Income tax Archives - Georgen Scarborough Associates

How contributing to your retirement can reduce your taxes

04 Jan 2022
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Individual Tax Preparation
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In today’s economic climate, saving to secure your financial future is essential. Contributing to a retirement plan is a tax-efficient, tangible goal that will help ensure that you can live comfortably in your golden years. This blog will cover the tax benefits you can achieve from contributing to a 401(k).

Tax Benefits of a 401(k)

The 401(k) came about somewhat accidentally. Congress passed the Revenue Act of 1978 (in that same year), which included a provision – Section 401(k). This provided employees a tax-free way to defer compensation from bonuses or stock options. Since the law went into effect on 1 January 1980, it has become one of the most common retirement plans in the United States—along with Individual Retirement Accounts (IRAs).

There are two versions of this employer-sponsored retirement plan. Both offer tax benefits. However, each is taxed differently:

The tax-deferred 401(k) – which has several variations
The Roth 401(k) – which was introduced in 2006

If an employee signs up for a 401(k), they agree to have a portion of each paycheck paid into an investment account. The person’s employer can then match the employee’s contribution in part or in full.

The tax-deferred 401(k)

A traditional tax-deferred 401(k) plan has the following key tax benefits:

You could pay less income tax. Because your “pre-tax” dollars make up your contributions, you will be lowering the amount of income you need to pay taxes on.
Contributions and earnings are tax-free until withdrawal. No taxes are due on the monthly contributions or the earnings your savings accrue. You are only taxed when you withdraw the money (usually in retirement)

The Roth 401(k)

A Roth 401(k) has the following key benefits:

No taxes are due when you withdraw. Unlike a traditional 401(k), contributions to a Roth 401(k) are deducted from an employee’s after-tax income. After paying your income taxes, you can deduct your pension. No additional taxes are due on your contributions or earnings when you withdraw the money in your retirement.
Taxpayers have the option of funding both a Roth 401(k) and a tax-deferred 401(k).

With the Saver’s Credit, formally called the Retirement Savings Contributions Credit, your contributions to a qualified 401(k) could lower your tax bill more depending on your income and filing status.

Georgen Scarborough Associates, PC, is an organization of certified public accountants that can provide tax preparation for individuals, families, estates, and trusts. For assistance with your taxes, contact us today at (703) 319-3990 or email us at kathy@gsacpa.com to learn more about what we can do for you.

Tax Laws That Can Save You Thousands

02 Mar 2021
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Business Tax Preparation, Individual Tax Preparation
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Tax laws are continually changing, and it’s essential to be aware of all the new regulations, so you file your income taxes correctly and efficiently. By taking advantage of all new tax laws, you can potentially save thousands of dollars on your next tax return. Here are three of the recent income tax changes for the 2020 tax year that will affect many American taxpayers when they file their next return.

Recovery Rebate Credits

The first round of stimulus payments ($1,200 single, $2,400 for couples), along with the second round ($600 per person) are tax free. These Recovery Rebate payments will not add to your 2020 taxable income. As these payments were technically advanced payments, you will have to calculate the amount you should have received. If you are owed more, you can get the difference back in the form of a refund, or a lower tax bill. Best of all, if you were overpaid, you will not need to repay the difference!

Sick and Family Leave Credits for Self-Employed

The new Families First Coronavirus Response Act has tax relief for self-employed people who couldn’t work due to coronavirus. Self-employed people might qualify for tax credits if they were unable to work for a reason that would have allowed them to claim coronavirus-related sick or family leave had they been an employee.

Boost Your Retirement Savings

For those saving for retirement, the IRS has increased the employee contribution limit for 401(k), 403(b), and most 457 plans to $19,500, from $19,000 in 2019. For those over 50, the catch-up contribution limit has been raised to $6,500, from $6,000 in 2019.

Not being aware of changes in income tax laws could have you leaving thousands of dollars on the table. To make sure you maximize your refund, consider having your taxes done by a professional tax expert who will know all the relevant tax laws for your situation.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts as well as other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.

Tax Tips for First-Timers

01 Mar 2021
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Business Tax Preparation, Individual Tax Preparation
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Whether you have just reached adulthood, or are a new resident in America, the first time you file your income tax return can be a daunting experience. Here are some tips to help you through the process.

Do I even need to file a tax return?

It’s possible that if your income is below a certain amount, you will not need to file an income tax return. However, if you want to claim any refundable tax credits, or get a refund for any income tax withheld from your paycheck, you must file a tax return.

Make sure you have all your tax documents

Before you start, make sure you have all your tax documents ready. These can include:

W-2 (Wage and Tax Statement)
1099 (Income other than employment income)
Educational expenses
Supporting documents such as receipts

What forms you need will depend on your individual circumstances, so think about things that could impact taxes like any change in your job, selling stocks or other investments, opening retirement accounts, or medical expenses.

Remember all your side income

If you have earned income from freelancing work like rideshare driving or deliveries, don’t forget to report that income on your tax return. You can often deduct expenses related to your work like maintenance costs to your car, insurance, supplies etc.

Claim all your relevant deductions and credits

Deductions and credits can lower the amount of tax you owe or increase your refund, but you must file and claim them to take advantage of these. Common deductions for first-time filers include:

Education credits
Student loan interest deductions
Home office deductions for self-employed people

Choose how to file

There are many ways to submit your income tax return. You can go old-fashioned and file by paper through the post office, but if you want your refund quickly, you should consider filing online or having your taxes done by a tax preparation service.

At Georgen Scarborough Associates, PC, we provide various accounting and tax services to people in Virginia, Maryland, and District of Columbia (DC). We provide tax preparation services for individuals, families, estates and trusts, and other accounting services. If you need help or advice filing your tax return, please contact one of our tax preparation experts today.