Setting Up or Closing Up Shop?

It may seem like deciding to open or close your business is the hardest part of the process. In truth, though, you have some important accounting responsibilities to address, and if they’re not done right, the business could either start off on the wrong foot financially or continue to cause you prolonged stress long after you’ve closed it and ceased its operations.

Hanging Your Shingle?

Let’s start with opening your business. Picking out a name, designing a logo and a website, finding a location, and hiring staff are important, but you’ll also have to perform several steps to ensure that your finances are running smoothly. These include:

  1. Select a name for your business and, if necessary file a DBA form (Doing Business As) to begin using your fictitious firm name if it is different from the legal entity name.
  2. Will you operate as a sole proprietorship, an LLC, an S-Corp, or a C-Corp? Selecting your business’ entity and filing paperwork according is an important first step.
  3. Register your business with the Secretary of State.
  4. File tax information to obtain your business’ EIN Number (your federal tax ID number).
  5. File for state or county business licenses.
  6. Register your business with the Department of Taxation and State Unemployment Agency (if you plan to have employees).

Depending on the size and scope of your business, it can feel overwhelming to complete all these steps, and for much of the information you’ll be asked to provide, it can be helpful to have a financial expert who’s familiar with your business and goals to provide consistent, accurate information on all forms.

This is a journey we love to take with our clients. We can help you make decisions about your bank accounts, help you plan and scale your business’ growth, and set up accounting systems that you can maintain for the long haul.

This moment, the inception of your business, is crucial as it determines the course you’ll follow. Even small errors can compound and wind up costing you in the form of IRS and state agencies penalties, not to mention in terms of your reputation with employees and customers. We can help you establish efficiencies right from the start and help you eliminate errors that many new businesses owners make.

Shuttering a Business

The decision to close a business for any reason can be emotionally stressful as well as exhausting. It’s not as if you can simply hang a “Closed” sign and walk away — you still have miles to go before you sleep. And if you don’t follow the proper steps, the business you mean to close can end up becoming an albatross around your neck.

Though states can vary in their requirements, here’s a general breakdown of what needs to happen:

  1. The first thing to address is the money. You’ll need to close all bank accounts related to the business, especially if more than one person has access to those accounts. These include payroll accounts and tax accounts.
  2. After all shareholders or members have agreed to the dissolution, you’ll need to file a Certificate of Dissolution with the Secretary of State in any state where the company did business. It may be called Articles of Dissolution. Some states require that taxes be paid first. Without this paperwork, your business could go into default, which becomes public information and may affect your future business dealings. Note that some states, California as an example with its $800 minimum franchise tax, would expect you to pay for each year until you file that Certificate of Dissolution.
  3. If you haven’t already done this prior to filing your Certificate of Dissolution, you’ll need to file your business’ final tax return as well as your payroll returns, with both the IRS and, if necessary, the state, and they must be marked as final. Nevada doesn’t require income tax filings, but California does, and our firm frequently works with businesses from both states. Note that if these filings aren’t done promptly, it can have financial repercussions. Our firm has worked with clients in California who, for whatever reason, haven’t filed final payroll tax returns, and the state estimated the business wages for year after year, assessing taxes and sending bills that take months to resolve. And if business owners have changed addresses and not notified the California Franchise Tax Board, the agency can retrieve the assessed taxes from any business accounts it finds aren’t closed. Pay particular attention to payroll taxes and make sure no outstanding balances are owed; small business owners may be personally liable for those taxes, and liability protection won’t help in such matters.

As you can see, the steps involved in closing a business can be quite involved, and the stakes are high for getting them right the first time. Minimize the stress inherent in shuttering a business by hiring a certified public accountant (CPA) firm to do this right the first time and ensure as smooth a transition as possible.

Have you dotted all your I’s and crossed your T’s when it comes to establishing or dissolving your business? Contact ustoday and let us answer your questions.

Has Your Small Business Had its Midyear Checkup?

Has Your Small Business Had its Midyear Checkup?

It’s time to examine your business entity.

Now that the year is halfway over, with tax filings mostly behind you and systems (hopefully) in place, it’s a good time to reflect on the months that have passed. What’s working and what isn’t? What’s your plan for the rest of the year?

So many small business owners just run on autopilot, taking the path of least resistance and doing what they’ve been doing because it’s easier. But what if what you’ve been doing is putting you at risk or costing you money?

