Tax Tips

The New 2020 W-4 and What It Means for You

This newly formatted W-4 has left many HR and Accounting professionals scratching their heads. Withholdings should be something you set and forget, but the new system is confusing employees and leaving them unsure what to do. We’re pretty unimpressed with the IRS’ W-4 calculator (linked below), finding it both difficult to use and sometimes misleading, so we’ve compiled some resources to tackle this burning question.

To start, why do you need the new W-4? You’ll only need it if you need to fill out a new W-4 this year, for a new job, a new company, or to update your withholdings. You might want to update your withholdings if certain events transpired: if you owed a substantial amount on last year’s tax return, you received a sizeable refund on last year’s return, or your joint income bumps you up to a higher bracket. This last reason is, by far, the trickiest reason to understand and the sneakiest way that you might end up owing money at tax time.

There are several other instances where a new W-4 may be helpful…

  • a change in marital status, dependents, or income
  • new home ownership
  • receiving dividend income
  • seasonal or freelance work

So…  How can you tell if enough or too much is being withheld?

First, we recommend using last year as a benchmark. If you have the same job(s) this year as you did last year, with minimal change in wage, last year is probably a good indication. If you owed a lot last year, you definitely need to set aside extra this year, and vice versa. Keep that benchmark in the back of your mind and then use one of these online calculators: Paycheckcity.com, Nerd Wallet or the IRS. Best practice for using these calculators is to grab your last paystub(s) and the last paystub(s) of your spouse, if applicable.

These calculators go much further than just estimating the withholdings for one job, but try to factor in your other income, the job(s) your spouse has, what you’ve set aside so far during the year, and any major deductions you have. They’re not perfect, but they’re a good start.

For more complex situations or if you want to double-check these online calculators, you may wish to utilize the table below from the Tax Foundation, and get out the old calculator.

  1. To start, take your total expected income for 2020, and find the correct bracket. This is all the W2 and 1099 income that will be reported on your return.
  2. Use the “fill the buckets” mentality and start with the lowest bracket. Let’s take the example of a $50,000 gross salary.
    1. The first $9,875 you earn will be taxed at 10%. That’s $987.50 of taxes. Bucket one filled.
    2. The next $30,250 you earn (your wages over $9,875 but under $40,125) will be taxed at 12%. That’s $3,630 for that bracket. Your total tax so far is the tax for both brackets: $4,617.50.
    3. The next bucket ranges from $40,125 to $85,525 at 22%. However, with a salary of $50,000, we don’t fill the entire bucket. We’ve already calculated tax on the first $40,125 dollars, so we need to calculate the tax on the remaining highest portion of our salary, the dollars over $40,125, which is $9,875 ($50,000-$40,125). The tax on the last $9,875 of our salary is $2,172.50, which brings our tax total up to $6,790.00.
    4. This example also holds if you have a $25,000 salary and your spouse has a $25,000 salary, because the tax you owe together filing jointly will be this “fill the buckets” method with your combined salary.

 

If you haven’t gotten your fill, here’s some additional reading from the IRS…

https://www.irs.gov/newsroom/tax-withholding-how-to-get-it-right

https://www.irs.gov/newsroom/irs-withholding-calculator-can-help-workers-have-right-amount-of-tax-withheld-following-tax-law-changes

 

As always, for more clarity on your books, better tax strategies, and lasting relationships, reach out to Sweeten CPA.

No More Entertainment! & Other Meals Changes by the TCJA

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With the passing of TCJA, there are some important changes we’d like you to be aware of, particularly those affecting meal and entertainment deductions. Previously, you were able to expense up to 50% of the cost of certain meals and entertainment for business purposes. Now, however, you may only deduct 50% of business meals with no allowable deduction for entertainment. Additionally, the term “business meals” can only be applied under the following conditions:

  • First, the actual taxpayer must be in attendance.
  • Second, the cost may not be excessive.
  • Third, the meal is purchased for a person involved in the actual business activity.
  • Finally, the food has to be purchased or listed separately from any entertainment costs, as entertainment may no longer be included as a deduction.

