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When to File Your Personal and Business Taxes Separately: A Guide for Small Business Owners

When to File Your Personal and Business Taxes Separately_ A Guide for Small Business Owners

When to File Your Personal and Business Taxes Separately: A Guide for Small Business Owners

December 3, 2022

When to File Your Personal and Business Taxes Separately_ A Guide for Small Business Owners

peakreliance

Accounting, Bookkeeping, Taxes

As a small business owner, there are many decisions to make and one of the most important is when to file your personal and business taxes separately. It’s important to take the time to understand the difference between filing taxes as an individual and filing taxes as a business. Doing your taxes correctly can help you save money, protect your assets, and make the most of the deductions and credits available to you. This guide will provide you with an overview of the pros and cons of filing your personal and business taxes separately, when it is beneficial to do so, and how to go about filing them. With this information, you can make the best choice for your business and ensure you are paying the right amount of taxes.

Overview of filing personal and business taxes separately

Filing taxes is an annual process designed to collect revenue for the government and make sure that everyone pays their fair share. In order to do this, the government uses a system of withholdings and deductions to ensure that their taxes are paid, taking into account income levels, filing statuses, and dependents. The system is designed to be straightforward and easy to understand: everyone pays the same amount of tax on the same types of income in the same way, allowing for a fair and even playing field. Small business owners fall into a slightly different category, however, and their taxes are handled slightly differently. Inside a business, there are two different types of income: the income earned by the business (profit), and the income earned by the individual owners (salary). Taxes are paid on both types of income, but they are calculated and handled in different ways. Filing taxes as a business collects all the business income and calculates the amount of tax that needs to be paid on this income. This is then deducted from the amount of money available to pay the owners. Filing taxes as an individual collects all the income that the owners earn, whether it is business income or personal income. The amount of tax due on this income is then calculated and paid on this amount. The business profit is paid on a different schedule, although some businesses are required to pay quarterly to avoid incurring penalties.

Pros and cons of filing taxes separately

There are both advantages and disadvantages to filing taxes separately for your business and yourself. Filing taxes separately for your business and yourself can help protect your personal assets from your business liabilities. This can be particularly useful for small business owners who are self-employed, such as contractors or freelancers, who don’t have the same level of insurance or protection as employees. Small business owners who file taxes as a business and a personal return can also receive a larger refund since they can claim more deductions from their business income. Filing taxes as a business means that all of your business expenses are tax-deductible, including things like health insurance, advertising and marketing costs, training fees, office equipment, and travel expenses. Personal expenses, such as groceries, clothing, and home utilities, are not.

When it is beneficial to file taxes separately

There are some scenarios when it is beneficial to file your taxes as a business and your personal taxes separately. One of the most common situations in which you might want to file your taxes separately is if you have significant self-employment income, such as from contracting, freelancing, or running a side hustle. This can help protect your personal assets from your business liabilities since business deductions will come off your personal income. You also want to file your taxes separately if you are taking a home office deduction. Since this deduction is based on your personal income, you will only be able to claim it if you file a personal return. If you are claiming a significant amount of deductions, such as for childcare or medical expenses, it can be beneficial to file a separate return for business if you will be receiving a larger refund.

How to file taxes separately

There are a few ways to file taxes separately for your business and yourself, but the most common way is to use a Schedule C form. The Schedule C form is used to calculate the amount of profit your business made during the year and determine what percentage of that amount is due in income tax. If you have significant business expenses, you can also file a Schedule C-EZ form. This is a simplified version of the Schedule C form and is appropriate for businesses with very little expenses.

Deductible business expenses

Business owners can deduct a variety of expenses when calculating their taxes, such as advertising and marketing, office equipment, travel and vehicle expenses, and training and professional development fees. There are also certain personal expenses that can be deducted from business taxes if they are used for business purposes. These include utilities, health insurance premiums, home office expenses, and mileage to and from work.

Determining your filing status

Your filing status determines the amount of tax you owe, as well as whether or not you are eligible for certain tax credits. When you file taxes as a business, you are able to choose your filing status based on your individual filing status. When filing as an individual, you are able to choose between filing as single, married filing jointly, married filing separately, head of household, or qualifying widow(er) with a dependent child.

Calculating your tax liability

The amount of tax you owe depends on a number of factors, including your taxable income and your filing status. When you file taxes as a business, you use your profit as taxable income and your allowable business expenses as deductions. Depending on your filing status and the deductions you are claiming, you will pay either a percentage of your business profit or a certain amount of money.

Claiming tax credits

Tax credits are cash payouts that the government gives back to taxpayers who have paid the appropriate amount of taxes. These credits are typically based on your income level, filing status, and number of dependents. When you file taxes as a business, you can collect some of these credits on behalf of your employees, such as the Child Tax Credit, the Child and Dependent Care Credit, or the Earned Income Credit.

Filing your taxes

The best way to ensure that you are paying the appropriate amount of taxes is to file your personal and business taxes as early as possible. The IRS recommends that taxpayers file their taxes no later than April 15, but many taxpayers are eligible to file an extension. This allows you an additional six months to file your taxes. If you are self-employed and filing your taxes as a business, you can file your taxes at any point during the year, but it is recommended that you file them as early as possible to ensure that you have all the necessary documentation.

Tax planning for small business owners

As a small business owner, you want to make sure that you are paying the appropriate amount of taxes, but you also want to make sure that you are maximizing your deductions where possible. One of the most important things that all small business owners can do is to keep good records. You will want to keep a record of all your business expenses, including mileage to and from work, office supplies, and any travel-related expenses. Keep in mind that you are only allowed to deduct the amount that is above the standard deduction. There are also certain industries that have special deduction rules and limits, so it’s important that you do your research.

