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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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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IRS Warns Taxpayers to Guard Against New Tricks by Scam Artists

Following the emergence of new variations of widespread tax scams, the Internal Revenue Service today issued another warning to taxpayers to remain on high alert and protect themselves against the ever-evolving array of deceitful tactics scammers use to trick people.

These schemes — which can occur over the phone, in e-mails or through letters with authentic looking letterhead — try to trick taxpayers into providing personal financial information or scare people into making a false tax payment that ends up with the criminal.

If you have any questions about tax documents or specific letters you have received, contact Edge Tax Accounting in Prescott today! We will have a look and let you know what your dealing with.

The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 600,000 contacts since October 2013. TIGTA is also aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

“We continue to see these aggressive tax scams across the country,” IRS Commissioner John Koskinen said. “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”

Scammers posing as IRS agents first targeted those they viewed as most vulnerable, such as older Americans, newly arrived immigrants and those whose first language is not English. These criminals have expanded their net and are now targeting virtually anyone.

In a new variation, scammers alter what appears on your telephone caller ID to make it seem like they are with the IRS or another agency such as the Department of Motor Vehicles. They use fake names, titles and badge numbers. They use online resources to get your name, address and other details about your life to make the call sound official. They even go as far as copying official IRS letterhead for use in email or regular mail.

Brazen scammers will even provide their victims with directions to the nearest bank or business where the victim can obtain a means of payment such as a debit card. And in another new variation of these scams, con artists may then provide an actual IRS address where the victim can mail a receipt for the payment — all in an attempt to make the scheme look official.

The most common theme with these tricks seems to be fear. Scammers try to scare people into reacting immediately without taking a moment to think through what is actually happening.

These scam artists often angrily threaten police arrest, deportation, license revocation or other similarly unpleasant things. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a telephone number or email address for your reply.

It is important to remember the official IRS website is IRS.gov. Taxpayers are urged not to be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. Taxpayers should never provide personal information, financial or otherwise, to suspicious websites or strangers calling out of the blue.

Below are five things scammers often do that the real IRS would never do.

The IRS will never:

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

Here’s what you should do if you think you’re the target of an IRS impersonation scam:

• If you actually do owe taxes, call the IRS at 1-800-829-1040. IRS workers can help you with a payment issue.
• If you know you don’t owe taxes or do not immediately believe that you do, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484. 
• If you’ve been targeted by any scam, be sure to contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Please add “IRS Telephone Scam” to the comments of your complaint.

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Job Search Expenses May be Deductible

Some Americans find themselves pounding the pavement in quest of a new job, whether they've gotten the pink slip or expect to get one soon. The good news: The search may help you cut your tax bill because under certain circumstances, job-hunting expenses are tax deductible.

New job, same field

First, your hunt for new work must be in the same field in which you're currently or were formerly employed. Uncle Sam won't help out if you decide to totally switch career gears.

Second, you can't decide to chill out for a while and then expect the IRS to help when you decide it's time to get back on the career track. Deductions aren't allowed for employment-search costs when there is a "substantial break" between your last job and when you begin looking for a new one.
Finally, recent graduates are out of luck. The costs you incur in getting your first job aren't deductible, because the tax law only allows you to write off expenses incurred in searching for another position in your present occupation.
But if you're on the lookout for a new position, start saving those job-search receipts.

What you can write off

• Same Occupation.  Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
• Résumé Costs.  You can deduct the cost of preparing and mailing your résumé.
• Travel Expenses.  If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
• Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
• First Job.  You can’t deduct job search expenses if you’re looking for a job for the first time.
• Substantial Job Break.  You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
• Reimbursed Costs.  Reimbursed expenses are not deductible.
• Schedule A.  You usually deduct your job search expenses on Schedule A, Itemized Deductions. You’ll claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
• Premium Tax Credit.  If you receive advance payments of the premium tax credit it is important that you report changes in circumstances, such as changes in your income or eligibility for other coverage, to your Health Insurance.
• Marketplace. Other changes that you should report include changes in your family size or address.  Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

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Top Six Tips about the Home Office Deduction

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction. 

1. Regular and Exclusive Use.  As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:

Your principal place of business, or

A place where you meet clients or customers in the normal course of business, or

A separate structure not attached to your home. Examples could include a garage or a studio.

2. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.

 

3. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

4. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

5. Deduction Limit.  If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

6. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

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IRS Tips to Help People Pay Their Taxes

If you owe tax, the IRS offers safe and easy ways to pay. Check out these payment tips:

• Pay your tax bill.  If you get a bill, you should pay it as soon as you can. You should always try to pay in full to avoid any additional charges. See if you can use your credit card or to get a loan to pay in full. If you can’t pay in full, you’ll save if you pay as much as you can. The more you can pay, the less interest and penalties you will owe for late payment. The IRS offers several payment options on IRS.gov.  