There is no longer a 100% deductible meals category for client events, except for presentations, and only the above mentioned meals qualify for a 50% deduction. Employee to employer deductions are still at 50% deductible for meals, under the above circumstances, unless it qualifies as a team building event, in which case it is 100% deductible.

Confused? The M&E area is arguably a pretty gray area. Best practice for your business is to consult your tax advisor on the deductibility of these trickier food expenses.

These changes might seem drastic to some business owners but minimal to others. We recommend rearranging your Chart of Accounts to show any entertainment cost as an “other business expense,” i.e. below the “Net Income” figure. Review your meals categories to follow the new IRS guidelines, and make sure management understands what kind of meals are deductible. This could change the way you think about company meals, client-facing meals, and team meetings. For more clarification and other new information/updates, please see the IRS website here: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses. As always, for more clarity on your books, better tax strategies, and lasting relationships, contact Sweeten CPA.

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FREE: IMPORTANT HIGHLIGHTS OF THE TAX CUTS AND JOBS ACT OF 2017

By now, you’ve probably heard that the Tax Cuts and Jobs Act (TCJA) of 2017 is the largest overhaul of the Tax Code in thirty years.

You’ve probably also heard conflicting opinions from various sources about how the TCJA will affect you.

In an attempt to give you useful information, Andrew Wallin, CPA, MST of Sweeten CPA has put together a FREE downloadable summary of the TCJA that highlights the major tax law changes, and presents them in plain language. If you’re curious about what is around the bend, tax-wise, for 2018, request the form by entering your email and name.

  1. Business-friendly tax environment
    1. An overall reduction of tax in…
    2. Additional incentives for businesses like…
    3. Past business deductions have now GONE AWAY especially…
  2. Changes for individuals
    1. Income tax rates and brackets changed to…
    2. Standard deduction increased by…
    3. Personal exemptions suspended
    4. “Kiddie tax” modified to…
    5. Change in Obamacare and…
    6. Significant changes to itemized deductions, namely…
  3. Conclusion and summary

Subscribe below to receive your FREE CPA analysis of the new tax bill.




1099-MISC Best Practices

Do you get surprised at end of year when all the sudden your bookkeeper starts asking you about W9s and subcontractors and verifying addresses and amounts? Or -- even worse -- do you have no idea what I'm talking about?

This may be a nasty shock, but bear with me: you are required to file a 1099-MISC Form to any person or entity that you pay more than $10 in royalties or more than $600 in rent, service, prizes, income, etc. (See the whole, ten part list here, on page 1 under Specific Instructions.) If you think for a second about every one you pay more than $600 in this calendar year, the list can get pretty long. But there are some big exceptions that will ease the burden. The following do NOT get 1099-MISC forms from your business.

  • Employees
  • Corporations that are treated as C or S corporations
  • Payments for merchandise
  • Attorneys
  • See the rest of the list here, on page 1 and 2 under Exemptions.

But wait, there's more (or, rather, less). Here's a quote from Intuit:

Beginning with tax year 2011, the IRS requires you to exclude from Form 1099-MISC any payments you made to a 1099 vendor by credit card, debit card, gift card, or a third-party payment network such as PayPal.

So, who are the likely candidates for 1099s? In our experience with small businesses, subcontractors and labor (other than employees) whom were paid by check are the biggest source of 1099 creation. If you pay anyone, who is not a corporation, for services via check or electronic transfer more than $600 in one year, then you need to generate and send them a 1099-MISC right when the new year rolls around. This will especially include people whom you paid to remodel, repair, or maintain anything for your business or office. Anyone whom you commissioned for goods for your internal use (not for sale) or work and who is not on payroll will require a 1099-MISC.

We've been around the block before and we've filed a whole lotta 1099s. We're writing this to you in the summer on purpose. Here are our best practices for a midyear check on your 1099-MISC process.