Conclusion

Taxes can be complicated, especially for small business owners who have to file both their business taxes and their personal taxes separately. Having clear goals and expectations, knowing what deductions are available, and keeping good records will go a long way in helping you file your taxes successfully. Calling in an accountant for help is the best shot for you. Peak Reliance is a reliable team of professionally seasoned accountants and tax experts that can help you to file both your business and personal taxes separately. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. You can also email us at hi@peakreliance.co

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Bookkeeping, Business Taxes, Personal Taxes, Small Business Owners

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Look Ahead to the Future: What Sales Tax Will Be in California in 2023? 

What Sales Tax Will Be in California in 2023

Look Ahead to the Future: What Sales Tax Will Be in California in 2023? 

December 2, 2022

What Sales Tax Will Be in California in 2023

peakreliance

Accounting, Bookkeeping, California, Taxes

California is one of the nation’s most populous states and one of the most important economic engines in the country, but it has a lot of growing pains. That’s why Peak Reliance is here to help you prepare for what lies ahead with the sales tax landscape in the Golden State in 2023. Peak Reliance is a reliable team of professionally seasoned accountants. Keep reading to get an overview of the current sales tax landscape, as well as a glimpse into what type of changes could be coming your way soon. 

What Is Sales Tax? 

If you’ve ever purchased something in California, you’ve undoubtedly paid some state sales tax. You may even have paid it twice: State sales tax is an excise tax that’s levied on the sale of goods and services. In other words, you pay it to the retailer, not the government.  

How Is Sales Tax Collected in California? 

The vast majority of states that collect sales tax use a “use tax” system, which means that the seller is responsible for collecting it and sending it to the state. In California, however, the retailer collects the tax, but they pass the cost on to the customer by charging them tax at the register. California has a “franchise tax” system, which means that the state is responsible for collecting sales tax and remitting it to the state. This is different from having “merchant-only” tax, as in other states, where the retailer does not send tax to the state. 

The Current Sales Tax Rate in California 

The California state sales tax rate is currently 7.5%. The change to this rate took effect in January 2018, when California raised its sales tax rate from 5.5% to 7.5% to “comply with a voter-approved constitutional amendment.” 

Changes to the Sales Tax Base and Rates Likely in California by 2023 

While the state sales tax rate will remain at 7.5% in California in 2023, there are a number of other factors that could change how California sales tax works in the future. In this section, we’ll explore what could change in the sales tax landscape of California in 2023, as well as how likely it is that each of these changes will occur. 

California Sales Tax Base: The sales tax base in California could expand. Currently, California only taxes certain goods, like groceries and prescriptions, and services. If California adopts a system similar to Tennessee’s, which taxes all goods, California sales tax could expand to include many more goods and services. Again, it’s unlikely to happen, but it’s something to keep an eye out for.  

California Sales Tax Rate: The current state sales tax rate in California is 7.5%. The state is unlikely to lower this rate, but it is possible that the state could increase the rate. Again, it’s unlikely and we don’t expect it to happen, but it’s worth keeping an eye out for.  

California Revenue: The adjusted gross income (AGI) threshold for California sales tax is currently $211,000. In 2023, it’s likely that California will lower the threshold, meaning that more taxpayers will be subject to sales tax. 

Other Factors: In addition to the factors listed above, there are a number of other factors that could change the sales tax landscape of California in 2023. For example, it’s possible that California will adopt a “use tax” system, which would mean that the seller would collect the tax and send it to the state. It’s also possible that California will adopt a “merchant-only” tax system, where the retailer does not have to send sales tax to the state, but the retailer collects it. Keep reading to learn more about these factors. 

Summing Up 

We’ve outlined the basics of California sales tax here, as well as some of the factors that could change the sales tax landscape in California in 2023. If you need any help with your sales taxes, Peak Reliance is there to help you. You may call us at +1 (718) 218-5558 or email at hi@peakreliance.co .  

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Sales Tax, Sales tax in California

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How Much Are California Payroll Taxes in 2022?

How Much Are California Payroll Taxes in 2022?

How Much Are California Payroll Taxes in 2022?

November 30, 2022

How Much Are California Payroll Taxes in 2022?

peakreliance

Accounting, Bookkeeping, California, Taxes

California is one of the most expensive states in which to run a business, and that’s not going to change anytime soon. The state has a complex set of laws governing payroll taxes, and they keep getting more expensive over time. In this article, we take a look at how much employers in the state need to pay payroll taxes as of 2022. We’ll explain the details about the different tax types, how they’re calculated and their effect on your business’s bottom line. 

What is a Payroll Tax? 

The terms “payroll tax” and “payroll withholding tax” are often used interchangeably. However, these two terms actually refer to two very different things. Payroll taxes are the type of taxes employers in the U.S. are required by law to deposit into an employee’s account. This includes both state and federal payroll taxes. Federal law requires employers to withhold payroll taxes from employees’ paychecks. If an employee doesn’t have a sufficient amount of money in their account to cover a certain tax, the employer is required to cover the difference. Federal payroll taxes include: – Medicare tax – This tax applies only to employers with annual payrolls of more than $200,000. It’s a 0.9% tax on the first $200,000 of the employer’s annual payroll, plus an additional 0.9% on the excess amount. – Social Security tax – This tax applies to both employers and employees. Employers pay 6.2% on the first $127,200 of wages, and employees pay the full 12.4% on the first $127,200 of wages, plus an additional 2% on the excess amount of $33,400. – Federal income tax – Employers are required to withhold another 10% of wages paid to employees as federal income tax. 