I recently read that about one quarter (24 percent) of consumers felt they had too many subscription services. The problem is that with all these subscriptions, money is silently draining out of our bank accounts, yet cancellation is often such a hassle that people will pay hundreds or even thousands of dollars for services they rarely use. In this case, the path of least resistance takes a considerable toll.

It’s possible that the legal entity you’ve selected for your business could take a toll on you as well. That’s why this is the ideal time to schedule a midyear legal checkup for your business, to take its pulse and determine whether the entity you’ve established is working for you.

Did you know, for example, that an LLC owner cannot be on the payroll? Surprisingly, about half of the business owners don’t know that. Not only can an LLC owner not be paid through a payroll service, but an LLC owner also cannot issue him/herself a W2. The IRS only allows LLC owners to take guaranteed payments — a rule that very few business owners are aware of.

Facts like this can make all the difference in how your business operates. Especially with the new tax laws that just went into effect last year, it’s even more important to choose the right entity for your business.

Small businesses usually can choose from among the following four types of business:

  • Sole proprietorship
  • LLC
  • S-Corp
  • C-Corp

Each one has its own rules pertaining to liability, tax burden, payroll, and more. There is no black-and-white, one-size-fits-all answer; each of these options has benefits and disadvantages, and depending on the type and size of your business and how it operates, one entity may be a better fit than the others. For example, an LLC often works better for a rental company or a holding business, whereas S-Corp is usually a better fit for restaurants. But the only way to really know what’s right for you is to talk through it with a knowledgeable CPA.

When you schedule this appointment with our firm, we’ll have you bring in just a few pieces of financial information. Then we’ll evaluate your business individually. We’ll consider your revenues, your number of employees, and your future plans, such as how long you plan to be in business and whether you plan to sell later. We’ll also look at how many fixed assets the business has — some companies are asset-heavy, with equipment and buildings, whereas others might only be a single person working on a computer. And we’ll consider your estate or succession plan for the future. We’ll talk through the payment expectations, liabilities, and personal factors; we’ll go through the benefits or disadvantages of employees (W2) and contractors (1099). And we’ll let you know how each choice of entity fits your business in light of the new tax laws.

Once we help you decide on a plan, we can process that paperwork right away and act as your registered agent so we can speak on your behalf with the IRS, taking that extra burden off your plate.

Come talk to us about how your business can start working harder for you.

Changes to Nevada State Commerce Tax Filing Requirements

This information came from the State of Nevada Department of Taxation and may require your immediate attention if you are a business owner in Nevada. (June 2019)

The filing requirement for Commerce Tax has been changed. If the Nevada gross revenue of your business from July 1, 2018 through June 30, 2019 was $4,000,000 or less, your business is no longer required to file a Commerce Tax return and your Commerce Tax Account will be automatically closed, effective June 30, 2019. 

If the Nevada gross revenue for your business from July 1, 2018 through June 30, 2019 was over $4,000,000, your business is still required to file a Commerce Tax return on or before August 14th, 2019. 

In the event your Nevada gross revenue exceeds the $4,000,000 threshold in a future year, it is your responsibility to file a return for the year. Failure to do so may result in the assessment of penalty and interest.

If you have already filed the return, please disregard this informational message.

For more information about Commerce Tax, including the change in filing requirements, please visit the State of Nevada Department of Taxation`s website.

From the Desk of Luda – On the State of NV removing the requirement to file NV Commerce return by small businesses… In my professional and personal life, I have highly respected people and organizations which are not afraid to acknowledge mistakes they’ve made. As some of you know, recently the State of NV announced that the businesses which receive less than $4M in gross proceeds a year are not required to file NV Commerce Tax returns any longer. And that includes the Commerce Tax returns due by August 15 of this year!

I believe it is a covert acknowledgment by the State of NV legislators that the initial scope of NV Commerce Returns filers had been overkill, wasting the government’s and taxpayers’ resources. This is great news for the small business owners and their accountants: everybody in NV has one less tax return to file. Maybe, the Use Tax Return should be next?

Declare Your Independence … from the Financial Details

Declare Your Independence … from the Financial Details

Do you smell that? That heavenly unmistakable aroma of charcoal grills, freshly cut grass and sunscreen mean summer is here. And with it comes the promise of freedom — of course, America’s freedom, which we’ll be celebrating this summer, but also freedom from the grind of school, the day-to-day routine, and those snow tires (fingers crossed).

