Year-End Tax Tips

Edge Tax and Accounting in Prescott wants to remind you to think about how you can help your tax situation for this year before December 31. By these following year-end tax tips, you can prepare to save on taxes due in April.

Compare standard versus itemized deductions: Your current or planned itemized deductions might be more than your standard deduction. If so, you'll save tax dollars by itemizing. If your itemized deductions are close to your standard deduction this year, consider shifting some of your deductions to the next year. At that time, you might be able to itemize more. Additionally, you might know you won’t have as many itemized deductions next year as you do now. If so, consider shifting some deductions from next year to this year.

Remember your miscellaneous itemized deductions: Your total miscellaneous itemized deductions subject to 2% of your adjusted gross income (AGI) might be close to or more than 2% of your AGI. If so, consider if you need any items in this category... Buy those items before the end of the year. The total of these expenses might not be close to or more than 2% of your AGI. If so, postpone these expenses until next year, if possible.

Make flexible spending work for you: Make sure you have enough medical expenses this year to meet the amount you set aside in your flexible spending account. If you don't, you'll lose the money. If you have extra money in the flexible spending account to spend, you might want to:

• Schedule end-of-year appointments
• Buy new prescription glasses and contact lenses
• Buy hearing aids
• Buy medicines you’ll need in 2015

Submit your receipts for eligible expenses within the time required by the plan. Some plans allow you an extra 2 1/2 months after the end of the year to use the unspent amount. Check with your plan administrator.

Review your medical costs: Keep track of your unreimbursed medical expenses all year long. You can deduct them only if they’re more than 10% of your AGI if you’re under 65 (7.5% if you’re over 65). If so, you might consider having an elective or necessary procedure before year-end. Check that the procedure is among the qualifying deductible expenses. Many elective procedures don’t qualify for this deduction.

Get serious about retirement: One way to lower your taxable income for the year is to contribute to a retirement plan, like:

• 401(k)
• 403(b)
• Deductible IRA
• SIMPLE IRA
• SEP

You have until Dec. 31 to make contributions to 401(k)s and 403(b)s for 2014. You have until April 16 to make contributions to IRAs and some other plans.

Adopt a charitable attitude: Donate clothing and household goods to charities before Jan. 1. It’s also deductible on this year's return. Get a receipt from the organization you're donating to. The deduction is limited to the item's current fair market value - what you could sell it for at a garage sale.

Sell off securities: If you have a large net capital gain so far this year, you might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax you pay this year. However, if you sell stock to generate a loss, you're prohibited from purchasing substantially similar stock. This is 30 days before or after the sale that generated the loss. However, if the securities you sell are mutual-fund shares, you might be able to:

• Reinvest the proceeds in a similar, but not identical, fund
• Maintain your investment strategy,
• Deduct the loss

Whatever you do, don't let possible tax savings cause you to make a decision contrary to your investment interests.

Investigate before buying mutual funds: If you're planning to invest a large amount in a mutual fund, find out when the fund declares its dividend. Confirm that the fund isn't declaring a large amount of dividends in December. If you buy shares before the dividend is declared, you’ll increase your income by the amount of the dividend. This is true even if you reinvest the dividend in new shares. You can get this information at the fund company's website.

Give the gift of cash: You can give a gift up to $14,000 to any one individual free of gift tax. If you're married, you each can gift a person up to $14,000 tax free... $28,000 in total. In most cases, the gift isn’t complete until the recipient of a check cashes or deposits it. So, confirm the recipient does this by the end of the year.

Don't let extra money sit around: Consider investing in a short-term CD or a U.S. Treasury bill that matures in 2015 if you:

• Have a large amount of cash to invest
• Want to shift some of your income to 2015

We hope that these tax tips help to reduce your tax liability for next year. If you have any questions, contact Edge Tax and Accounting today!

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Tax Tips and Articles

End of Year Tax Tips to Maximize Your Tax Refund

As the leaves change colors and the holidays draw near the end of the year is a pleasant time. Halloween, Thanksgiving and all the fun celebratory holidays make it the favorite time of year for most!

