The IRS mails millions of letters to taxpayers every year for many reasons. Here are seven simple suggestions on how individuals can handle a letter or notice from the IRS:
1. Don’t panic. Simply responding will take care of most IRS letters and notices.
2. Read the entire letter carefully. Most letters deal with a specific issue and provide specific instructions on what to do.
3. Compare it with the tax return. If a letter indicates a changed or corrected tax return, the taxpayer should review the information and compare it with their original return.
4. Only reply if necessary. There is usually no need to reply to a letter unless specifically instructed to do so, or to make a payment.
5. Respond timely. Taxpayers should respond to a letter with which they do not agree. They should mail a letter explaining why they disagree. They should mail their response to the address listed at the bottom of the letter. The taxpayer should include information and documents for the IRS to consider. The taxpayer should allow at least 30 days for a response.
When a specific date is listed in the letter, there are two main reasons taxpayers should respond by that date:
- To minimize additional interest and penalty charges.
- To preserve appeal rights if the taxpayers doesn’t agree.
6. Don’t call. For most letters, there is no need to call the IRS or make an appointment at a taxpayer assistance center. If a call seems necessary, the taxpayer can use the phone number in the upper right-hand corner of the letter. They should have a copy of the tax return and letter on hand when calling.
7. Keep the letter. A taxpayer should keep copies of any IRS letters or notices received with their tax records.
If you are still unsure about what to do, remember we are just a phone call or email away for assistance and guidance.
On November 9, the United States Senate Committee on Finance unveiled their legislative tax proposal titled the “Tax Cuts & Jobs Act”. For businesses there are big differences from the House proposal. Most critical is that it would delay corporate tax rate cuts until 2019. Once this passes the Senate then both the Senate and House must get together and negotiate the differences between the two bills before being presented to President Trump for his signature.
The Tax Cuts and Jobs Act provides fiscally responsible middle-class tax relief by cutting tax rates across the board, reducing the tax burden on American job creators and modernizing our tax system. Under this proposal, a typical family of four earning the median family income (around $73,000) will see its taxes cut by nearly $1,500. The bill will also reduce the tax burden on small businesses and put American companies on a level playing field with their foreign competitors in order to grow the economy and create more jobs here at home. Combined, all of this will mean bigger paychecks for middle-class workers and families, more American jobs and a stronger U.S. economy.
Relief for American Workers and Families
The Tax Cuts and Jobs Act:
▶ Lowers individual tax rates for low- and middle-income Americans by effectively expanding the zero tax bracket and maintaining a 10 percent bracket, allowing hardworking taxpayers to keep more of their hard-earned money, make ends meet and save for retirement. The bill includes a reformed rate structure that targets tax relief to the middle class while maintaining the existing tax distribution and a 38.5 percent bracket for high-income earners.
▶ Nearly doubles the standard deduction to reduce or eliminate the federal income tax burden for tens of millions of American families. The standard deduction will increase from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for married couples. For single parents, the standard deduction will increase from $9,300 to $18,000.
▶ Recognizes the unique challenges faced by parents with young children by:
- Expanding the child tax credit from $1,000 to $1,650 and allowing many more parents to claim the credit by substantially lifting existing caps;
- Preserving the child and dependent care tax credit to help working parents care for their children and older dependents–such as an aging grandparent–who need support;
- Preserving the adoption tax credit to help families with the high costs of adopting children; and
- Allowing parents to more effectively save for the education costs of unborn children
▶ Preserves the deduction for charitable contributions, continuing a long recognition of the importance of private philanthropy for the churches and community organizations that daily provide aid and assistance to those in need.
▶ Protects the home mortgage interest deduction for existing mortgages and maintains the deduction for newly purchased homes up to $1 million. This incentive for homeownership provides tax relief to current and aspiring homeowners.
▶ Continues popular retirement savings programs such as 401(k)s and Individual Retirement Accounts to help Americans build their retirement nest eggs and prepare for the future.
▶ Preserves the earned income tax credit to provide tax relief to low-income Americans working to build better lives for themselves.
▶ Preserves additional important elements of the existing individual tax system, including:
- Deduction for medical expenses
- Enhanced standard deduction for the blind and elderly
- Education relief for graduate students
▶ Repeals the alternative minimum tax (AMT) to simplify the tax code and eliminate uncertainty for millions of Americans who are required to calculate their taxes twice each year.