Summer represents everything small business owners are seeking when they first start their businesses: the freedom to travel when they want, to be their own bosses, to do their work how they choose at any time they choose. If you want to spend your Tuesday fishing the Truckee River, lying on the beach at Sand Harbor or taking your kids to Disneyland, you’ve earned the right to do it. That’s the biggest perk of owning a business, right?

So why stare at a mound of paperwork and worry about how the billing, payroll, expense tracking, and tax reporting will happen if you hit the road?

Instead, here’s some advice: Close your eyes; breathe in that glorious air; envision your next summer adventure, and declare your independence from your books.

While you’re stocking up on sparklers and packing your picnic basket for Independence Day, celebrate your own freedom from the financial minutiae of running a business.

That’s exactly why we’re here.

The whole reason Ludmila CPA offers a full suite of small business solutions is to enable small business owners like you to focus on their passions, grow their businesses, and, yes, to enjoy the perks of self-employment. We want you to enjoy your summer! (After all, we waited long enough for it!)

As a business owner myself, it’s important that I be able to take the occasional day to be with my family or to travel. Every business owner should do that, but you can’t when a rapidly growing pile of paperwork is sitting in the corner, filling you with dread and anxiety.

You may think it’s a wise decision to save money and handle it all yourself, but trust me when I say the small investment you make in hiring a professional to take that burden off your plate will provide endless returns in the form of improved mental health, quality time with your family and friends, and even improved revenues now that you have more time to focus on your business.

A lot of programs out there these days advertise that you can “Do It Yourself!” But is that a benefit? Aren’t you busy enough? And wouldn’t you feel better-having professionals give it their undivided attention? If you’re not quite ready to turn over the reins completely, we understand. We can still recommend applications that could complement our services and make your life easier. You’ll still reap the rewards of efficiency, time, potential money savings, and the opportunity to catch errors or even fraud.

While you should be able to disconnect from your work sometimes, you might feel more comfortable knowing that our cloud applications for bookkeeping allow you to check in from wherever you are — whether that’s your backyard or Timbuktu — anytime you wish.

Our wide range of small business services includes:

Schedule a meeting today and talk to us about how we can help — we’re happy to customize a plan that enables you to hand over to us only those tasks you’re ready to let go.

Then go celebrate your freedom!

Filing Taxes Late? Start Here.

Filing Taxes Late? Start Here.

It’s a bit like that nightmare where you show up for class on the day of the final, and you realize you never came to class before now and you don’t know any of the stuff on the test.

You’ve missed the April 15 deadline to file your tax return. You feel like a deadbeat. You’re scared about the consequences and you feel like the only person in America who didn’t make the deadline.

Well, I’m here to tell you, you’re not. We see a lot of this at our office. People skulk in, their tails between their legs, embarrassed that they didn’t make the deadline and imagining outrageous consequences.

These aren’t criminals. They aren’t dishonest people. Many times, they’re simply afraid they can’t afford what they owe, so they wait until they can pull the money together.

Or they’re perfectionists who fall behind trying to get everything just right and miss the deadline. They’re late one year, then that snowballs into the next year, and then the next, and before they know it, they’re five years behind and too afraid to file because they think there’s no way to catch up. They’re terrified about drawing attention to themselves.

In fact, Forbes says that about 7 million Americans fail to file their income tax returns each year. You aren’t alone, and the good news is that it’s not as difficult as you might think to get back on track. But the worst thing you can do is nothing.

  1. Schedule a meeting. Send us an email or give us a call. No matter how bad you think it is or how embarrassed you feel, you should know that we’ve seen it all before and we’re not going to intimidate you or make you feel bad. Taking that first step to schedule an appointment will go a long way toward helping you to breathe easier. When you call us, we’ll let you know what to bring with you to get the process started. Don’t worry if you’re missing documents. After all, that might be the reason you were late. We have ways to find some of that information you may be missing.
  1. Expect to sign a power of attorney. Usually, this is the first step in the process. Signing over power of attorney to us enables us to do all the talking for you. That way we can get hold of information, update all the information the IRS needs, and speak with the necessary parties, all so you don’t have to. Plus, as experts, we know the right things to say and the right questions to ask.
  1. Plan to make a plan. At our meeting, we’ll formulate a plan to track down information, submit letters, file forms, and make payments. Don’t worry that you’ll have to pay everything at our meeting—if you owe something (which we won’t know until we meet with you), we can come up with a reasonable payment plan that works for you. The IRS realizes that something is better than nothing, so as long as you’re committed to making regular payments, you’re usually in good shape.

