Covid-19 Statement to Our Clients

In these unprecedented times, most, if not all, Americans are feeling the impacts of the coronavirus
(COVID-19) pandemic. Thousands are sick, a large number have died, millions of jobs are being lost amid
quarantine orders and small businesses are facing exceptional challenges to keep their doors open. The
federal government is committed to helping individuals and businesses during these uncertain times. In
addition to pushing back the April 15th tax deadline to July 15th, the government plans to issue stimulus
checks to most taxpayers, increase unemployment and authorize lenders to issue SBA loans with simpler
application processes, which in certain circumstances may not have to be repaid. Many states have also
extended filing deadlines and loosened eligibility requirements for unemployment benefits. As information
from media outlets and federal & state governments roll out in record speeds, we know you have many
questions from a business and personal standpoint, for example:

 How do I know if I’m getting a stimulus check?
 Is it possible to take distributions from my retirement account to pay my monthly expenses
without incurring penalties?
 As a self-employed individual, is it possible to apply for unemployment benefits?
 Am I required to pay my employees if they’re at home with their kids while schools are closed?
 What if I can’t afford to pay my employees sick or family leave?
 Is it better to lay off my workers or put them on temporary leave?
 Is a self-employed individual eligible for sick leave or family leave pay?
 How do the employer credits work if I pay sick or family leave to my employees?
 What are the qualifications for getting an SBA loan to keep my business afloat?
 What type of SBA loan may not require repayment?

Right now, your highest priority is your health and the health of those you love. We are diligently reading
and researching new legislation, proposed and passed, to understand its impact on you. Our main objective
is to support you and your business and to navigate this complicated and everchanging environment
together. Please contact us and let us help you walk through the details of the newly enacted federal tax
legislation and allow us to be the trusted advisors you hired us to be.

The Impact of SECURE Act

Congress recently passed sweeping legislation known as the Setting Up Every Community for Retirement

Enhancement (SECURE) Act. The Act expands opportunities for individuals to increase their savings and modifies many employer requirements as so to incentivize businesses to encourage their employees to save for retirement sooner. Many of the provisions are in effect for 2020, so now is the time to consider how these new rules affect you. Below are some of the more important elements that impact individuals and businesses.

Individuals
 Raises the required minimum distribution age from 70 ½ to 72
 Allows contributions to an IRA after age 70 ½
 Permits tax free distributions from a 529 plan to repay up to $10,000 of student loan debt
 Allows penalty free withdrawals from a 401(k) to help offset costs of having or adopting a child
 Requires distributions from an inherited IRA to most non-spouse beneficiaries be done within 10 years following the IRA owner’s death

Businesses
 Permits unrelated employers to band together to create a single retirement plan
 Increases the credit for small employer pension plan start-up costs
 Creates a new tax credit of up to $500 per year for small employers to offset costs for new 401(k) and SIMPLE IRA plans
 Requires most employers to allow long-term part-time employees to participate in 401(k) plans
 Increases penalties for failure to file retirement plan returns

The government recognizes that most Americans are not prepared for retirement. Thankfully, most of these changes will allow people more time to save for retirement, as well as provide more options for saving.

However, not every provision is favorable to all and some will impact taxpayers more than others. Let us help you identify which parts of the Act can benefit you and assist you in implementing them into your plan for the
future.

Common Tax Questions Answered

Tax questions answered when filing taxes:

How do I know if I have to file a tax return?

Whether you’re required to file a tax return will depend on several factors, including your gross income, filing status, age, and whether you’re a dependent on someone else’s federal income tax return. And you may have to file even if you don’t owe any tax.

To get more specific information on who must file, check out IRS Publication 501. For most people, gross income is the main trigger for filing requirements. For example, in 2019, the filing threshold for single people younger than 65 was $12,200. For married couples filing jointly, it was $24,400 if both spouses were younger than 65.

If you were named as a dependent on someone else’s return and had income, you might also have to file, even if your income was much lower than the general threshold. Publication 501 has more detailed information on when dependents must file.

You’ll also need to file a return if you had at least $400 in self-employment earnings or meet other specific requirements, such as earning untaxed tips, receiving money from tax-exempt churches, or owing alternative minimum tax. IRS Publication 501 goes into details about these and other special situations.

What income do I have to pay taxes on?

According to the IRS, income includes money, property or services. Any income is taxable unless the law specifically exempts it, and all taxable income must be reported on your tax return. Some nontaxable income must be reported, too, even though you won’t pay taxes on it.

IRS Publication 525 has details on what counts as taxable income and what doesn’t, and it’s a lengthy list. Not all taxable income is treated the same. Earned income, like your wages, is taxed differently because you pay Social Security tax, Medicare tax, and state and federal income taxes on it.