Before the rush of the holidays are in full swing, lets give some thought to your taxes. When the calendar year ends, so do many of the things you can do to reduce your tax burden come April.

Edge Tax and Accounting in Prescott wants to remind you to take a moment to reflect on the year and get ourselves ready for the next. It is the perfect time! Here are a few end of year tax tips to maximize your tax refund while you still can.

Donations, Donations, Donations: If you itemize your deductions, the quickest way to get a refund is to donate to a worthy charity. Your donation can be in the form of cash or goods. Donating to a local charitable organization can get you a nice tax deduction, depending on the market value of the products.  The key is to always get a receipt to support your donations.

Retirement Contributions: Another great way to reduce your tax burden while planning for the future is to make a contribution to your retirement savings account. You can take a dollar for dollar reduction in your income and also save for the future. Speak to your financial planner or company's HR for limits.

Accelerate Deductions, Defer Income: There are a handful of deductions that are recognized the year in which you spend them. For example, you get a mortgage interest deduction and if you make an extra mortgage payment on December 31st, you can claim that tax deduction on this year’s taxes. This lets you take the deduction immediately rather than wait an additional 12 months. Spend some time now to think of any deductible expenses you may be able to pay in advance.

Harvest Investment Losses: Chances are you have a few investments in your portfolio that have gone down in value, you can recognize those paper losses and use it to offset investment winners. This is another great thing to discuss with your financial planner!

We hope that you will use these ideas before the end of the year so you can reduce your tax burden, increase your tax refund, and set yourself up for a financially strong new year!

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5 Accounting Mistakes To Avoid With Your Business

Accounting mistakes can really put a hold on your small business and put it on shaky ground. Mistakes are common, unfortunately they happen more often with new and young businesses. Edge Tax Accounting in Prescott would like to bring you these 5 accounting mistakes to avoid:

Not staying up on receivables:

When you issue an invoice, a receivable is recorded - meaning that a customer owes you money. As soon as you receive payment from that customer, it should be applied against the invoice to mark it as paid. Sometimes this is not handled correctly. At tax time you’re left with a bunch of customer deposits sitting in your revenue account and a receivables report that doesn’t make sense. The consequences? Hours wasted updating the receivables listing, overpaying on your taxes, and high bad debts. Making it a point to follow up on your receivables - and apply payments to invoices on a monthly basis  - can save you tons of resources in the long run.  

Not keeping expense receipts:

Many business owners fail to save receipts, which causes many tax, accounting, and cash flow problems. How many times have you looked at your bank account statement and had no clue what that $100 charge is? Is it supplies, a business meal, equipment? Not having an actual receipt with details can result in incorrectly reported tax expenses and a high tax bill if you’re ever audited. The solution? Save a receipt of every business purchase. This is cumbersome, so here are a few tips to make it easier: only use your business bank or credit card to pay for business expenses; have an envelope in your bag/car where you can put all your receipts instead of putting them in your pocket, purse, or worse, trash can; once a week/month go through the receipts stored in the envelope and file them to your tax folder.

Not recording cash expenses:

It is crucial to track all expenses related to running a small business so these costs can be subtracted from total income at tax time and to give you a better idea of how much money you are making. While credit cards, debit cards, and checks from your business’s bank account are easily linked into your accounting software, it’s easy to overlook expenses paid in cash. Most commonly, some of these expenses are not recorded and thus forgotten - this causes the business owner to overstate income for the year! Be sure to develop a method for tracking these cash expenditures.

Not hiring a professional to handle taxes:

Small business owners often try to save money by doing their own taxes. The reality is not hiring a professional can cost more down the road. You may not claim all the deductions you qualify for, or you might underpay your tax bill - leading to penalties and other fees. Hiring a professional means you’ll have an expert who knows what they’re doing, and can apply the right tactics for your financial situation. They can keep updated on the ever-changing tax laws and help you plan ahead for potential tax hikes. Paying for a professional bookkeeper can also help keep your costs of an accountant at a minimum, since they do all the prep work. Plus having another pair of eyes is never a bad thing, especially when it comes to finances and taxes. The success of your small business depends on the accuracy and organization of your financial paperwork.