How Are California Payroll Taxes Calculated? 

The amount of California payroll taxes you’ll have to pay depends on a number of factors. In general, the amount of taxes you have to pay will depend on the amount of wages you pay to each employee. The formula used to calculate California payroll taxes is:

  • Wages paid to employees – The total amount paid in wages for each pay period. California tax laws require that you withhold income tax from this amount.  
  • California income tax withheld – The amount of income tax withheld from each employee’s wages.  
  • Federal tax withheld – The amount of federal payroll taxes withheld from each employee’s wages. 
Who pays California Payroll Taxes? 

Federal law requires that all employers in the U.S. withhold federal payroll taxes from employees’ paychecks. However, California law requires that you also withhold state income tax from your employees’ paychecks. This state income tax is collected by the state and deposited into an account held by the employees. If you’re an employer with employees working in California, you must withhold and pay both state and federal payroll taxes. This income tax is collected by the state and deposited into an account held by the employees. If you have employees working in California, but don’t have a business headquartered there, you don’t have to pay California payroll taxes. 

Which Calculation Is Used for Which Type of Payroll Tax? 

Federal payroll taxes are calculated using the same formula as California payroll taxes. However, the tax rates and brackets change slightly each year. This means that you need to make sure you’re paying the right amount of taxes. You should use a software program to help you track your payroll taxes. If your business has more than $500,000 in annual payroll, you should also consider hiring payroll taxes for your staff. 

Who pays Additional Payroll Tax in California? 

Every business in California is required to pay a gross receipts tax. This is paid on all business sales made in the state. Business owners in the state who have employees working in California who earn more than $400,000 annually may have to pay a gross receipts tax on top of the state’s regular payroll tax. This is an additional tax, called an excise tax, levied by the state. 

Conclusion 

California has a complex set of payroll tax laws, which can make it difficult for employers to stay on top of their tax obligations. However, these laws do impact your bottom line, so it’s important to stay abreast of the latest taxes and payroll tax rules. To stay compliant, you’ll need to track your employees’ earnings and withhold the appropriate amount of taxes from their paychecks. The good news is that payroll taxes are a source of revenue for the government, so they’re worth the hassle. 

If you need help with your payroll taxes in California, Peak Reliance has the necessary experience in organizing the finances. We have experienced and qualified tax experts to assist you. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. 

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California Payroll Taxes, Payroll Taxes, Tax filing, Tax Season

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The Complete Guide to Payroll Taxes in Texas for 2022

Payroll Taxes in Texas in 2022

The Complete Guide to Payroll Taxes in Texas for 2022

November 29, 2022

Payroll Taxes in Texas in 2022

peakreliance

Accounting, Bookkeeping, Taxes

Payroll taxes are a major financial burden on many small businesses who are forced to take out large loans in order to fund expenses. However, the good news is that payroll tax season is almost over. The deadline for filing your 2022 taxes has passed, and now you can focus on other business matters such as developing a marketing strategy and hiring new employees. The following guide will provide you with everything you need to know about payroll taxes in Texas for the upcoming year. 

What is Payroll Tax Season? 

Payroll taxes are one of the biggest yearly expenses for many small business owners. You are required by law to pay these taxes when you take out an employee or contractor. However, they can also be filed by an employer-employee as well as a joint employer. Payroll taxes are calculated on a percentage of your total income, usually 40% or 50%. Some employers may be required to pay more than 50% of their income in payroll taxes. The IRS publishes a list of standard deductions and other income-based deductions that most people can use to reduce their taxable income. Moreover, many employers will also reimburse employees for some or all of their payroll taxes. These are known as self-employment taxes.

Where Do Payroll Taxes Come From? 

Most payroll taxes fall under the category of income taxes, including income tax, Social Security, and Medicare taxes. However, there are also a few payroll taxes that are paid by a trust fund or other government-issued bonds. These are known as employment and occupation-based taxes and are popular with local and state governments.  

How Texas Payroll Taxes Are Determined 

Payroll taxes are calculated based on a percentage of all income received by employees, including tips, wages, overtime, and other forms of compensation. Other taxes, including property taxes, sales taxes, and income taxes, are all calculated on a percentage of income as well as total assets. If the ratio of employee income to employer income is high, then employees may experience higher stress levels and be more likely to develop disorders such as cardiovascular disease, high blood pressure, and diabetes. 

What Are the Different Types of Payroll Taxes in Texas? 

There are three main types of payroll taxes in Texas: employment and occupation-based taxes, trust fund taxes, and income taxes.

Employment and Occupation-Based Taxes: These taxes are calculated on the number of employees and their respective wages or salary. These taxes are usually paid by the employer and apply to all employees, even if they work for less than 10 hours per week.

Trust Fund Taxes: These taxes are paid by a special fund managed by the IRS. They are calculated on the total amount of bonds issued by the state or local government in which the business is located. These taxes are meant to fund public works and other projects throughout the country.

Income Taxes: This is the main source of payroll taxes in Texas. It is calculated on the total income of the employer, including income from sources within and without the employee. The IRS publishes a list of standard deductions and other income-based deductions that most people can use to reduce their taxable income. These are known as standard deductions. Moreover, many employers will also reimburse employees for some or all of their payroll taxes. These are known as net operating losses (NOLs) and are generally carried forward to future years.  

The Bottom Line 

Payroll taxes are a major financial burden on many small businesses. You are required by law to pay these taxes when you take out an employee or contractor. However, they can also be filed by an employer-employee as well as a joint employer. The deadline for filing your 2022 taxes has passed, and now you can focus on other business matters such as developing a marketing strategy and hiring new employees. 