Throughout my experience as a CPA, one of the most rewarding things about my job has been working with clients who were so behind on their taxes that they thought they were beyond hope. This is because, after working with them and coming up with a plan to correct the situation, I’ve witnessed them gaining peace of mind. The transformation was almost physical.

At Ludmila CPA, we know being behind on your taxes can be scary and even emotional. It affects your quality of life. But we do care, and we’re in your corner. Contact us today, and let’s figure it out together.

Need More Time? Here’s How to File a Tax Extension

Need More Time?

Here’s How to File a Tax Extension

April 15 is just around the corner, and let’s face it: Some people simply won’t be ready and will need to file an extension.

Call us if you need an extension.In certain cases—for instance, you’re missing some of your essential tax documents, working overseas, or even dealing with a major crisis such as a death or illness—the IRS does allow you to file for an extension. If you file by April 15, it buys you time until October 15, 2019, to file your return and helps you avoid any late-filing or late-payment penalties.

But there are a lot of misconceptions out there about filing an extension, and the biggest one is that filing an extension means you don’t have to pay anything until October.

Let me be clear: Filing an extension does NOT mean you avoid paying anything owed this month. Even if you file for an extension, you will still have to calculate your estimated payment and send it to the IRS by April 15, 2019. Filing for an extension only extends your time to file the return and, if necessary, the final amount due.

If you think you’ll need an extension, contact us right away. We not only can file the extension paperwork (Form 4858) quickly for you, but we can easily create an estimate of what you may owe. We do this by determining what, if anything, may have changed for you from last year or ask for copies of your W2 and 1099 forms and devise an estimate based solely on that. And if you find that you simply aren’t prepared to send your amount owed right now, you still need to file an extension with a request to get on a payment plan. This will help you avoid any late-payment fees on any balance due which could be almost 10 times higher than if you do not file an extension.

Be aware that filing for an extension most often results in being granted the extension. But it’s not guaranteed. In some cases—for instance, your estimated payment seems way off or problematic—your request may be rejected. This is why it pays to have a CPA do this filing for you: We have the knowledge to produce an accurate estimate to help avoid such problems, and we can do it quickly, to meet the April 15 deadline.

Making Your Tax Payment

Whether you’re filing for an extension or simply need to send what your return says you owe by April 15, there are a few options for sending in your payment.

  1. We recommend using the direct pay ACH (Automatic Clearing House) option provided on the IRS website, because the IRS charges “convenience fees” to process a credit card, costing you more, and because this is a safe option to ensure your money arrives on time and securely.
  2. The second-best option for submitting payment is to provide your accountant with bank information, and he or she can make the payment for you when the extension or return is filed.
  3. The third option is tried and true—mailing a check—and involves having your accountant provide you with a voucher and mail-in instructions. There are always risks with mail, such as interception by would-be thieves or simple lost-in-the-mail problems. However, for some who wait until the last minute, popping a check in the mail on April 15 is allowed, as long as the postmark reads April 15.

Can’t pay the whole thing? That’s okay. Pay what you can and have your accountant submit a request for a payment plan when you file your return. Depending on your circumstances and paperwork, you may have to pay penalties or interest, but your accountant can provide you with the details on this. A payment plan gives you a predictable payment amount to build into your monthly budget and ensures you won’t be charged for lateness.

As a last resort, if you simply can’t pay anything, at least file for the extension. The interest is high for late payments, but the penalty for being short on your payment is .5 percent of the balance owed per month, while the penalty without an extension is 5 percent—a significant difference. It behooves you to file without the payment versus not filing anything and taking your chances.

Also, don’t forget your IRA contributions! April 15 is the deadline for making IRA or Health Savings Account contributions for the year 2018. We work with our clients to help you plan these contributions in advance so that this isn’t a surprise.

Make an appointment or contact us today to find out how we can help you now or in the coming year! And congratulations for making it through another tax season!

