*** Home office deduction benefits eligible small business owners

Small business owners may qualify for a home office deduction that will help you save money on your taxes, and benefit your bottom line. You can take this deduction if you use a portion of your home exclusively, and on a regular basis as your main place of business.  Learn more about the criteria and deductible expenses eligible here. 

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*** Year End Tips for Reducing your Income Taxes

 As the end of the year approaches, it is important to take some steps BEFORE December 31 to reduce your income tax liability for 2018.  Some suggestions that may help you:

 ·        Increase your contribution to your 401K

·        Make a contribution to your IRA (you have until April 15 of 2019 to do this)

·        Harvest losses on your taxable investment accounts to offset any capital gains for the year and/or defer the sale of appreciated asset to 2019 to reduce capital gains (unless investment values will drastically change in the future)

·        If you own a business, pre-pay deductible business expenses before Dec 31 or postpone the receipt of income to 2019

·        Make charitable contributions – both money and items

·        Make Qualified Charitable Distributions (QCD) directly from your IRA to meet Required Minimum Distributions (RMD) and reduce Adjusted Gross Income (AGI)

·        Consider taking advantage of the up to $15K gift tax exclusion to family members

 Two other items that are important for you, your business and your family:

 1.      Do you have a will?  The federal estate tax is 40%.  It is important to document your disposition wishes to help your family and protect your assets’ value.

2.      If you have a business, do you have a local (city / county) business license? Home office occupancy permit? These jurisdictions on cracking down on folks, and the penalties  and late fees are high.

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*** Here are seven steps to follow to help protect your accounts, information and money:

   1. Avoid unprotected Wi-Fi. Wi-Fi that is not secure may allow thieves to view transactions.
   2. Shop at familiar online retailers. Generally, sites that use the “s” designation in “https” at the start of the URL are secure. You can also look for the “lock” icon in the browser’s URL bar. Sometime, thieves can get a security certificate, so the “s” may not always vouch for the site’s legitimacy. Beware of purchases at unfamiliar sites, and don’t clicks on links from pop-up ads.
   3. Learn to recognize and avoid phishing emails. Thieves send emails posing as a trusted source, such a financial institution, or even the IRS. Their goal is to entice you to open a link or attachment. The link may take you to a fake website that will steal usernames and passwords from your computer. An attachment may download malware that tracks keystrokes.
   4. Keep a clean machine. This applies to computers, phones and tablets. You should use security software to protect against malware or viruses that could steal data or damage files.
   5. Use passwords that are strong, long and unique. Experts suggest a minimum of 10 characters but longer is better. You should also use a combination of letters, numbers and special characters.
   6. Use multi-factor authentication when available. You may need a security code, usually sent as a text from a financial institution or email provider to a mobile phone. You’ll use this code in addition to usernames and passwords. This extra step makes it harder for criminals to access your account.
   7. Encrypt and password-protect sensitive data. If storing or transmitting financial records, tax returns or any personally identifiable information, the  data should be encrypted and protected by a strong password.

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*** Tax Transcripts

You can order your own tax transcripts - which report wage & income, your tax account information, and your income tax return from the IRS.  OR, you can allow your IRS Enrolled Agent at Alexandria Tax & Bookkeeping to pull this information for you - useful for identifying all the IRS information on file that's needed to prepare your tax return.  With the Power of Attorney(POA - form 2848) we can also respond to IRS letters for you and speak to the IRS on your behalf.  

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*** Tips for teenage taxpayers starting a summer job 

Now that school?s out, many students will be starting summer jobs?from working at a summer camp to being an office intern. Here is some information and links for what you need to know when starting a summer job:  

If you are an employee, your employer will withhold taxes from your paycheck.  You will need to fill out a Form W-4 to calculate how much to withold.  Use the Withholding Calculator on IRS.gov to help fill out this form.

If you are self employed - Students who do odd jobs over the summer to make extra cash ? like baby-sitting or lawn care ? are considered self-employed. Remember that money earned from self-employment is taxable, and you may be responsible for paying taxes  by making estimated tax payments during the year. Keep good records of all money you receive.

Tip income. If you are working as a waiter or a camp counselor and receive tips as part of your summer income , you should know that tip income is taxable income and subject to federal income tax.  Keep a daily log to accurately report them, if needed. 

Payroll taxes. This tax pays for benefits under the Social Security system. While  you may earn too little from your summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from your pay. If your are self-employed, then Social Security and Medicare taxes may still be due and are generally paid by you.

Reserve Officers' Training Corps pay. If your are in an ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive ? like food and lodging allowances paid to ROTC students participating in advanced training - may not be taxable. Visit these IRS.gov links for more info:  Armed Forces' Tax Guide Tax rules for students.  Is My Tip Income Taxable?  Do I Have Income Subject to Self-Employment TaxPart-Time and Summer Jobs

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***Plan ahead for vacation home rentals

During the summer, many folks often rent out their property. They usually think about things such as cleanup and maintenance, but owners also need to be aware of the tax implications of residential and vacation home rentals.

If your receive money for the use of a house that?s also used as your personal residence, it generally requires reporting the rental income on a tax return.

?Vacation Home.  This may be a house, an apartment, condominium, mobile home, boat, vacation home or similar property. It's possible to use more than one unit as a residence during the year.

?Used as a Home.  When the property is used as a home, the rental expense deduction is limited. This means the rental expenses cannot be more than the rent received.

?Personal Use.  Personal use means use by the owner, owner?s family, friends, other property owners and their families. Personal use includes anyone paying less than a fair rental price.