Not getting in tune with your accountant:

So, you’re sitting there with your accountant, in a fancy office, listening to this:
 ‘EBITDA is strong, way up from last year.’ You shift in your seat. You nod. 
It continues, ‘Add in D & A, and your bottom line is still positive. And here’s the kicker, thanks to loss carry forwards, tax liability is nil.’

This is confusing. What did they just say? It’s the bane of many small business owners. The biggest problem is most small business owners are too shy to tell their accountants that they might as well speak Romulan. You’re a small business owner. You’re not a financial professional. And buzzwords, jargon and fancy strategies are why you pay your accountant!

Would you rather hear this? ‘We used accelerated capital cost allowance to bring your tax liability to nil.’ 
Or this? ‘There’s a temporary tax program that lets us completely write off all of the new computer equipment you buy. So if you need a new IT kit, buy it now cause we’ll use that cost to get your tax bill down.’ Bottom line is, if you and your accountant speak the same language then she’s part of your team. She’s watching your back, and she’s providing advice you can bank on.

At Edge Tax and Accounting we speak your language! Need help with your business taxes? Contact us today to see how we can fix the problems you didn't know you had!

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11 Tips & Tricks for QuickBooks

QuickBooks, developed by Intuit, is a popular accounting software for small business owners who don’t have professional accounting experience. Here are some quick tricks to solving QuickBooks brought to you by Edge Tax and Accounting in Prescott.

1. You can set a floating decimal in Edit/Preferences/General/My Preferences. When “Automatically place decimal point” is selected, QuickBooks will automatically place a decimal in any number you type. If you type 22, it will be entered as $0.22 cents. If you type 2341, it will be entered as $23.41.
2. If you like several windows open at once, here is a short-cut navigation bar you can use to move from window to window: View/Open Window List.
3. When troubleshooting or sleuthing, most transactions will let you view a history. Look for the button at the top of the transaction window. For example, if you are reviewing a customer payment, at the top of the window click “History.” This will show you where and when it was deposited to the bank, and to what invoice it was credited.
4. Have you upgraded to a new version and don’t like the new interface for the online banking matching of transactions? You can use the old interface by changing settings: Edit/Preferences/Checking/Company Preferences. Then choose “Register Mode.”
5. Your Undeposited Funds account should always be zero. You can find this account in the asset section of your accounts chart. If the account is not zero, there are problems with customer payments and deposits to work out.
6. Do you have a PayPal account? It should be set up, populated and reconciled just like a conventional bank account. Monies transferred between your bank account and PayPal account should be entered like a banking transfer.
7. If your company is using more than one checking account, change the background color for easy identification of which account you are using. Open the register for any checking account. Click on the Edit Menu and select “Change Account Color.”
8. Do you reconcile your checking account during the month to online data? You can also do this in QB. Just pull up the normal bank rec window and enter today’s bank balance. Check off items that have cleared so far this month until your difference is zero. But don’t click “Reconcile Now.” Click “Leave.” You can keep doing this until you are ready to reconcile at the end of the month using the bank statement.
9. Did you create two vendor names for the same vendor by mistake? You can merge them. Go to Vendor Center, double-click on the vendor name you want to keep, copy the name in the first, top field. Now double-click on the vendor name you want to delete and paste the first vendor name. It will ask you if you want to merge.
10. When setting up Items (the products that you sell), do not make the type “Inventory” unless you are truly using the accrual inventory/COGS method. Use the type “Non-Inventory” for materials and “Service” for services.
11. Ever go to reconcile your bank account and the beginning balance in the bank reconciliation screen is different (incorrect) from your bank statement beginning balance? To find out what reconciled transactions have been edited or deleted since the last reconciliation, go to Reports/Banking/Reconciliation Discrepancy.

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So you filed your tax return... What's next?

For many business owners filing their taxes in Prescott it becomes a last minute chore. The relief that comes on April 16 after another tax season is over can't come fast enough. One thing you can learn from a difficult tax-preparation experience is, if you plan for next year, you can get your finances in order faster and have better results.

