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.

Best Practices for Tax Preparation for Small Business

Small business tax

It is not easy to run a small business! You have to ensure that you follow all regulations as well as satisfy all small business tax requirements. This can be particularly stressing during tax season and at the end of the financial year. Good business practice is important to manage and grow your business. Good practices can lead to more income if you want to sell your business in the long term or if you need to secure financial assistance. We have a checklist to ensure your tax preparation for your small business goes smoothly.  

Ensure your financial records are up-to-date 

It’s important to ensure all of your financial  records are kept up-to-date so that you reduce stress on yourself and your staff at the end of the financial year. Ask for regular reports and statements of all activity that occurs in your business. These include all tasks and their due dates, financial statements which include profit and loss statements and balance sheets. These financial statements will also help the quality of your business by helping you evaluate where your business needs improvement so that you implement the necessary changes. 

Monitor your payroll

It doesn’t matter what system you use for payroll, as long as it is done correctly and timely, preferably by a professional. You need to ensure that your payroll is up-to-date as the IRS requires filings every quarter. It also gives your business a good credit record which is advantageous to you in the long term with potential investors or banks. 

Properly classify your business 

Is your small business a Limited Liability Company (LLC), Corporation or Sole Proprietorship? Each classification has different regulations and tax requirements. Ensuring that your business falls under the correct category, and is classified by this, can save your business from paying extra on taxes. A good accountant can help you out with classifying your business and saving you the money you deserve. 

Sort out any personal affairs 

This is where the importance of adequate record keeping matters the most! Make sure any personal affairs are taken care of and that you are not leaving out deductions before filing for taxes. This will help you to avoid putting yourself at risk for an audit at the end of the financial year. It may be difficult for you or your staff to keep track of deductions throughout the year, especially if you have falling behind. This stresses the importance of an accountant to help you track your finances and to make your business life so much simpler. 

Hire the best accountant 

When it comes down to your small business tax preparation, you need to be sure that your forms are accurately filled. An expert accountant can help you to track your income and expenditure throughout the year so that your small business is prepared when tax season arrives. This reduces stress and time on you and your staff, as well as fulfilling your business’s statutory requirements. A good accountant should be one that specifically listens to you and your business needs, makes use of the best accounting software and has expert knowledge on the latest regulatory tax requirements. 

Georgen Scarborough Associates makes your small business tax preparation easier 

Good business practice ensures that your small business is a success and that everything runs smoothly when it comes to tax season, without legal implications. You are going to need a professional accountant to guarantee your business is a success and that your tax preparation is promptly taken care of. 

Our expert accountants at Georgen Scarborough Associates give each client the personal attention they deserve by providing quality service. We provide tax preparation for small businesses, help with your financial statements and audits, payroll services and analysis for your business. There is nothing we can’t handle! 

Using the latest technology and best accounting software for your small business tax, we can keep track of your financial position, properly classify your business and balance your accounts. This will help your small business to save money, prevent any legal issues from arising, and evaluate any weak points in your small business that needs improving. We do not just help you with your accounts, we help you to grow a legacy! 

For more information on tax preparation and practices for small business, contact us 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.

Are children’s summer camps tax deductible?

summer camp

Did you know that summer camp expenses are tax-deductible in some cases? During summer, many American children spend time at camps of various kinds. Although these recreational camps may be rather expensive, you might be able to get a tax credit for these expenses. Let’s take a look at the conditions under which you can claim summer camp expenses on your tax return:

Conditions under which summer camps can be tax-deductible: summer camp

When the camp functions as daycare

If you send your children to summer day camp, you should be able to deduct expenses under the provisions of Child and Dependent Care Credit. This is valid for children under the age of 13 at the end of the relevant tax year. For disabled dependents, there is no age limit. The reasoning behind this condition is that you are not sending your children away merely for their pleasure, but you are putting them in the care of other responsible guardians who can look after them while you are working. 

If there is no one in the household to care for the children at home when school is out 

If your spouse or partner is at home and can take care of the children when they are not in school, you won’t be able to claim these tax deductions. If you and your spouse or partner are both at work or school, then you may qualify for tax credit or deductions. 

They have to attend camp at a real institution

Unfortunately, you can’t just send your kids over to play at the neighbors and qualify for tax deductions. To qualify, you need to make a payment to a recognized person, facility, or organization. When you do your return, you need to furnish details, including the address and identifying number.