1. Midyear 1099 Summary

In the summer, run (or have your bookkeeper run) a 1099 Summary for the year so far. Review this report for a few things:

  1. Are any of these vendors corporations? If so, cross 'em off.
  2. Are all of your subcontractors, outside services, and nonpayroll laborers on this list? If not, go find them!
  3. For the vendors on this list, do all of the amounts look correct? Are there missing payments?
  4. Are there any vendors that you know should be 1099 eligible that are missing from this list? If so, track down their info.

2. W9 Check

For every one on that 1099 Summary, do you have the W9 information? (Name, address, SSN/TIN.) If not, have them fill out this form so you can generate them a 1099-MISC at the end of the year.

3. W9 Practice

Make it a habit to get W9s filled out prior to paying anyone money for services, rent, etc., have them fill out a W9 form. This will help you avoid that end-of-year scramble for information, which is especially difficult when you're trying to get a hold of a vendor whom you paid back in January and it's eleven or twelve months later! Those people are hard to get a hold of, trust me. Get their W9 filled out now and save yourself a massive hassle.

4. Select your Processing Method

Choose how you will file your 1099s. If you have a bookkeeper, they will probably have a system for this and you just need to verify that they have 1099s on their radar. If you are filing yourself, you may want to fill out the 1099s by hand come end of year or use a software to electronically file, like TurboTax or Intuit.

All the information about 1099-MISC forms is available at the IRS website. If you have any further questions, check out the publications here.

 


Don't have a bookkeeping system?

Give us a call, check out our services page, or set up an appointment with Jackie, our official manager of onboarding!

Paying Sales Tax Online

There are a lot of taxes out there. If you don’t pay the right taxes, by the right deadline, you’ll pay fees in addition to the taxes. No one wants to pay more.  Sales tax is one tax that seems to consistently sneak up on people. Everyone knows income tax is due April 15th–that one’s easy! But how about sales tax? Do you pay quarterly, weekly, annually, or other? Is there an easier way?


Let’s make paying sales tax a little easier by paying online! Here is a video from the TX Comptroller to walk you through the steps of filing your sales tax.

The Time After The Most Wonderful Time of The Year

It’s that time again, folks: time to prepare for tax season! Before too many days of 2016 pass you by, follow the steps below to have the best, most stress-free, and punctual tax season yet!

Set Aside:

As you get documents in the mail over the next few weeks, you should create a place for them to collect before you send them in to your CPA. Make it a place that is easy to access but out of the way, so the documents won’t be bothered. Remember to scan these or hand them in to us before February 15th for corporate returns and March 15th for personal returns. Here are some things you should keep an eye out for.

  • W-2s
  • 1099s
  • End of year loan statements
  • 1098s
  • W-3s
  • End of year statements from bank, especially with amount of money earned on savings accounts for the year
  • Health insurance statements: don’t forget that legislation is changing all the time on this. Tax returns and bookkeeping are taking up more time to compensate for the new policies. You’re trying to figure this out and we’re here to help. We need to know how you received insurance, how much, by whom, which family members, and what dates, at least. Send us your insurance premiums, whether paid out of pocket, reported on your W-2, or paid from your company– the more information we have, the better.
  • And more! If it looks important, it’s better to send it to us than not!

 

Write Down:

Before you forget, write down or gather together this important information that Sweeten CPA will need to complete your return:

  • Total mileage for 2015!maxresdefault.jpg
  • Business mileage
  • Business expenditures from personal accounts
  • And more! If you have any questions, shoot us an email

 

Happy Tax Season and we’ll see you soon!

 

How do I get a mileage deduction?

Mileage deductions can be difficult to understand when you’re recording your business expenses, but we can make it simple for you.

Actual Vs. Standard Mileage

In order to take any kind of deduction, the taxpayer is required to keep a written log of all miles driven and record how many were driven for business use and how many were driven for personal use. There are two options: actual auto expenses or the standard mileage deduction.