• Change your withholding or estimated tax.  If you are an employee, you can avoid a tax bill by having more taxes withheld from your pay. To do this, file a new Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form. If you are self-employed you may need to make or change your estimated tax payments. See Form 1040-ES, Estimated Tax for Individuals for learn more.

• Check out an offer in compromise.  An offer in compromise, or OIC, may let you settle your tax debt for less than the full amount you owe. An OIC may be an option if you can’t pay your tax in full. It may also apply if full payment will cause a financial hardship. No everyone qualifies, so make sure you explore all other ways to pay your tax before you submit an OIC to the IRS. Use the OIC Pre-Qualifier tool to see if you qualify. It will also tell you what a reasonable offer might be.

• Check out a direct debit pay plan.  A direct debit pay plan is the lower-cost hassle-free way to pay. The set-up fee is less than other plans – $52 instead of $120. With this type of plan, you pay each month automatically from your bank account. There are no reminder notices from IRS, no missed payments and no checks to write and mail. For more on these rules see the Payment Plans, Installment Agreements page on IRS.gov.

• Get a short-term payment plan.  If you owe more tax than you can pay, you may qualify for more time, up to 120 days, to pay in full. You do not have to pay a user fee to set up a short-term full payment agreement. However, the IRS will charge interest and penalties until you pay in full. It’s easy to apply online at IRS.gov. If you get a bill from the IRS, you may call the phone number listed on it. If you don’t have a bill, call 800-829-1040 for help.

• Use IRS Direct Pay.  The best way to pay your taxes is with IRS Direct Pay. It’s the safe, easy and free way to pay from your checking or savings account. You can pay your tax in just five simple steps in one online session. Just click on the “Payment” tab on IRS.gov.

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From Lemonade Stand to Estimated Taxes

From lemonade stand to estimated taxes

Remember that lemonade stand you started when you were a kid? Things were easier then. Now, if you’re starting a business, you have to remember to give Uncle Sam his due.

When you start a small business, you put all your time and energy into making sure it succeeds; taxes may be the farthest thing from your mind. But there are plenty of tax considerations that go along with your new venture.
We've made a list of some important tax-related issues you need to be aware of as you're getting started and going through your first year.

• Business Structure.  An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you will file

• Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, use IRS Direct Pay to pay them. It’s the fast, easy and secure way to pay from your checking or savings account.

• Employer Identification Number.  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.

• Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

• Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. A small employer is eligible for the credit if it has fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities.

• The employer shared responsibility provisions of the Affordable Care Act affect employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees). These employers’ are called applicable large employers. ALEs must either offer minimum essential coverage that is “affordable” and that provides “minimum value” to their full-time employees (and their dependents), or potentially make an employer shared  responsibility payment to the IRS. The vast majority of employers will fall below the ALE threshold number of employees and, therefore, will not be subject to the employer shared responsibility provisions.

Employers also have information reporting responsibilities regarding minimum essential coverage they offer or provide to their fulltime employees.  Employers must send reports to employees and to the IRS on new forms the IRS created for this purpose.

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When Can I Claim Myself As A Dependent On My Tax Return?

A dependent is a person other than the taxpayer or spouse who entitles the taxpayer to claim a dependency exemption.

Each dependency exemption decreases income subject to tax by the exemption amount.

For 2014, the exemption amount is $3,950.

A taxpayer cannot claim a dependency exemption for a person who can be claimed as a dependent on another tax return.

The term "dependent" means a "qualifying child" or a "qualifying relative."

A. To claim a dependency exemption for a qualifying child, all of the qualifying child dependency tests must be met:

• Dependent Taxpayer Test
• Joint Return Test
• Citizen or Resident Test
• Relationship Test
• Age Test
• Residency Test
• Support Test

B. To claim a dependency exemption for a qualifying relative, the person must meet the following tests:

• Dependent Taxpayer Test
• Joint Return Test
• Citizen or Resident Test
• Not a Qualifying Child Test
• Member of Household or Relationship Test
• Gross Income Test
• Support Test

All of the following tests must be met to claim a dependency exemption under the rules for a qualifying child.

Dependent Taxpayer Test — Qualifying Child

If you could be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Even if you have a qualifying child or a qualifying relative, you cannot claim that person as a dependent.