▶ Provides relief from the death tax by doubling the current exemption. This will reduce uncertainty and costs for family-owned farms and businesses by making it less likely that Washington will impose an unnecessary layer of taxation on Americans who want to pass on their life’s work to the next generation.
Relief for Job Creators of All Sizes
▶ Permanently lowers the corporate tax rate to 20 percent so American companies no longer have to face the highest tax rate in the industrialized world, which will allow them to better compete in the global marketplace, create more jobs and increase wages.
▶ Substantially lowers the tax burden on Main Street job creators through:
- A simple and easy-to-administer deduction for pass-through businesses of all sizes, allowing more small businesses to grow, invest, hire new workers and increase wages while also preventing abuse of the reformed system;
- Enhanced Section 179 expensing to promote business investment and growth; and
- Enhanced cash accounting, allowing more businesses to use the simple cash-basis accounting method.
▶ Full and immediate expensing of new equipment, which encourages growth and increases investment, productivity and wages.
▶ Protects the ability of small businesses to deduct interest on loans that allows Main Street employers to expand, invest and hire new workers.
▶ Preserves important elements of the existing business tax system, including:
- Low-income housing credit to continue encouraging businesses to invest in affordable housing and provide individuals and families with expanded opportunities.
- Research and development tax credit, which enhances investments in American products, technology and innovations.
▶ Permanently modernizes our outdated international tax system by eliminating the antiquated “worldwide” system in order to eliminate double taxation, enhance the competitiveness of American companies and bring business and investment back to the United States.
▶ Eliminates the “lock-out effect” by making it simpler and less onerous for American multinationals to bring foreign earnings back to America for investment and growth here at home.
▶ Makes the United States a better place to do business by eliminating incentives for companies to shift jobs, profits and intellectual property overseas, and by creating incentives for companies to both locate in America and bring economic activity back to America.
A business owners day is usually full from the time that they wake up until they go to bed. There is always something that needs to be done, so there are days when certain things get missed. Bookkeeping may be one of those things.
Most people don’t enjoy sitting down and taking care of their paperwork on a daily basis so they get behind quickly. However, there is another way. You can outsource your bookkeeping and let someone else help you stay up-to-date.
Here are some reasons to outsource your bookkeeping:
- It will free up more time for you to focus on your business. Often, things get pushed back because you have so much to do on a regular basis. Think about the hours that you spend working on your books. What else could you be working on? Finding new clients? Making more money?
- Accountants know all about bookkeeping. While you may just be trying to keep track (and hoping that you are doing it the right way), accountants are experts when it comes to bookkeeping. If you want to make sure that your books are done correctly, you should hire someone who knows what he or she is doing.
- Outsourcing is often cheaper than hiring an employee. Most business owners feel like they need to hire a part or full-time employee when they need help. However, it is much cheaper to outsource. By going this route, you should be able to pay him or her only when needed, saving you valuable money. You also won’t need extra office space if he or she is able to work from home (or their own office)!
- You will have less risks at tax time. Accountants will have all of your paperwork ready for your taxes. Too many business owners scramble to get their information together when it comes time to do their taxes. However, by outsourcing, you don’t have to worry when April rolls around.
- You will also know exactly how well your business is doing at any given time. An accountant will be able to tell you how well your business is doing. He or she will know how much cash you have, as well as what bills are due and when. They will also keep track of people who owe you money too!
- Outsourcing gives you peace of mind. If you don’t have to worry about paperwork, bookkeeping, and taxes, imagine how much less stressed you will be. You will know that everything is getting done in a timely fashion and, at the same time, done correctly!
So if that sounds like a valuable option for your bookkeeping needs contact us today. Peace of mind is worth every penny!
Cash flowing in to a business ensures that suppliers, employees, and the owner get paid on time. A business with healthy cash flow can use debt strategically to grow instead of running short to pay regular obligations.
Here are proven methods for any small business to boost their cash flow:
1. Analyze Your Cash Flow
This obvious sounding step is strategically important. Know how much cash is coming in to the business on a regular basis and know where it is going. Costly memberships or subscriptions may no longer serve a purpose. Turn in receipts on a regularly scheduled basis to track expenses that might otherwise go unnoticed. Schedule bookkeeping at regular intervals. This analysis can help find and address areas to conserve cash flow.