 

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Payroll Taxes, Payroll Taxes in Texas, Tax filing, Tax Season

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Do’s and Don’ts if You Haven’t Filed Taxes in Years

Do's and Don’ts if You Haven't Filed Taxes in Years

Do’s and Don’ts if You Haven’t Filed Taxes in Years

November 28, 2022

Do's and Don’ts if You Haven't Filed Taxes in Years

peakreliance

Accounting, Bookkeeping, Taxes

If you haven’t done a tax return in years, it could have serious repercussions and cost you money. You run the risk of forfeiting your right to a refund or owing the IRS hundreds of dollars in the form of taxes, fines, and interest.

Now, you legitimately have a tax problem.

Fortunately, you still have time to file past-due tax returns, which may help you fix some of these problems. And if you recruit a bit of help with the paperwork, it might be smoother than you’d expect. Below, we have listed some of the consequences of failing to file your taxes and some ways to present them in a timeline format for your convenience.

What will happen if you haven’t filed taxes for 10 years?

There are a few types of consequences to consider with the IRS when you haven’t filed tax returns.

IRS and Penalties

The IRS may initiate a lawsuit against you if you don’t file your taxes for a long period of time. This can entail putting a mortgage on your residence or having your assets seized. In some circumstances, you can also face criminal prosecution. It is ideal to contact a tax lawyer or other tax experts if you are concerned about any of these repercussions. With Peak Reliance and their highly qualified tax experts, you need not worry about that.

Every month your tax return is overdue, the IRS charges you a ‘failure to file’ penalty and a ‘failure to pay’ penalty totaling about 5% of the unpaid amount. However, the overall fees are limited to a maximum tax penalty of 25%, so luckily they won’t continue to rise indefinitely.

The IRS may decide to collect your salary or bank account to pay your tax debt if you haven’t filed taxes in a number of years. Wages or other sources of income may be taken as a result of this.

Additionally, the IRS may publish a notice of a federal tax lien, which may limit your future financial options. Your ability to obtain credit or take out loans may be restricted by an IRS tax lien. The government can now have a role in your transaction and will deduct the tax due from the proceeds of any sale, which can limit the amount of property/assets you can sell.

In the worst-case scenario, the IRS can impose a penalty of up to $250,000 in fines and up to five years in prison for deliberately failing to file taxes.

Other Penalties

You may have problems for a variety of additional reasons if you don’t file your taxes. You risk losing out on potential tax refunds as well as opportunities in your life where you must provide your most recent tax returns. You won’t have any tax returns to offer if you haven’t recently filed your taxes.

When you apply for a passport, for instance, you could be required to present your most recent tax records. When you apply for a mortgage, rent, or other loan, you’ll almost probably be required to provide your tax returns. When you apply for health insurance, you can also be asked for your most recent tax returns.

Your most recent federal income tax returns are also required if you are applying for financial aid on behalf of yourself or your child. Finally, the income you disclose on your tax returns is a factor in determining your retirement benefits, including Social Security and Medicare. Your future financial security may be at risk if you fail to file your tax return for several years.

The Way Out
Step 1 – Check your standing with the IRS.

The IRS frequently files a ‘Substitution for Return’ on your behalf if you fail to file your taxes. The IRS makes an estimate of what it believes you owe, but it ignores any exclusions or deductions.

The IRS will next notify you via tax notice CP3219N, often known as a ‘90-day letter’, of what it intends to file on your behalf. The IRS will submit the tax return it believes you are required to file if you don’t respond to the notice, at which point costs will start to accrue.

Step 2 – Decide if you want to pay or file your own returns

You can choose how to proceed if the IRS has filed substitute tax returns on your behalf. One choice is to just pay the tax and associated fees that the IRS estimates you owe. The IRS does give several tax relief alternatives, like an installment arrangement, if you are unable to pay the full amount due at once. This tax payment method is rather straightforward.

A tax levy will be resolved by paying the due taxes and fees, but you may not receive the tax documents you require for other purposes, such as obtaining a new mortgage loan. Additionally, you’ll probably pay more than necessary because there are no deductions on the IRS substitute filings.

You may spend far less and have the tax documents you may need for future financial decisions if you choose to file your own tax returns for the missing years.

Step 3 – Collect the numbers to complete your tax forms.

You’ll need to perform some forensic accounting to estimate your income and expenses over the years if your bookkeeping become a little sloppy during the last 10 years for which you had unfiled tax returns. If you want to outsource some of the work, a forensic accountant or a certified public accountant (CPA) can assist you with this.

·         Completing Records:

To be ready to submit, sort out all of the gaps and missing data in your financial records. To properly calculate your income and claim the most tax deductions and credits on your tax return, you need to accurately record your income and spending for each year.

·         Supporting Paperwork:

Your receipts and income statements will be included in your financial records, but keep hold of them and any further proof that may assist you to justify why you took so long to file your taxes. You might feel more at ease once you complete the clean-up procedure if you have documentation to back up your calculations and your delay.

Step 4 – File The Pending Tax Returns

You can mail the IRS your unfiled tax forms as soon as you obtain the necessary documentation because there is no deadline for doing so. Better yet, if you meet the requirements, you may still file a tax return up to three years beyond the filing date.

Keep in mind that submitting a company tax-return consists of two steps. The first step is to send the IRS the company tax forms. With the help of this form, you may formally file your taxes and inform the IRS about your income and outstanding debt.