The cost of transport isn’t automatically included in deductions 

Unless the transport cost is included in the fees, you won’t be able to deduct the costs expended on getting your children to and from the campsite or location. If the camp fee includes transport, then you may qualify for the tax credit. 

Did you know that you can get tax credits between 20% and 35% of what you spent on daycare? The tax credit you may qualify for depends on the number of children and your AGI (adjusted gross income). At Georgen Scarborough Associates, PC, we can help you to make sense of all these conditions and limits.

For assistance on your tax refund, contact our tax experts to discuss tax deductions and other tax tips.

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. 

Essential Tax Tips for First Time Tax Filing

tax filing tips

Need some tips on filing taxes for the first time? With these tax tips, filing your taxes for the first time can be a little less daunting.

relieve stress

Tax Tips for Filing Taxes

How you approach your filing can make all the difference between getting it done quickly and a massive tax headache.

Here’s how to make filing taxes easier:

Step 1: Gather all the information you will need, and keep it on hand while filing your taxes.

Step 2: Start the process early to avoid any penalties and deadline related anxiety.

Step 3: Use free resources to help you manage your filing and tax-related issues easily.

Free Resources to Help You With Filing Taxes

Your first stop for reliable, updated tax resources should be the Internal Revenue Service. This website (www.irs.gov) has resources to help out any tax filer, including those in the military service, individuals with disabilities, and seniors or retirees.

Resources also include an Interactive Tax Assistant (https://www.irs.gov/help/ita), various Tax Tools as well as links to the different forms and documents you will need.

More Tax Tips and Questions

Do I Need to File a Tax Return?

The answer will differ from one case to the next, but filing a tax return may be beneficial, even if you are not required to do so by law. If you’re unsure of the requirements, this resource (https://www.irs.gov/ forms-pubs/about-publication-501) can help you determine if you need to complete a tax return.

Can I File My Own Return or Do I Need Professional Help?

In many cases, you can file your taxes without professional help. If you only have a single income from formal employment or your tax status is unchanged (meaning that you didn’t get married or divorced, you didn’t acquire a business or make large investments) and you have a clear understanding of what your tax software requires from you, then you can file your own tax return. However, it is still a good idea to consult the relevant resources to guide you through the process.

You may need professional help with filing your taxes if you have more than one stream of income (from investments, a business, rental income, and the like.) or if you want to get a strategic plan together for structuring your taxes. If you don’t understand the process and you’re worried about making mistakes it is always advisable to get professional help with filing your taxes.

Which Dates Do I Need to Remember for 2020?

Visit our blog for all the dates that you need to remember for the 2020 tax season. Keep in mind that there are different dates for federal and state taxes.

At Georgen Scarborough Associates, PC, we are committed to giving each client personal attention to ensure that your tax preparation is handled quickly and efficiently. For more tax tips and information on our services, visit our website.

Child Tax Credit 2019: How to Qualify

child tax credit

As most parents in the USA are now aware, the dependency exemption of $4,050 has been eliminated. Thankfully, though, it is still possible to apply for various tax benefits and credits if you have children or dependents in your care. One of those benefits is the Child Tax Credit. Interested to know if you qualify to receive it? We have got all the facts below:

What Are the Qualifying Criteria? 

There are only four qualifying criteria when it comes to the Child Tax Credit for the tax year of 2019:

  1. You need to have at least one child in your care who is under the age of 17 at the endchild tax credit of the calendar year.
  2. You need to earn less than $400,000 per annum if you are filing jointly with your spouse OR less than $200,000 per annum if you are single and filing individually. 
  3. You need to have provided at least half of the child’s support over the course of the last year.
  4. The child needs to have lived with you for a period of at least six months over the course of the last year (there are some exceptions to this rule).

How Much Is the Child Tax Credit Worth for the Tax Year of 2019? 

You can get up to $2,000 per qualifying dependent child through the Child Tax Credit. Seeing that it is a tax credit rather than a deduction, it reduces your taxes dollar-for-dollar. Furthermore, up to $1,400 of the Child Tax Credit is refundable. In other words, it can take your tax bill right down to zero and you will still have the opportunity to get a refund on anything left over. child tax credit

If you have dependents living with you who are over the age of 17 but that still qualify as dependents (usually as a result of a disability), there is a $500 non-refundable credit that you can obtain via the Child Tax Credit benefit. 

Be sure to get in touch with the Certified Public Accountants at Georgen Scarborough Associates, PC, if you have any further questions about the Child Tax Credit and how to qualify.