Since the standard mileage deduction is based on an average, in a large percentage of cases, using the mileage deduction produces a larger auto expense deduction than actual expenses. In order to use standard mileage, it must be used the first year the vehicle is placed in service.  After the first year, taxpayers can decide to use whichever method (actual or standard mileage) that has the highest amount of expense.

(Note: If the vehicle is leased, you must choose either standard or actual for the entire life of the lease.)

To get the actual auto expense deduction, the taxpayer must keep track of all maintenance, repairs, fuel, tires, insurance, registration fees, licenses, etc. and determine how much of that is attributable to the portion of the total miles driven that are business miles.

IRS 2014 Mileage Rates:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

IRS 2015 Mileage Rates:

  • 57.6 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

To take advantage of this deduction; a taxpayer must keep track of:

  • All business miles driven for the year (in written form)
  • Total miles driven for the year (in written form)

When can you NOT use the standard mileage rate?

  • For commuting miles, which are the miles going from home to work and vice versa
  • If your car is for hire, for instance a taxi cab
  • If you use five or more cars at the same time for business, for instance a fleet operation
  • If you have already counted the depreciation of the vehicle as a deduction or allowance

Note: Parking fees and tolls for the business are separately deductible, regardless of which deduction method is used.

Tax Break Extensions for 2014 Returns

At the end of 2014, the Senate approved HR 5771, or The Tax Increase Prevention Act of 2014, which passed by a landslide in the House early last month on December 3rd. This bill extended expiring tax provisions from the end of 2013 and 2014 for individuals and businesses whom Sweeten CPA service, so we wanted to keep our clients informed about what this means, specifically about which provisions are being extended:

  • The threshold under Section 179 has been increased to its previous threshold of $500,000, from its diminished threshold of $25,000, allowing for the expensing of qualified asset purchases rather than the spreading out of those expenses over time through regular depreciation.
  • Energy efficient renovations to your home, like more effective doors and windows for your home, are back under the previous rules with a 10% credit of the cost of the improvements, with a lifetime limit of $500.
  • Energy efficient renovations to commercial property, like replacing existing energy systems with high efficiency systems, are back under the previous rules with a possible deduction of up to $1.80 per square foot.
  • Other improvements, made to leased buildings, restaurant property, and retail establishments, are also back under the previous depreciation rule involving a 15 year straight-line depreciation method.
  • For seniors, seventy and a half years or older, 2014 distributions from your IRA to charity are tax-free.
  • Teachers can again claim above-the-line deductions of up to $250 for books and materials used in the classroom purchased out-of-pocket.
  • Tuition-payers can again claim above-the-line deductions of up to $4,000 for higher education expenses.
  •  Cost of new property purchased or used in 2014 can be expensed by 50%, using the Special Depreciation rule.

Enjoy these extensions and if you’re confused, don’t worry: Sweeten CPA can manage these changes in your tax return this year!

"What will my raise do to my taxes?"

Good question! The answer? If only it were easy to figure!

Getting a raise, promotion, or accepting a new position often means more money in your pocket. But it can also mean a change in your taxes.  (In rare cases a salary increase can actually mean less net pay!) The IRS has a dizzying amount of tax and deduction thresholds–think of it as an income level trigger–so that it is almost impossible to remember each one, or more importantly when you have reached and passed one.

Until now!

Presenting our extremely handy IRS threshold charts! These charts give the 2013 thresholds (the 2014 ones still unavailable) in ascending order. Continue reading…

"So you're an expat? What's that?" Tax implications of living and working abroad

An expatriate–or expat for short– is just fancy lingo for someone who is living in a different country than their upbringing. And while the idea of being an expat is thrilling for some (What? Living and working in Paris, London or Tokyo?  Yes, please!) it will almost always mark the beginning of needing a legit CPA to help with your taxes. Why? Because United States citizens pay taxes on worldwide earned income. What does that mean? It means that Uncle Sam gets his share even if you live, work, earn money, and pay taxes on that money in a different country. The waters of expat taxes can get murky with complexity, so for now let’s just get our toes wet (a.k.a., seek further competent help if you are going to take the plunge). Continue reading…