Unearned income, like child support or Social Security benefits, isn’t subject to payroll taxes, but you do pay federal and sometimes state income tax on it. And some types of unearned income are taxed at a lower capital gains rate, rather than your normal tax rate

What filing status should I choose?

Tax filers are treated differently based on household status. To inform the IRS of which rules apply to you, you’ll have to choose a filing status. There are five: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child.

Your filing status affects your tax rate, standard deduction, and eligibility for certain deductions and credits. The IRS provides an interactive tool to help taxpayers choose a filing status.

Do I have any dependents?

dependent is a person you’re responsible for supporting. If you can claim a dependent, you can become eligible for certain tax breaks, including the child tax credit. You may also qualify for head-of-household status.

You may have a dependent if …

  • You have a qualifying child younger than 19, or under 24 if they’re attending school full time. Your child must either live with you for more than half the year — or qualify for an exception — and must not provide more than half their own support. Your child also can’t file a joint tax return, except to claim a refund.
  • You have a qualifying relative. Your qualifying relative either has to share a specific family relationship with you or must live with you all year long. You must provide more than half their support, they must earn very little, and they can’t be claimed as a dependent by anyone else.

The IRS provides an Interactive Tax Assistant Tool to help you determine if you have a dependent.

How do I know my tax bracket and tax rate?

The U.S. has a progressive tax system, so not all your income is necessarily taxed at the same rate.
Tax brackets refer to the range of incomes taxed at specific rates, while your marginal tax rate is the highest tax bracket applicable to your income.

There are seven tax brackets under current tax law. To find out which one you fall into — and what your tax rate is — you’ll need to know your income. You can then use IRS Tax Rate Schedules for the taxable year to determine your bracket, what your marginal tax rate is, and how much tax you might owe.

tax forms

What tax form should I use?

Beginning with the 2018 tax year, a single Form 1040 has replaced the previous three versions — Forms 1040, 1040EZ and 1040A.

The simplified 1040 form is half the size of recent forms and uses a “building block” approach to simplify the filing process. Taxpayers with more-complex tax situations may need to submit additional forms (called “schedules”), but all 150 million individual U.S. taxpayers start with the same basic form.

Should I take the standard deduction or itemize?

Deductions reduce taxable income. You have a choice between taking a standard deduction or itemizing your deductions. When you itemize, you reduce taxable income by the value of certain expenses deductible under U.S. tax law. For example, if you pay mortgage interest, you can deduct the interest paid — but only if you itemize.

To decide which deductions to take, compare the value of the standard deduction versus the total value of your itemized deductions. The standard deduction was raised for tax years 2018 to 2025. For 2019, the standard deduction amounts are:

  • $12,200 if you file as single or married filing separately
  • $18,350 if you file as head of household
  • $24,400 if you file as married filing jointly

Because tax reform significantly increased the standard deduction, you may find your itemized deductions don’t exceed the standard deduction amount for your filing status.

What’s the difference between a tax credit and a tax deduction?

Both tax credits and tax deductions can reduce the amount of tax you must pay. Deductions reduce the amount of income you pay taxes on, which in turn can reduce your tax. Credits are a dollar-for-dollar reduction in the amount of tax you owe.

If you had an income of $30,000 and took a $1,000 deduction, you don’t have to pay tax on that $1,000 of income. The deduction could save you $200 (assuming a 20% tax rate on that $1,000).

By contrast, a $1,000 credit would reduce the actual amount of tax you owe by that $1,000. So if you owed $3,000 in taxes, you’d now owe $2,000 and save $1,000.

What are some deductions and credits I can claim?

The deductions and credits you’re eligible to claim vary depending upon your situation. Here are some deductions that you can claim even if you don’t itemize.

  • Contributions to individual retirement arrangements, including IRAs, SEP-IRAs, Simple IRAs and solo 401(k)s (these phase out at higher incomes)
  • 50% of self-employment taxes
  • Student loan interest up to $2,500
  • Tuition and fees for higher education up to $4,000 if you fall within income limits
  • Health savings account contributions made with personal funds

Deductions you may be eligible to claim only if you itemize:

  • $10,000 maximum for the aggregate of state and local taxes paid (SALT taxes)
  • Interest on up to $1 million of eligible home mortgage debt for loans taken out before Dec. 15, 2017, and up to $750,000 of eligible home mortgage debt for loans taken out after that
  • A deduction for medical expenses, but only if they cost at least 7.5% of your income
  • A deduction for charitable contributions that don’t exceed a set percentage of income

And finally, here are credits you may be eligible to claim.