Step 5 – Pay your taxes through whichever method

Paying the taxes you owe is the second step in filing the missing tax returns. You may easily pay your taxes with a bank draft or credit card. Of course, you will have a huge tax burden to deal with if you’re filing years’ worth of tax returns at once.

Fortunately, even though the due date has passed, the IRS is ready and able to deal with taxpayers who are unable to pay the entire amount owed in back taxes by the deadline. If you are unable to make the entire payment right away, there are various choices and installment plans you can choose from.

Some options include:

  • Setting up an installment or payment plan.

  • Pursuing an offer in compromise; a deal with the IRS to settle your tax debt for less than you owe.

  • Request a ‘Currently Not Collectible’ status to delay payment until you can afford to pay it.

  • Take out a loan to cover your tax debt.

Step 6 – Prepare for Future Taxes

Make sure the accounting software has been updated for future tax filings before you close it, after organizing your recently updated tax forms. Tracking income and spending and submitting taxes on time each year may be made simpler with a clear accounting system. Set up your company’s accounting system now to ensure that you won’t have to worry about tax problems with federal or state tax returns this year or in the future.

If you’re prepared to take on years of unfiled tax returns, you might need assistance going back over your accounting records, updating your income and spending, and making sure you’re not overpaying taxes. Peak Reliance has the necessary experience in organizing the finances. We have experienced and qualified tax experts to assist you in filing the missing returns. Check out our pricing plans  or call us at +1 (718) 218-5558 for more information.

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Tax filing, Tax Season

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Why Outsourcing Your Bookkeeping is a Great Idea

Why Outsourcing Your Bookkeeping is a Great Idea

Why Outsourcing Your Bookkeeping is a Great Idea

November 20, 2022

Why Outsourcing Your Bookkeeping is a Great Idea

peakreliance

Accounting, Bookkeeping, Taxes

Being the head of a small-scale business, you spend the majority of your time overseeing daily operations. Performing a number of activities is likely a source of great pride for you, including the task of bookkeeping.

Performing these tasks singlehandedly might be a personal achievement for you as a business owner, however the task can quickly start to feel like a mountain of work after a busy work-day. This becomes even more daunting when you factor in other financial responsibilities like the mandatory tax filing deadline that needs to be met or the monthly bank reconciliation. Sooner than later, it’s better to start thinking of alternative ways of bookkeeping. 

The Best Time to Hire a Bookkeeper

At the early stages of your business, it may make sense to manage bookkeeping by yourself, given that the client numbers and subsequent transactions would be at the tip of your fingers.

The key is to know at what point must you begin looking for a professional bookkeeper. The following conditions might help you as a guide in reaching that decision within a good time-frame.

  • Unlike before, book management takes up more and more of your time.
  • Profit margins, cash flow and expense calculations and records are pending and there is minimal clarity on finances. 
  • Like clockwork, this leads to a barrier against your ability to make important business decisions since you don’t know the clear financial standing of the company. 
  • Inevitably, without proper records, you struggle in doing your income taxes.

When this becomes a norm and your finances are all over the place, it is imperative to start looking for a professional bookkeeper or an accountant. 

Fortunately, there are a number of ways to get around this, otherwise messy, task of bookkeeping. The following are some of these ways:

DIY Accounting Software

If you feel that you must do the bookkeeping yourself, there’s good news. There are plenty of accounting software options which provide tools that help you lay out and manage incomes and expenses along with generating financial statements for you.  Of course, learning how to use accounting software can be a challenge in itself, and your first couple of entries may include errors, thus wasting your efforts without expert oversight. 

In-House Bookkeeping

When your bookkeeping becomes a job itself, your best bet might be to just hire an in-house bookkeeper; an employee who will take care of all that financial workload without you having to worry. 

The costs of that do come along, however, as not all small businesses can afford personal bookkeepers. You would need to provide office space for your new employee, along with a computer to work on. We haven’t even mentioned the mandatory holidays and medical insurance that will have to be ensured for the bookkeeper, along with retirement perks. A cost-benefit analysis will have to be done before you, as a small business, make this decision. 

Accounting Services

Large businesses often hire accountants or CPAs that help them in navigating with taxes, business planning, strategic financial decisions and forecasting. 

However, if all you require is bookkeeping assistance, an accounting firm might not be the best choice. In general, bookkeepers are more involved in administrative tasks, whereas accountants provide knowledgeable strategic help. They can manage your books, of course, but that knowledge frequently comes at a price that a small business might not be able to afford.

Outsourced bookkeeping

You may get professional support without having to hire a full-time staff by using outsourced accounting services, which are frequently the ideal middle ground between DIY and in-house bookkeeping.

All of your bookkeeping needs can be met by the knowledgeable professionals at outsourced bookkeeping services. They’ll manage all of your accounts payable, receivable, and credit card transaction entries as well as the preparation of your financial reports, including balance sheets.

  • Save staffing and payroll costs

You would wind up spending more on insurance, perks, and training if you hire a bookkeeper. Even if your internal bookkeeper is working on part-time basis, it wouldn’t save you from high payroll expenses given that employment taxes will have to be paid. 

When you outsource your bookkeeping, whether on a weekly or monthly basis, you only pay for the job that is accomplished. By doing this, you might avoid paying a staff bookkeeper who might work longer hours between busy seasons.

  • Access a pool of experts and resources 

An internal bookkeeper frequently works alone, which may see them running into unexpected delays, leaving them helpless without the help of necessary resources to seek help from. Additionally, they can lack the expertise needed to modify bookkeeping systems to accommodate additions and modifications you make to your company.