?Divide Expenses. Generally, special rules apply to the rental expenses of a property that?s used by you as your residence during the taxable year. Usually, rental income must be reported in full, and any expenses need to be divided between personal and business purposes.

?How to Report. Taxpayers use Schedule E to report rental income and rental expenses. Rental income may also be subject to Net Investment Income Tax.

?Special Rules.  If the home unit is rented out fewer than 15 days during the year, none of the rental income is reportable and none of the rental expenses are deductible.

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***  A good way to organize all your important information is to put it in ONE place.  This recent article in the Washington Post provides an easy solution - The Big Book.

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*** Withdrawing money before age 59.5 from your IRA or Retirement account (that is not a rollover) can be subject to an ADDITIONAL 10% penalty.  Visit this exceptions site to learn more about how to avoid paying this extra tax.

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*** Contributing to a 529 qualified education plan for your children (or grandchildren) planning to go to college is a smart move. While contributions to 529 plans are not tax deductible, you don't pay tax on accumulated earnings and, as long as any funds withdrawn go toward qualified college expenses, they are not taxable either.  Learn more at this IRS' 529 plan info page.

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*** Washington Post Columnist Michelle Singletary provides useful information on how to set up an online IRS account and why it is a good idea and "worth your while"! 

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***  Need a Tax Payment Plan? Consider Using the IRS Online Payment Agreement

Learn what to do if you can?t pay your tax bill in full within 120 days. Watch this IRS YouTube video to see if you?re eligible for an online payment agreement.

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*** The IRS expects 90 percent of individual taxpayers to file electronically in 2018. Choosing e-file and direct deposit for refunds remains the fastest and safest way to file a complete and accurate income tax return and receive a refund. I always try to file your return electronically ? here are some reasons why:

. It is secure. E-file meets strict security guidelines. It uses modern encryption technology to protect tax returns.
. Most e-filers get their refunds faster. When you file electronically, there is nothing to mail and the return is virtually mistake-free. This means the fastest way for your to get a refund is to combine e-file with direct deposit.  
. It?s free. There is no fee to e-file.  
. There are several options for making payments. If you owe taxes, you  can e-file early and set up an automatic payment on any day until the April deadline. You can pay electronically from your bank account with IRS Direct Pay. You can visit IRS.gov/payments for information on the other payment options.

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  *** What is the definition of a charitable contribution ?  Visit this IRS Charitable Deductions Site  to learn more.  

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*** If you get an unexpected or unsolicited phone call from the IRS you should be wary ? It's probably a scam. The real IRS will not call to demand immediate payment, nor if you owe taxes, without first sending a bill in the mail.

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*** A new scam targets business' HR and Payroll departments!  Here are five warning signs about the W-2 scam:

· The thief poses as a company executive, school official or other leader in the organization.

· These scam emails often start with a simple greeting. It can be something like, ?Hey, you in today??

· The crook sends an email to one employee with payroll access. The sender requests a list of all employees and their Forms W-2. The thief may even specify the format in which they want the information.

· The thieves use many different subject lines. The criminal might use words like ?review,? ?manual review? or ?request.? In some cases, the thief may send a follow up email asking for a wire transfer.

· Because payroll officials believe they are corresponding with an executive, it may take weeks for someone to realize a data theft occurred. The criminals usually try to use the information quickly, sometimes filing fraudulent tax returns within a day or two.

This scam is such a threat to taxpayers and to tax administration that a special IRS reporting process has been set up. Anyone who thinks they were a victim of this scam can visit Form W-2/SSN Data Theft: Information for Businesses and Payroll Service Providers

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*** It is important when filing your tax return that your legal name be correct - to make the process easier next year report any name changes.  If you are recently married or divorced and have changed your name, you should notify the Social Security Administration.

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*** Here are four options for folks who need to pay their taxes.  You can:

· Pay when you e-file using your bank account, at no charge from the IRS, using electronic funds withdrawal.

· Use IRS Direct Pay to pay your taxes, including estimated taxes. Direct Pay allows you to pay electronically directly from your checking or savings account for free. You can choose to receive email notifications about your payments. The IRS reminds you to watch out for email schemes. IRS Direct Pay sends emails only to users who requested the service.

· Pay by credit or debit card through a card processor for a fee. You can make these payments online, by phone, or using your mobile device with the IRS2Go app.

· Make a cash payment at a participating 7-Eleven store.  You can do this at more than 7,000 locations nationwide. To pay with cash, visit IRS.gov/paywithcash and follow the instructions.

Pay over time by applying for an online payment agreement. Once the IRS accepts an agreement, you can make your payment in monthly installments.

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*** Small business owners often have a running list of things to do. These include deadlines, sales calls, employee issues, banking, advertising ? and taxes.

Here are four resources to help small businesses owners with common topics:

· Looking at the Big Picture: The Small Business and Self-Employed Tax Center brings information on IRS.gov to one common place.

· Organizing Tasks: The IRS Tax Calendar for Businesses and Self-Employed helps  owners stay organized. It includes tax due dates and actions for each month. Users can subscribe to calendar reminders or import the calendar to their desktop or calendar on their mobile device.

· Finding Forms: The Small Business Forms and Publications page helps business owners find the documents they need for the type of business they own. It lists tax forms, instructions, desk guides and more.

· Meeting in Person or Online: Small business workshops, seminars and meetings are held throughout the country. They?re sponsored by IRS partners that specialize in federal tax topics. Topics vary from overviews to more specific topics such as retirement plans and recordkeeping.

TAX TIPS from Alexandria Tax & Bookkeeping