  • The earned income tax credit provides a credit for lower-income Americans. The IRS EITC Assistant can help you determine if you qualify.
  • The child tax credit provides a credit of up to $2,000 per qualifying child for tax years 2018 to 2024. As much as $1,400 of this credit is refundable. Eligibility begins phasing out at $200,000 in income for single filers and $400,000 in income for married couples filing jointly.
  • The child and dependent care tax credit is valued at 20%–35% of the costs of allowable care expenses, up to $3,000 in expenses for the care of one qualifying person. A taxpayer caring for two or more dependents could claim a maximum credit of $6,000.
  • The American opportunity tax credit provides a maximum credit of $2,500 for qualifying educational expenses paid for eligible students. The credit is available only for tuition paid for the first four years of post-secondary education and there are income limits.
  • The lifetime learning credit provides a maximum credit of $2,000 per year for postsecondary educational costs. There are also income limits, and the credit is worth only 20% of qualifying expenses, up to a $10,000 maximum.

When are taxes due?

Each year, you’re required to file your federal income tax return for the previous calendar year by Tax Day. Usually, the filing deadline is on or around April 15, though if the 15th falls on a weekend or holiday the deadline can be bumped to the next business day.

How do I file a tax return?

You have multiple options to file your return.

  • Mail: The address to mail in your return will depend on the state you live in (the IRS offers a list of addresses)
  • IRS e-file: The e-file system is free if your income is $69,000 or less
  • Free online tax filing: Like with a service such as Credit Karma Tax®
  • DIY: With fee-based tax-preparation software
  • Paid tax professional: If your situation is more complex

However you choose to file, be aware that submitting your return electronically has several advantages. If you’re owed a refund, you could get it sooner via e-file, since the IRS processes e-filed returns more quickly than paper returns.

When will I get my refund?

According to the IRS, most refunds are issued within 21 days for taxpayers who e-filed and who are having their refund directly deposited. Refunds take up to six weeks if you submitted paper returns. Claiming certain credits or deductions might delay your refund. You can check the status of your refund on the IRS “Where’s My Refund” website.

What if I can’t afford to pay the tax I owe?

If you can’t afford to pay your taxes, it’s imperative you still file tax a return and make arrangements to pay what you owe. Failing to file and/or pay your taxes on time will result in interest and penalties.

If you can’t afford to pay the full amount you owe by the deadline, the IRS has multiple payment options that could help, including installment agreements. Keep in mind that you’ll still owe interest, and possibly penalties, even if you enter into a payment arrangement.

Costs and fees of payment plans vary depending upon the duration of your plan and whether you apply by mail or online.

Bottom line

While these answers to top tax questions might help you get started in fulfilling your tax obligations, you may still have questions as you go through the process of filing a return. You can find more answers from Credit Karma Tax® about a wide array of issues, from how a car lease affects your taxes to forms you may need to use if you suspect a fraudulent tax return has been filed in your name.

Small Business Financing

finances

Financing can be one of the biggest obstacles small business owners face. Proper financing can help your business survive, grow or expand and increase profits. The alternative can be as severe as business failure.

A small business' primary use of a commercial finance company is to borrow money for the purchase of inventory and equipment, and to meet seasonal cash flow needs. A trustworthy financier can be an asset to any small business. While right now may be the perfect time to apply for a loan to purchase more equipment, finding a good lender may prove to be challenging. When shopping for a commercial finance company, look for the following qualities:

  • Doesn’t sell or broker loans to third parties. You shouldn’t have to worry whether the people you deal with today will be there tomorrow.
  • Provides prompt service. A good lender is available to address your issues, problems and concerns, and then respond promptly to your needs.
  • Understands the unique needs of small business. The lender should work with you throughout the business cycle by offering such options as seasonal financing.
  • Does not require outside collateral. Instead of pledging your home or other assets to secure financing, look for a lender that will apply judgment, not rules, in special circumstances.
  • Has competitive rates. Compare rates but understand that the lowest rate will not guarantee you the best service. Weigh the two carefully before making your decision.

Not sure if you need financing or if you found a good lender? Contact us for advice!

Overtime Laws Are Changing in December

pay check statementThe rules for overtime pay are changing and small business owners need to know how these changes will impact their business.

Beginning December 1, 2016, the U.S. Department of Labor (DOL) will require employers to pay their employees overtime pay when they work more than 40 hours in a given week if those employees earn less than $913 per week ($47,476 per year). “White collar” workers who meet this salary requirement and perform administrative, executive, or professional duties as defined by the DOL won’t be required to be paid overtime. An administrative, executive or professional employee with total annual compensation of at least $134,004 is exempt without meeting the full duties test. This new rule also allows bonuses and incentive pay to count towards up to 10% of the new salary level.

There are some things you can do now in order to make sure that you’re in compliance with the new rules. For starters, take an assessment of your current salaries and job descriptions and determine whether you have any exempt employees who are already earning a salary above (or perhaps nearing) the threshold. You may also need to identify the non-exempt positions and shuffle workers around as necessary.