When you outsource your bookkeeping to a trustworthy company, you get access to a larger knowledge base of seasoned financial professionals. An outsourced bookkeeper is more likely to keep up with state and federal regulatory changes that could affect your company now or in the future because they frequently manage the books for a range of clients.

  • More time to focus on your business 

Often, small business owners learn the hard way how time-consuming and difficult bookkeeping is. In fact, the average small business owner puts in a full day’s worth of labor keeping their books each month. You can focus on expanding your company once you have outsourced this duty.

  • Enjoy a stress-free tax season

It is a blessing to be on top of the game long before the tax filing deadlines approach. Having an accurate record maintained and having the satisfaction of a stress-free audit in case IRS decides to carry it out is completely worth the cost you will be paying to an outsourced accountant. 

  • Take advantage of the latest technology

Since an outsourced bookkeeper’s career depends on maintaining effective procedures, they are more likely to make technology investments to speed up their job and ensure the accuracy of your data. The majority of outsourced bookkeepers utilize systems that automatically import transactions, necessitating less input on your part as the business owner. Without needing statements or receipts from you, your bookkeeper can organize and reconcile your books. Many also use cloud-based platforms like FreshBooks, Xero etc., which make it safe and simple to access your information from any device, at any given time and place.

  • Scale your books with your business

Your organization will require additional bookkeeping assistance as it expands. Recruiting and educating a second bookkeeper increases payroll expenses significantly and reduces your profit margins.

 

What happens if your business experiences stagnation? The bookkeeper on your staff continues to get paid while working less and still obtaining the same benefits. Even with less money flowing in, your obligation to pay employee taxes stays the same. Outsourced bookkeeping services are adaptable and simple to scale to changes in your company’s requirements. This is especially practical if your business is seasonal because the service is flexible enough to meet your demands.

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Accounting, Bookkeeper, Bookkeping, Online CPA, Outsource Bookkeeping

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All About Automating Your Bookkeeping

Automating Your Bookkeeping

All About Automating Your Bookkeeping

November 19, 2022

Automating Your Bookkeeping

peakreliance

Accounting, Taxes

Keeping a track of all the finances and managing accounts can be extremely overwhelming, especially if you’re a small business owner. Bookkeeping eventually can become majorly time and energy consuming and since money matters need to be accurate to avoid legal problems, it’s best to ensure that and automate finances. Automating your finances can reduce the bookkeeping burden and make it more efficient. 

What does it mean to Automate?

Accounting and bookkeeping can be automated by using an appropriate accounting app or software. It means that you will not need to make any calculations by yourself or keep any hard records, the app or software will do all these for you, give you your company’s current financial status, maintain records, maintain all necessary financial statements and will do so along with saving you tons of effort and time. 

Features of an automated bookkeeping system:

  1. Expense management and transaction classification

Many modern accounting software can be classified as automated bookkeeping programs and their operations are fairly simple to grasp. These softwares basically need data that they can apply formulas to and work with. You will need to put in numbers like your total sales, expenses, bank account details etc. for the software to generate relevant statements.

Properly sorting and recording your transactions helps you catch more deductions, which makes your life easier in case you get audited by the IRS, and generally makes looking through your financial records a much less painful experience. With an automated system, you need not worry about errors and that some audit pressure off your chest.

Automated bookkeeping software’s like Mint and Quickbooks Online are some of the first apps offering this kind of service. Some recent and newer tools like Expensify and Bench have become preferences among start-ups and small business owners looking for low-cost automated bookkeeping solutions.

  1. Generate financial statements

Expense tracking is just one part of bookkeeping. Whichever automation software or bookkeeping service you choose should be able to generate financial statements for you, like balance sheets, income statements and cash flow statements.

Automated bookkeeping services are designed for full-scale bookkeeping and accounting. 

  1. Generate tax-ready financials

Accounting automation and bookkeeping software can radically cut down the amount of time you devote to getting your business taxes ready in general. They do this by:

    • Automatically classifying and marking potential deductions for tax filing.
    • Keeping all tax records in one place.
    • Reducing the amount of time spent hunting down receipts, invoices and other important tax relevant records.

Benefits of Automating

  • Cuts Down Human Calculation Errors:

Recording, classifying, and reconciling transactions requires moving large amounts of data from one place to another. No matter how careful you are with this task, there is always the risk of making simple errors. This is where automated accounting solutions come in and shine.

Automating accounting adds an additional layer of security to the accounting process by reducing human error and providing more reliable financial information and security.

  • Provides Financial Insight:

Auto Accounting is not only dependable it’s also fast. Instead of waiting until the end of the month, automated solutions present you real-time insight into your financial health so you can make critical business decisions faster and more confidently.

It can provide insight on the following:

    • Accounts payable/accounts receivable
    • Bank reconciliation
    • Billing and invoicing
    • Cash management
    • Collections
    • Expense tracking
    • Fixed asset management
    • Payroll management
    • Revenue recognition
    • Reporting
  • Saves Valuable Time:

    Automation is about allowing software do repetitive tasks and freeing them up to run your business and automation is no exception.

    If you’ve been doing manual bookkeeping in the past, you probably spend some time each week or month doing bookkeeping.

    Auto Accounting reduces the time you spend copying and pasting numbers into spreadsheets, helping you prepare financial statements, assess overall business health, and make strategic business decisions that impact long-term performance. You can spend more time on higher value tasks such as decision making. – term success.

This introduction to Auto Accounting is just the beginning of what is possible. As you begin to explore what else it can do, you can’t help but wonder how you would have run an accounting firm without Automated bookkeeping!