Tips for Personal Tax Prep – Making Tax Season Less Taxing

Tips for Personal Tax Prep

We understand. The whole idea of hauling that box of papers out of the closet, sorting through them to decide what’s important and what’s not, pestering people to collect whatever documents are missing (and not being quite sure what those might be), then heading to the accountant’s office with frazzled nerves as you fear the worst outcome … tax season is rarely anyone’s favorite time of year. Trust us, we get it. We Make Tax Season Less Taxing

For some folks, going to the accountant is like going to the dentist: You dread it enough that you only go when you absolutely have to, and you spend the whole time there with a sinking feeling that you’re about to find out something bad.

The problem with that approach is that there might be something that’s a tiny issue now, something that’s easily fixable with a few adjustments, but it could wind up being a major issue next year. Avoiding your CPA doesn’t prevent the issue; it just makes it worse. (Also like the dentist.)

At our offices, we tend to only see some clients when there’s a huge problem. Maybe a few years ago they thought it would be easier, less scary, to have their friends do their taxes. Then they wind up sitting in our office, terrified because they owe a $4,000 penalty to the IRS for gross income omission.

Had they made the small investment in a CPA, they would have benefitted from a knowledgeable expert spotting such an oversight early on and correcting the mistake—or, at the very least, helping them to anticipate and mitigate the consequences. Paying us for an hour of our time buys you peace of mind. And trust us, there’s nothing more valuable than that.

We’re firm believers in surrounding yourself with professionals. You shouldn’t diagnose your own illnesses, you shouldn’t fix your own electrical system, and you shouldn’t manage your own stock portfolio—not without experts in your corner. And you shouldn’t file your tax return without insight from a trained professional, either.

We also won’t need you to bring in that dreaded box. When you call us and schedule an appointment, we’ll let you know what things we’ll actually need from you—and it won’t be as much as you’d think. At our meeting, we’ll go through your document package together, and we’ll let you know if anything’s incomplete, doesn’t look right, or is missing. Don’t worry about being perfect; no one expects that. We’re in this together, and we know that you’re not an expert. We’ll talk you through what’s next and make filing your tax return as un-scary a process as possible.

Then comes the most important part of the meeting: planning next year. The more thought you put into next year’s tax filing, the more rewards you’ll reap. Next year, we will remind you it’s tax preparation time to help you collect the documents you’ll need and to schedule a meeting. And then we’ll debrief—what went well, and what didn’t? What changed for you? What adjustments should we make in response? What are your financial goals, and how can we help you reach them?

Are you convinced? The April 15 tax deadline is fast approaching, so contact us today to schedule an appointment or to discuss any concerns you may have. We’re ready to help you make tax season a whole lot less taxing.

Are you a small business owner? Check out our tax prep tips for your small business!

 

Tax Prep Tips for Your Business

The jury is still out on what impacts the 2018 tax cut package will have on businesses as they file their 2018 tax returns this spring. CPAs like us are bracing for the unexpected, and we’re urging our business clients to get all their ducks in a row as we move through tax season. If you’re a business owner, hopefully, you’ve sent out your W2s and 1099s and are preparing to file your returns.

Understanding the new laws and keeping the deadlines straight can be tricky, but here’s what you need to know to be as prepared as possible for tax time:

S-Corps, partnerships, and multiple-member LLCs must file returns (or extensions) by March 15. For LLCs, this deadline has only been in place for three years, and it may still not be a habit for many. But if you miss this deadline — whether you only miss it by one day or 30 — the penalty is $195 per month, per owner. There’s no prorating, so don’t miss that deadline. Can’t make the filing deadline? File an extension, which is available until September 16, but ONLY if you file for it by March 15. (Why September 16? Because the 15this a Sunday.)

Yes, tax day is actually April 15 this year. It’s been a while, thanks to a couple weekend day interruptions that forced Tax Day to fall later, but this year the day is April 15. Don’t miss it!

Tax Day is April 15, 2019

Business tax extensions are filed either electronically by tax preparers OR by mailing paper Form 7004. We prefer electronic filing because we receive a record of acceptance from the IRS, which is not the case with paper forms (unless you use certified mail with return receipt, which would be your next best option).