Your business will have three choices. You can either:

  • Increase exempt workers’ salaries so that they exceed the new overtime wage base;
  • Leave salaries at current levels and pay overtime for hours over the 40 hours per week threshold; or,
  • Limit workers’ hours to less than 40 hours per week so that you never need to pay overtime. Alternatively, some businesses can benefit from hiring additional staff and reducing the amount of hours worked by each employee, so that the same amount of work is performed but with less risk of exposure to overtime pay.

It may be that using a combination of the above approaches is the best option. Regardless of which method you use, always be sure to talk with your employees about any changes to their pay before making adjustments. Contact us today to discuss which method works best for your business.

Getting More From Your Tax Preparer

more_from_tax_preparer_0816Do you find yourself needing advice, a plan for the future, or a trusted resource to help you set goals and stay focused on achieving them? Padgett Business Services® offers more than just tax preparation and monthly accounting services. We also provide strategic planning through ongoing communication not limited to just tax season.

We can help you focus on tomorrow by customizing a plan for you and your business today based upon your short and long-term goals. Developing a plan early and revisiting it throughout the year will not only help you stay motivated, but will also determine if adjustments are needed to ensure you reach your goals.

The days of meeting with your accountant once or twice a year to report the past is over! By staying engaged with you throughout the year, we can offer tax planning strategies and identify opportunities for real tax savings for you and your business.

With the fast-paced technological age we live in, you need more than just a tax preparer! We have the capabilities to provide you with real-time information, allowing you to make more informed decisions. You need a small business advisor who’s proactive and has the expertise necessary to help your business stay competitive in today’s marketplace. Let us be the trusted resource you turn to, not only for tax preparation but also for future tax planning.

Look to the U.S. Dollar When Making Your Next Business Decision

us dollar photoAs a small business owner, just keeping your company running can be hard enough. From managing teams to managing your finances, there is little time left to find new ways to make your money work for you. One often overlooked area for large savings is understanding how and when your home currency can work to your advantage. In recent months, the Greenback’s strong performance versus international currencies has uncovered just this opportunity, an opportunity that can save your business hundreds if not thousands of dollars. Outlined below are a few quick tips on how you and your business can make the most of this all-rare situation.

The Do’s and Don’ts of Early Profit Spending

business chart photoAs you make the transition from in-the-red to in-the-black take a moment to congratulate yourself. You’ve done it! The company you built from an idea is now turning a profit. How and where you spend those hard-earned dollars will fuel your business’s growth or speed its failure.

While giving yourself a raise and a vacation may be the first things that come to mind as you begin to see dollar signs, the best way to determine where to invest profits is to pinpoint what is currently making your company profitable as well as what is costing you money.

Investing in stellar talent is an excellent way to use some of your profits. Think about the biggest opportunity within your business. If you scout and hire a key employee to pursue that opportunity, they will increase the profit-generating side of your company and eventually cover their salary. Conversely, rashly hiring a slew of employees with undefined roles will create a payroll that consumes your profits and a team that monopolizes your time needing management.

Technology or tools that you couldn’t afford as a startup may now be within budget. Again, think about what one thing would most benefit your company and either save money or make money. Is there a technology that would increase productivity and eliminate a source of friction in your business? Do your homework and talk to other entrepreneurs about the technology and tools they are using. Most will give you honest answers that will help you find the exact thing you are searching for and could save you misspending thousands of dollars.

3 Ways Emerging Entrepreneurs Run Financially Sound Businesses

american entrepreneurs photoSecuring funding is a major feat for any brand and requires a great deal of planning and expertise. However, the real value comes from turning that initial support into long-term growth — transforming a spark into a sustainable fire. Without financial stability, eCommerce brands lack the foundation to tackle key business endeavors like evolving product lines, expanding geographic storefronts or making new investments into shipping and packaging that enhance the customer experience.

This is particularly true for emerging businesses transitioning from angel or first-round funding sources into companies with verified equity. These brands are no longer simply selling an idea but must be able to back their entire business model with a concrete financial plan.

As both the CEO of Dotcom Distribution and a CPA, keeping track of our financial standing is a critical component of managing a business — at any stage, but especially in the early days. With a lineup of clients funded heavily by private equity, I’ve seen my fair share of financial successes, as well as blunders. With 50 percent of U.S. businesses failing within their first five years, it’s important that any emerging company makes smart financial decisions.

Here are three tips I find valuable when helping entrepreneurs keep their brands out of finance troubles.

Photo by Tech.Co (formerly Tech Cocktail)

4 Tips for Revving Up Revenue When You Need It Most

race photoSmall business owners typically start a business because they have a specific passion or want to be their own boss. This vision is only the beginning of being an entrepreneur; the hard task is to generate a profit over time.

Critical to creating a profitable operation is to set a cash flow management plan. A business’ ledger is more than just numbers — it shows how the business is performing and impacts salaries and the ability to obtain a loan.

Here are key aspects to developing a clear cash management plan.

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