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Accounting, Automating bookkeeping, Bookkeeper, Bookkeping, Online CPA

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Claiming Losses to Reduce Tax on Stocks, Shares and Crypto Assets: Achieving Tax Advantages

Claiming Losses to Reduce Tax on Stocks, Shares and Crypto Assets Achieving Tax Advantages

Claiming Losses to Reduce Tax on Stocks, Shares and Crypto Assets: Achieving Tax Advantages

November 18, 2022

Claiming Losses to Reduce Tax on Stocks, Shares and Crypto Assets Achieving Tax Advantages

peakreliance

Accounting, Taxes

Claiming losses on your investments can be a useful strategy to reduce your taxable income and increase the amount of investment tax deductible. If you own stocks, shares, bonds or other securities that are subject to taxation, losses can be deducted from taxable income to offset any gains. However, making losses isn’t as easy as it sounds — you need to follow strict rules to claim them on securities held for trading or investments held for longer periods of time. Even so, it is still a good way of reducing your tax liabilities. This article focuses on explaining the process of claiming losses on securities, stock and shares, mutual funds and EFTs, and cryptocurrencies.

How to Claim Losses on Securities

The process of claiming losses on securities is fairly straightforward. You will have to keep track of the cost basis, the amount paid for the asset, and the amount you sell it for. The profit or loss you make from these trades will determine your total tax liabilities. First, take a close look at your investment portfolio. Are there any stocks, shares, or other securities that have dropped in value? If so, you can claim a loss. To claim a loss, you must first know your cost basis. This is the price you paid for the shares, bonds, etc. since you bought them. You can find the cost basis either by using the records you kept when you bought them, or using the broker’s records. You can also ask your accountant. Once you know your cost basis, you can subtract any subsequent gains from that basis. This is how much you will deduct as a loss. You will have to keep good records to make this process successful.

How to Claim Losses on Stocks and Shares

Making losses on stocks and shares is a bit more complicated than simply subtracting the profit you make from your cost basis. You will have to keep records of your cost, the amount you sell them for, and the amount you pay for them again. This will allow you to determine your total profit or loss for the stock or share. To claim losses on stocks and shares, you will have to keep good records of every purchase and sale you make. You will also have to keep good records of the amounts you paid and received. If you don’t, you may be audited and could be penalized. The profit or loss you make from these transactions will determine your total tax liabilities.

How to Claim Losses on Mutual Funds and ETFs

The rules for claiming losses on mutual funds and ETFs are similar to the rules for stocks and shares. You will have to keep records of the cost, amount you sell them for, and the amount you pay for them again. Note that the rules for mutual funds are a bit different than stocks and shares. When you make a loss with mutual funds, you can claim losses from a specific period. This period is usually the same as the investment period. So if you own stocks in a mutual fund for one year, you can also claim losses for that entire period.

How to Claim Losses in Crypto Currencies

The tax treatment of cryptocurrency currencies is unclear and may change in the future. Therefore, it is advisable to hold onto your cryptocurrencies for investment purposes rather than trading them to make a profit. If you choose to make a profit, you will have to report it as usual and pay taxes on it. As with stocks, shares, and other securities, you can make a loss on cryptocurrencies. Just like with stocks and shares, you will have to keep good records of your purchase and sale transactions. You will also have to keep good records of the amount you received and paid for your cryptocurrencies.

 

Losses on investments can be a useful tool for reducing your taxable income, especially if you have been making large profits. However, making losses isn’t as easy as it sounds. You must keep accurate records and follow strict rules to claim the losses on stocks, shares, and other investments. The good news is that you can also make a loss in your crypto holdings.

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Claiming Losses, Crypto Assets, Reduce Tax, Shares, Stocks

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Reclaiming Home Office Deductions: Tips and Tricks

Reclaiming Home Office Deductions Tips and Tricks

Reclaiming Home Office Deductions: Tips and Tricks

November 10, 2022

Reclaiming Home Office Deductions Tips and Tricks

peakreliance

Accounting, Bookkeeping, Taxes

“The first mistake people make when it comes to home-office deductions is they fail to claim them,” says Bob Meighan of San Diego, a lead CPA for a famous company in USA. 

Many business owners with home offices waive off the tax breaks because they fear that the write-offs will trigger a tax audit and bring accountability on their shoulders. Tax experts say that now home offices no longer set off alarms at the IRS (Internal Revenue Service). Although, there are some parameters one needs to examine, when it comes to checking if you are eligible for the home-office deduction. Millions of Americans have shifted to worked from home this year, due to the COVID-19 pandemic. 

The endorsed tax break is generally only available for the people who are self-employed, gig workers or independent contractors. As a small business owner, whichever industry your business may belong to, you can by all means claim this deduction while filing your taxes. 

Expenses You Can Claim

There are two types of expenses that you can deduct:

The first, direct expenses, lets you deduct 100 percent of costs linked specifically with your home office. It includes everything from hiring someone to paint/ renovate your room to buying equipment like work computer, office supplies or cell phone dedicated for the home-based business.  

Businesses can also write off remodeling, if the home office is being used to meet with clients or customers. This is because, logically, the appearance of the house is important to the success of the business. 

The other deductible home-office expenses are indirect expenses. These are proportioned equally, based on the dimensions of the home office space including your utility bills, property insurance, mortgage and a home security system.  

The write-off amount can be calculated in two ways. First is calculating the portion of the house that is being used for office work. That is then taken as a percentage of the whole house area and the business owner is eligible to write-off that percentage. 

Second method is counting the total number of rooms and taking the number if rooms as a portion of the house used for home office. The business owner can write-off that portion only. Out of these two, the percentage method is more widely used.  

