you need to cross before you start paying taxes, but even if you don’t cross the limit, you still need to file a tax return. When reporting your income, remember to include income from any side jobs, self-employment opportunities as well as formal employment. 

A source of income that is often overlooked is barter income. This is a form of income where you are paid in goods or services in exchange for the work that you do. For example, if you spend time teaching someone’s child to swim, and they give you a gift card to get your car washed at their car wash business, it is considered income from self-employment and needs to be reported. 

File your tax return 

You should always file a tax return, no matter your income. Sometimes, your income won’t exceed the minimum gross that is set for filing requirements, but even in such an event, you may still want to file if taxes have been withheld from your pay. Your tax return may entitle you to claim money back, or it generates a tax refund if you’re eligible for a refundable tax credit such as the Earned Income Tax Credit or the American Opportunity Tax Credit. 

Although you need not know all the tax rules, if you are self-employed or an independent contractor, you need to keep a record of your income and expenses such as mileage, and materials purchased to perform your job. To make it simple, use a service such as QuickBooks so your information can be exported at tax time.

For more tax tips and information on your summer job taxes, contact accounting service experts, Georgen Scarborough Associates, PC. today.