Edge Tax and Accounting shares with you these tax planning tips:

1. Get Your Withholding Figured Out

 It is almost impossible to have exactly the right amount of money taken out of your check to cover your taxes. Either you will owe small amounts or get a refund back from the Internal Revenue Service.

In some cases having far too little tax money taken out can lead to costly penalties. on the other hand a big refund might seem nice, but in reality, it's just an interest-free loan that you give to the IRS with money you could have collected throughout the year.

It is your money and we can help you figure it out!

2. Set the Stage for Claiming Valuable Tax Breaks

When preparing last years taxes, you likely noticed there are many tax deductions and credits that you might be able to use to reduce your tax bill. These are a great place to start.

Plan out next year by having everything in one place, don't scurry around to put together the necessary supporting documents next time!

3. Get Smarter About Your Investments

Check with your financial planner or accountant each time you make a change to your investments. Tax rules change from year to year, and each change can have dramatic impacts on your taxes.

Simply selling a stock and making a profit can produce a bigger tax bill than you'd expected. We suggest using strategies to keep the tax impact of your investments as small as possible. Individual retirement accounts, 401(k)s, and other tax-favored accounts are available to help you save for retirement, while 529 plans for college savings and health savings accounts for medical expenses fulfill similar functions for other financial needs.

The sooner you look into the options, the more you'll save at tax time every year. Obviously any time before the end of the year is a good time to check your tax liability, however following these steps shortly after filing will insure you get the most out of these tips...
Still need help with your taxes or tax preparation in Prescott, contact the experts at Edge Tax and Accounting... Solving problems you didn't know you had!

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Medicare and the Affordable Care Act

Taxing Issues

There are so many questions that come up when you start talking about Medicare. However most intricacies are out of the scope of this article from a tax professional. Here are some basics to keep in mind.

With so many options available to seniors today it’s important to choose an insurance plan that not only fits your needs but also won’t cost you on your Obamacare tax penalties.

According to the Affordable Care Act, though Medicare, Medicaid, and Medigap all part of the government health system, Medigap does not qualify as an option by itself!

Here are some basics:

Medicare Parts A and B are funded and run by the government while Parts C and D are government-regulated but run by private companies.

While Medicaid is backed by the government, each state runs its own package with different rules and regulations.

Ready for the twist?

Medigap supplements the government plans by filling in the gaps in coverage and is purchased through private insurance companies. There is a guaranteed right to buy this type of policy, but only within six months of enrolling in Part B.

The caveat that unless you don’t buy within that time, insurance companies might refuse to offer coverage because of your health history, can be invoked.

This even get more confusing if you do not qualify for Medicaid!

Under The Affordable Care Act, or Obamacare, the plan was to close the “donut hole” regarding Part D drug coverage, wherein seniors had to begin to pay out of pocket for prescriptions when benefit limits were exceeded.

For those who do qualify:

Medicare isn’t part of Obamacare’s Health Insurance Marketplace, and no one has to replace their Medicare coverage with Marketplace-based health insurance. No matter how you get Medicare, whether through Original Medicare or a Medicare Advantage Plan, you’ll still have the same benefits and security you have now.

If you still have questions about your medical benefits requirements under Obamacare and taxes, contact Edge Tax and Accounting, if we cannot answer your questions we will point you in the right direction!

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Check Out College Tax Credits for This Year and More

With another school year started, Edge Tax Accounting in Prescott is reminding parents and students that now is a good time to see if they will qualify for college tax credits or other education-related tax benefits. Spending a few minutes now could save you when filing your federal income tax return.

The tax credits apply to eligible students and are subject to income limits that could reduce the amount claimed on their tax return. Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. We can help you determine eligibility for these benefits when preparing your taxes.

Here are some more key features of the tax credit:

• Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. Forty percent of the American Opportunity Tax Credit is refundable.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000.

Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return.
• Full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $110,000. The credit is phased out for taxpayers with incomes above these levels.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants — generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college — though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit. Contact Edge for all your accounting and tax needs!

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