2. Charge More
Determine how the prices you charge compare to the marketplace. Service providers, especially freelance operators, often have room to raise their rates. If prices are already at a comfortable threshold for the market, then consider having a premium product or service where you can charge more without boosting expenses.
3. Collect on Time
Send invoices promptly once work is completed. Schedule using a bookkeeping program if necessary. Customers will appreciate prompt billing since it can help them manage their own income and expenses. For late-paying customers or those who refuse to pay, enact a policy of payment before finishing projects to avoid investing time and money from your account that won’t get paid in return.
4. Manage Inventory Well
Keep enough goods on hand but don’t tie up cash in inventory that is going to sit on shelves or in warehouses for prolonged periods of time.
5. Keep Discounts to a Minimum
Special pricing discounts can get customers noticed and interested but understand how the offers impact your profitability. If the specials don’t result in a sales spike or longer-term customer retention then avoid that strategy.
Keep an eye on quality to ensure that customers don’t demand discounts for work that has mistakes or wasn’t performed to expectations.
6. Aim for High Customer Satisfaction
Ensure a quality experience since customers who know your quality and appreciate it are likely to buy from you again. It costs less to service existing, satisfied customers than it does to market and advertise to bring in new ones. Appreciative customers are a strong source of referrals which also boosts cash flow.
7. Maintain Some Cash Reserves
If sales dip at predictable times, then build up some cash reserves to avoid paying bills using credit cards or other high interest debt. Too much erodes cash flow.
8. Use Debt Wisely
Debt through a revolving line of credit or similar method can be useful in expanding a successful operation. It can result in more customers, be paid down, and increase cash flow. Manage the debt well and make sure it doesn’t become a challenge to service.
Cash flow requires vigilance. Staying on top of it can provide the information needed to run and maintain a profitable business.
For more tips on cash flow or needs related to bookkeeping, accounting, and tax returns please contact us at (786) 787-0388 or email us at: Scott@Sandercpa.com.
The tax reform bill was released November 2, 2017, by the U.S. House of Representatives Committee on Ways and Means. The policy highlights are outlined below:
Individuals and Families
- Lowers individual tax rates for low- and middle-income Americans to Zero, 12%, 25% and 35% so people can keep more of the money they earn throughout their lives and continues to maintain 39.6% for high-income Americans.
- Significantly increases the standard deduction to protect roughly double the amount of what you earn each year from taxes–from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples.
- Eliminates special-interest deductions that increase rates and complicate Americans’ taxes–so an individual or family can file their taxes on a form as simple as a postcard.
- Takes action to support American families by:
1. Establishing a new Family Credit, which includes expanding the Child Tax Credit from $1,000 to $1,600 to help parents with the cost of raising children and providing a credit of $300 for each parent and non-child dependent to help all families with their everyday expenses.
2. Preserving the Child and Dependent Care Tax Credit to help families care for their children and older dependents such as a disabled grandparent who may need additional support.
- Preserves the Earned Income Tax Credit to provide important tax relief for low-income Americans working to build better lives for themselves.
- Streamlines higher education benefits to help families save for and better afford college tuition and other education expenses.
- Continues the deduction for charitable contributions so people can continue to donate to their local church, charity or community organization.
- Preserves the home mortgage interest deduction for existing mortgages and maintains the home mortgage interest deduction for newly purchased homes up to $500,000–providing tax relief to current and aspiring homeowners.
- Continues to allow people to write off the cost of state and local property taxes up to $10,000.
- Retains popular retirement savings options such as 401(k)s and Individual Retirement Accounts so Americans can continue to save for their future.
- Repeals the Alternative Minimum Tax so millions of individuals and families will no longer have to worry about calculating their taxes twice each year and pay the higher amount.
- Provides immediate relief from the Death Tax by doubling the exemption and repealing the Death Tax after six years. Family-owned farms and businesses will no longer have to worry about double or triple taxation from Washington when they pass down their life’s work to the next generation.
Job Creators of All Sizes
- Lowers the corporate tax rate to 20%–down from 35%, which today is the highest in the industrialized world–the largest reduction in the U.S. corporate tax rate in our nation’s history.