C-Corps, trusts, sole proprietorships, and single-member LLCs must file by April 15. Sole proprietorships file their returns on their individual Schedule C forms by the standard filing date for individuals. This is also the date on which you’d need to file for an extension in order to avoid penalties. The extension would give you until October 15.

If your fiscal year ends on a day other than December 31 … your filing deadline is the 15th of the 3rd month for S Corporations and LLCs’, 15th of the 4th month for C Corporations and 15th of the 5th month for Non-profits.

Single-owner LLCs and partnerships run by married couples are disregarded entities, which file Schedule C by April 15. This means that their businesses are not seen by the IRS as distinct from their owners. These types of businesses file their returns on their individual Schedule C forms by the standard filing date for individuals (April 15). As if things weren’t already confusing, we should point out that this applies to LLCs organized in community property states, such as Nevada and California. In some states, LLCs owned by married couples may have to file separate tax returns, so be sure to speak with us about the rules in your state.

Don’t wait until your appointment with us to prepare your records! In order for us to be most effective with our time, in order to help you forecast the next year and make informed recommendations, we would have had access to your records to review beforehand. For your part, come prepared with questions or issues you’d like to discuss, and, of course, bring all your relevant documents, including any 1099, 1099K or 1099 misc. forms.

Contact us today to schedule an appointment or to discuss any deadlines or requirements that may pertain to your business. Happy tax season!

9 Financial Resolutions for 2019

Nine financial resolutions to get your finances in shape for the new year.

If you’re like us, the last month has been a blur of excess—too much food, too much sugar, too much spending, and just plain too much stuff! But now that the new year has begun, it’s time to make those resolutions to eat better, get in shape, and get the house in order.

But are your finances in shape for 2019?

It’s never too late to get your financial house in order, but January is an ideal time to start with a fresh, clean slate. As you’re pulling those documents together in preparation for tax time, why not spend a little extra time cleaning out your financial clutter and laying the groundwork for a more stress-free year?

Here are 9 financial resolutions we suggest making right now for a healthier bottom line:

  1. Set financial goals. What more could you be doing to grow your money, increase profits, and spend or save more wisely? Write down your goals and determine steps you can take toward reaching them. Don’t let this step intimidate you—we’re not talking about major changes here. Start small. Maybe you’re looking to save more money for retirement, a major purchase, or a vacation? Try putting aside an extra $50 each week, or from each paycheck. Even just $5 more per week gives you $260 more at the end of the year.
  2. Create a budget. You know it’s a good idea, but it seems intimidating, not only because it’s extra work but because you’re worried you’ll discover you can’t afford things or will be limited. Here’s a secret the financial pros know: The opposite is true. When you make a good, detailed budget and adhere to it, you’ll be amazed by the feeling of freedom that comes as a result. When you’re designing a budget based on reality and that addresses every type of spending you do in a month (and even a bit for savings), you’ll realize that there aren’t any surprises. Your debts, your groceries, the gas for your car, the office supplies, the new shoes, even those dinners out … they’re all accounted for, and you’ll feel ready to tackle it all in the month to come. If you’re having trouble figuring out how to start, let us know—we’re happy to share tools and tips to get you off on the right foot.
  3. Invest in accounting software. Numerous tools exist to help individuals and small businesses keep track of their finances, from Xero to Quickbooks and more. When you put your financial details into a personal accounting system, you’ll get a clear picture over the coming year of where you’re spending—or spending too much. Perhaps you’ll also realize that you can afford to save or donate more than you thought you could. Your system can probably enable you to make a budget and help you stay on target each month. It may even help you to catch fraudulent activity more quickly since it allows you to look at all your accounts in one place and over time. The more you use it, the more data you’ll have in order to make wise economic decisions. Many systems even allow you to set up bill paying, which leads to our next resolution…
  4. Schedule automatic bill payments. In the end, we’re all human. We get busy, we take vacations, and statements occasionally get lost in the mail. But your most important bills—such as your mortgage, rent, and utilities—are due at the same time each month or each quarter. Why not take some work off your plate this year and schedule automatic bill payments through your bank, creditor websites, or personal accounting system? This will help ensure that you never make payments late or miss them altogether, which will ultimately help your credit score. Setting it up takes a bit of a time investment, but in the long run, it will save you time for other more important things.
  5. Keep credit in check. As of this month, the average American household has an average of $5,700 in credit card debt, according to a survey of consumer finances by the U.S. Federal Reserve. And this same research shows that the higher the credit card debt, the lower the net worth. If your holiday spending went on credit cards, resolve to get your debt under control and pay it off. Resolve to never charge what you can’t pay off in full the next month, or just stop using credit altogether. Set up automatic bill pay to ensure the full balance is automatically paid on time, every time. If your debt is too large to pay at once, start small. Pay your minimum payments each month, and put anything extra you can afford going toward paying off the smallest debt. Once that card is paid off, roll the payment into what you pay toward the next one.
  6. Plan to donate. As I discussed in my last post, the new tax laws will greatly affect how people donate to charitable organizations. When you’re creating your budget, figure out how much you can afford to donate each week, month, quarter, or year and set up automatic donation payments.
  7. Track mileage. Although the new tax code may make itemization unnecessary, it’s a good idea to start on the right track by keeping a close eye on expenses, just in case itemization becomes an option. One thing you can start doing is tracking your mileage. The IRS will allow business owners or independent contractors to either write off actual vehicle expenses or mileage, whichever is higher. A number of apps exist, such as MileIQ, Mileage Tracker, or MileLogger, to help you easily record mileage and calculate potential reimbursement. And be sure to keep a backup of this data elsewhere, just in case something happens to your phone or device.
  8. Plan IRA contributions ahead of time. This time of year, you may hear from your financial advisor that you can squeeze in last-minute contributions to IRA accounts without missing the April 15 contribution deadline. Then you’re scrambling to see what you might have lying around to put in. A better idea is to consult with your CPA to determine how much you can contribute in the coming year and set up automatic transfers each month. This is a much more pain-free method since we often don’t miss what we never felt we had to begin with. This is a particularly good method for self-employed individuals, whose income may fluctuate from month to month, making it hard to come up with unplanned IRA payments.
  9. Set up your CPA appointment! Accountants’ schedules are already filling up, and before you know it, April 15 will be here. Call to schedule your appointment today to get your tax filing done and out of the way, so you can enjoy any potential refunds even sooner.