However, the monthly charges/ fees for the primary phone line in your home cannot be deducted, though long-distance calls for work, call waiting and call forwarding can be claimed. Also, if you have only one cell phone being used partly for work and partly for personal things, it’s a gray area that needs to be discussed with a tax advisor. 

Tips and tricks for claiming the deductions: 

Taxpayers and business owners must solely and regularly use the dedicated part of their home as their primary place of business-related work. This means, a place where you greet clients or customers and have meetings, conduct your business, store supplies and inventory etc.  

The good thing is that you don’t have to be the homeowner to claim the deduction — apartments, mobile homes, boats or other property are also eligible according to the IRS. 

Another possibility is to claim only a part of the deduction, which accounts for the time the business spent being operated in a certain location. The business owners must have proper documentation for all home office spaces that were used within a tax year. What better documentation can there be than an actual picture of the work space. This was, once the deduction has been claimed and IRS initiates an audit, owners can have a solid proof. 

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Accounting, Bookkeeper, Bookkeping, cpa, Home office deductions, Online CPA, Tax Deductions, Taxes

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The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

The Top 7 Tax Deductions for Your Small Business

November 5, 2022

peakreliance

Accounting, Bookkeeping, Taxes

What is a tax deduction?

A tax deduction is a compulsory expanse that every business is liable to pay to the state or the government at end of a financial year. Tax is calculated as a small percentage of the total income of a business.  

Paying off taxes can be a botheration for business owners since the total amount can go up to a lot. Also, filing taxes accurately is a huge task that requires focus and precision so to ensure transpiracy and eliminate risk business owners are compelled to hire tax experts, bookkeepers or CPAs.  

There are tons of small and huge tax deductions in play for small and large businesses alike. Below mentioned are the 7 common and major tax deductions. 

Top 7 Tax Deductions:

1. Home Office Expense  

Home office expense is a major expenditure and a primary one. It is one of the most common small business deductions. This expense can be calculated using two state-approved methods: 

    • The standard option; this requires you to calculate the percentage of your home space being used for business versus personal use. You then apply that percentage to your other qualifying expenses like mortgage, utilities, and insurance. To do this, detailed records must be kept on all relevant expenses. 
    • The simplified option; it needs you to take a standardized amount of say $5 per square foot of home office space and multiply that to a specific square foot of area being using for office work. Hence, home office deduction is calculated. The standardized amount varies with time and according to the state rules.  
2. Insurance Premiums 

Insurance deductions can include the following depending on certain attributes of the business: 

    • Property coverage for office equipment like furniture, equipment, and other major items like the building itself 
    • Liability handling   
    • Auto insurance which includes business vehicles 
    • Health insurance for employees; Group health, dental and vision  
    • Owners’ professional liability or malpractice insurance
    • Workers’ compensation coverage 
    • Life insurance that covers employees 
3. Advertising and Promotion 

Reasonable amounts of expenses that are used for marketing and promotion of the business are definitely deductible. These costs include things like: 

    • Hiring a graphics person to design your business logo 
    • The cost print publications like business cards or brochures 
    • Purchasing ad spaces in print or electronic media 
    • Sending printing or digital greeting cards to clients/ other stakeholders 
    • Investing in a new website and its maintenance  
    • Running a promotional social media marketing campaign 
    • Sponsoring branding and other event 
4. Rent Expenses 

This deduction is conditional to if a location is rented by a business for their day-to-day operations or equipment. You can deduct the payments made as rental expense for the business. 

What needs to be taken into consideration is that rent paid on your home should not be deducted as a business expense even if a home office is in place. That rent will be deducted as a portion of the home office expenses. 

5. Utility Expenses 

These include all utilities that the business is using for its operations like telephone, internet, office supplies, refreshment, air conditioning etc. 

These services are deductible if they are integral to your business’s operation. 

 The thing to keep in mind is that if you use a landline at home you cannot deduct that cost, even if you use it solely for work. However, a way out is having a second, dedicated landline devoted to the business’s needs only, the cost of that line is deductible. The same conditions are to be followed for internet and other utilities. 

6. Travel Expenses 

For this expense to be deductible in tax, the trip needs to qualify as business travel. It has to be regular, essential, and away from your tax home; the city or area where your business operates. The trip needs to be a travel away from the tax home and should be longer than a normal day’s work. 

Deductible, approved business travel expenses are listed below: 

    • Travel by plane, train, bus, or car 
    • Parking and toll fees and tips 
    • Use of owner’s personal vehicle 
    • Meals and lodging 
    • Laundry and dry cleaning during the trip 
    • Business calls 
    • Shipping cost of baggage and sample or display materials etc. 

It is essential to keep a record of all costs and amounts incurred during the trip like, fuel along with documents supporting the return/departure etc for these expenses to qualify as deductible taxes.  

7. Bank Fees and Interests 

All business must have separate bank accounts and credit cards as this is always a good idea. Bank fees including annual or monthly service charges, transfer fees, or overdraft fees are all deductible. Merchant or transaction fees paid to a third-party payment processor can also be deducted. These include PayPal and Stripe. 

Fees related to personal bank accounts and credit cards are not deductible.  

The bottom-line is that private businesses and start-ups, both have their own perks as different types of working organizations when it comes to tax deductions. However, claiming them all is tricky and sometimes if one does not seek professional help they may be overpaying their taxes. It is always best to invest in a tax expert such as an online CPA for this purpose. CPAs not only help with accounting and tax related matters, they are also well equipped with good insight about businesses and their financial status and hence can provide with good financial advise. 

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Accounting, Bookkeeper, Bookkeping, cpa, Online CPA, Tax Deductions, Taxes

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