- Reduces the tax rate on the hard-earned business income of Main Street job creators to no more than 25%–the lowest tax rate on small business income since World War II.
- Establishes strong safeguards to distinguish between individual wage income and “pass-through” business income so Main Street tax relief goes to the local job creators it was designed to help most.
- Allows businesses to immediately write off the full cost of new equipment to improve operations and enhance the skills of their workers–unleashing the growth of jobs, productivity and paychecks.
- Protects the ability of small businesses to write off the interest on loans that help these Main Street entrepreneurs start or expand a business, hire workers and increase paychecks.
- Retains the low-income housing tax credit that encourages businesses to invest in affordable housing so families, individuals and seniors can find a safe and comfortable place to call home.
- Preserves the Research & Development Tax Credit–encouraging our businesses and workers to develop cutting-edge “Made in America” products and services.
- Strengthens accountability rules for tax-exempt organizations to ensure the churches, charities, foundations and other organizations receiving tax-exempt status are focused on helping people and communities in need.
- Modernizes our international tax system so America’s global businesses will no longer be held back by an outdated “worldwide” tax system that results in double taxation for many of our nation’s job creators.
- Makes it easier and far less costly for American businesses to bring home foreign earnings to invest in creating jobs and increasing paychecks in our local communities.
- Prevents American jobs, headquarters and research from moving overseas by eliminating incentives that now reward companies for shifting jobs, profits and manufacturing plants abroad.
The Internal Revenue Service recently reported it’s progress with battling tax return Identity theft.
Last year, the IRS stopped 883,000 confirmed identity theft returns, which was 37% less than 2015 and another 443,000 confirmed identity theft returns so far this year which is 30% less than the same time last year.
The number of people reporting they were identity theft victims fell 46% last year and another 40% as of August this year.
“The states and the IRS have improved their ability to stop fraudulent refunds by working with financial institutions to help identify refunds that are questionable,” said IRS Commissioner John Koskinen during a conference call with reporters Tuesday. “And since 2015 the IRS has been running a pilot program to test the idea of adding averification code to W-2 forms.”
New protection measures are planned for 2018:
- In 2018, a new 16 character verification code box will appear on all official W-2 forms for the first time.
- The IRS will be asking tax professionals to get more information on their business clients. Some of the new questions people may be asked to provide when filing their business, trust or estate client returns include:
– The name and Social Security number of the company individual authorized to sign the business return. Is the person signing the return authorized to do so?
– Payment history – Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
– Parent company information – Is there a parent company? If yes, who?
– Additional information based on deductions claimed.
– Filing history – Has the business filed Form(s) 940, 941 or other business-related tax forms?
This year also marked the launch of the Tax Information Sharing and Analysis Center (ISAC), which has dramatically improved real-time security information sharing,
One last thought. Do not respond to any emails from the IRS no matter how official they appear to be. These are phishing scams attempting to get you to provide sensitive information to cyber criminals.
The Disaster Relief and Airport and Airway Extension Act of 2017 was just passed by Congress and signed by President Trump on September 29, 2017. Highlights of this law are as follows:
The Act includes significant relief to both individuals and businesses that were in disaster areas from Hurricanes Harvey, Irma and Maria. The significant provisions of the Act include:
- Charitable contribution deduction limitations have been eased resulting in higher amounts allowable
- Casualty loss deductions have been expanded
- A new wage tax credit is available for businesses
- Retirement plan withdrawals have been widened
- Earned income and child care credits have been increased
Wage Tax Credit
Businesses can claim a new employee retention tax credit of up to $2,400 for qualified wages paid to eligible employees.
Casualty Loss Deduction Expanded
Currently, losses not reimbursed by insurance are deductible if they exceed $100 and exceed 100% of adjusted gross income. Under the new law if you are in a disaster area from Hurricanes Harvey, Irma or Maria, the floor increases to $500 but the 10% limitation has been removed. If you do not itemize then your standard deduction is increased by the amount of your loss.
Retirement Withdrawals Eased
Qualified distributions for anyone in the hurricane disaster areas are exempt from the 10% early retirement plan withdrawal penalty, and no tax is required to be withheld. These amounts can be treated as loans if paid back within three years.
Earned Income and Child Tax Credits
Taxpayers can use previous year’s earned income during the disaster period to compute tax credits.