From all of us at Ludmila CPA, have a healthy, happy new year!

 

Don’t Stop Giving! How the New Tax Law Affects Charitable Deductions

How the New Tax Law Affects Charitable Deductions

’Tis better to give than to receive — that’s what we’re always told around the holidays. Doing good for others should be its own reward.

But tax deductions are nice, too. For many, this is the time of year for businesses and individuals to give to charitable organizations and get that last-minute deduction from the current year’s taxes. In fact, for many who itemize deductions, the tax incentive has made the difference in whether they donate or not.

However, the 2018 changes to the tax code mean that although those deductions themselves haven’t gone away, you’ll have to cross a tougher threshold to get them. This is because the standard deduction went up considerably.

For individuals filing singly and married couples filing separately, the standard deduction went up to $12,000; for married couples filing jointly, nearly doubled to $24,000; and for heads of household, the new standard deduction is $18,000.

It’s going to be a lot tougher to clear these new, high standard deductions with itemization, so those who have itemized deductions to surpass the standard deduction in the past may no longer bother doing so. A congressional report estimates that only 18 million households will itemize deductions for 2018, which is way down from last year’s 46.5 million.

As a result, here’s the impact these changes could have on charitable giving:

  • Individuals who no longer need to try to snag that extra deduction may take a pass on giving altogether.
  • Some may start what’s called “bunching.” Businesses or individuals who typically give annually might hold off this year, opting instead to make bigger, more substantial donations the next year in order to surpass the standard-deduction threshold. For instance, rather than donating $5,000 per year, they may hold it back and donate $10,000 next year to try to surpass that standard deduction.

While, for sure, giving something is better than giving nothing, we don’t advise bunching. The problem with this strategy is that society’s needs and the work of nonprofits don’t stop when the tax law changes.

Many of these essential organizations rely on donation forecasts in order to develop annual budgets and plan events or service efforts. It’s going to be awfully hard for them to budget when those huge amounts only come every other year and get nothing in the intervening years, or when donors they’ve counted on in the past opt to save their money and reap the rewards of the standard deduction. Some organizations may even go under in such an unpredictable climate, which could have disastrous consequences.

If you’d like help planning your charitable contributions, contact us at Ludmila CPA.