Joint Return Test — Qualifying Child

To meet this test, the child must be:

Unmarried,

Married but does not file a joint return, or

Married and files a joint return only to claim a refund of withheld tax, neither the dependent nor spouse can claim personal exemption on their joint return

Citizen or Resident Test — Qualifying Child

To meet this test, the child must be:

A U.S. citizen or resident or

A resident of Canada or Mexico

Relationship Test — Qualifying Child

To meet this test, the child must be:

Your son, daughter, stepchild, eligible foster child, adopted child, or a descendant (for example, your grandchild) of any of them, or

Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them.

Age Test — Qualifying Child

To meet this test, the child must be:

Under age 19 at the end of the year and younger than you (or your spouse if filing jointly)

A full-time student under age 24 at the end of the year, and younger than you (or your spouse if filing jointly)

Permanently and totally disabled at any time during the year, regardless of age.

Residency Test — Qualifying Child

To meet this test, the child must:

Have lived with you for more than half of the year

Meet one of the exemptions listed below:

Temporary absences — illness, education, business, vacation, or military service

Death or birth of child — a child who was born or died during the year

Support Test — Qualifying Child

To meet this test, the child must:

Not have provided more than half of his or her own support

Note: There are special rules for a child that is the "qualifying child" of more than one person. Do research or get professional advice if you encounter this situation.

Qualifying Relative

All of the following tests must be met to claim a dependency exemption under the rules for a qualifying relative.

Dependent Taxpayer Test — Qualifying Relative

If you could be claimed as a dependent by another person, you cannot claim anyone else as a dependent. Even if you have a qualifying child or qualifying relative, you cannot claim that person as a dependent.

Member of Household or Relationship Tests — Qualifying Relative

Live with you all year as a member of your household,

OR

Be related to you in one of the allowable ways under Relatives who do not have to live with you.

Taxpayers will meet this test for persons

who are relatives, even if the persons are not members of the taxpayer's household for the entire year.

who are not relatives if the persons are members of the taxpayer's household for the entire year.

Member of Household Test — Qualifying Relative

Taxpayers will meet the member of household test for persons who live with them under the following conditions:

The dependent does not have to be related to the taxpayer.

The dependent must live with the taxpayer all year except for temporary absences. (Temporary absences include attending school, taking vacations, and staying in the hospital.)

The relationship between the taxpayer and the dependent must not violate local laws

Relationship Test — Qualifying Relative

Taxpayers will meet the relationship test if their relatives are one of the following:

• child
• parent
• brother/sister
• stepparent
• stepchild
• stepbrother/stepsister
• half brother/half sister
• grandparent
• grandchild
• son-in-law/daughter-in-law
• mother-in-law/father-in-law
• brother-in-law/sister-in-law

If related by blood, relatives also include

• uncle/aunt
• niece/nephew

Tax Tip

Cousins do not meet the relationship test.

Relatives do not have to be members of the taxpayer's household.

Relationships established by marriage are not ended by death or divorce. For example, a daughter-in-law is a relative to her in-law parents even after the death of their son (her husband).

Tax Tip

There are special rules for children born during the year, adopted children, and foster children.

Remember: To claim a dependency exemption, all tests must be met, including either the relationship test or the member of household test.

Joint Return Test — Qualifying Relative

Taxpayers will meet this test for persons who are

unmarried,

married but do not file a joint return, or

married and file a joint return only to claim a refund of withheld tax; neither would have a tax liability on Separate returns; neither the dependent nor spouse can claim personal exemptions on their joint return.

Remember: To claim a dependency exemption, all tests must be met.

Citizen or Resident Test — Qualifying Relative

Taxpayers will meet this test for persons who are, for some part of the year,

U.S. citizens, residents, or nationals or

residents of Canada or Mexico.

Not a qualifying Child Test — Qualifying Relative

A child is not your qualifying relative if the child is your qualifying child or the qualifying child of anyone else.

Gross Income Test — Qualifying Relative

Taxpayers will meet this test for persons whose gross incomes are less than the exemption amount.

In 2014, the exemption amount is $3,950.

Gross Income

is all taxable income in the form of money, property, and services;

includes unemployment compensation and certain scholarships; and

does not include welfare benefits and nontaxable Social Security benefits.

Remember: To claim a dependency exemption, all seven tests must be met.

Support Test — Qualifying Relative

Taxpayers will meet this test if the taxpayer provided more than half of a person's total support for the entire year.

Total support items include

• food
• clothing 
• shelter
• education 
• medical and dental care
• recreation and transportation
• welfare
• food stamps
• housing provided by the state

Compare the dollar value of the support provided by the taxpayer with the total support the person received from all sources.

Tax Tip

There are special rules for dependents who receive support from multiple sources and for children of divorced or separated parents.

Important Point: The gross income test considers the dependent's taxable income. The support test considers all income, taxable and nontaxable.

Remember: To claim a dependency exemption, all seven tests must be met.

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