In these uncertain times, businesses across industries are facing the harsh reality of reduced revenue and the need to make tough decisions regarding their workforce. While furloughs and layoffs might seem inevitable for some, it is essential to explore all available options to maintain your talented employees and keep your business afloat. One such option that has gained significant attention is the Employee Retention Credits (ERC) offered by the U.S. government. Understanding this program and its potential benefits can be a crucial lifeline for businesses in need.
What are Employee Retention Credits?
Employee Retention Credits, introduced under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, aim to provide financial support to businesses affected by the pandemic. Under this program, eligible employers can receive payroll tax credits for wages paid to their employees. These credits are designed to incentivize businesses to retain their workforce rather than resorting to layoffs or furloughs.
Who is eligible for Employee Retention Credits?
To be eligible for Employee Retention Credits, businesses must meet certain criteria. Firstly, the business must have operated during the calendar year 2020. Secondly, the business must have experienced either a full or partial suspension of operation due to government orders related to COVID-19. Lastly, there is also a gross receipts test where businesses with a significant decline in sales or revenue can qualify for the credits.
How much can a business claim through Employee Retention Credits?
The amount of credits a business can claim through the ERC program depends on the wages paid to its employees during the eligible period. However, it is important to note that the qualified wages can vary depending on the size of the business and the average number of full-time employees during 2019.
What are the benefits of Employee Retention Credits?
Employee Retention Credits can provide businesses with significant benefits during these challenging times. By taking advantage of this program, businesses can retain talented employees and continue operations, even with reduced revenue. This can help businesses bounce back quickly once the economy starts to recover. Additionally, the credits can help ease the burden on businesses with limited financial resources by offsetting payroll costs, allowing them to redirect funds to other critical areas.
How can businesses claim Employee Retention Credits?
To claim Employee Retention Credits, businesses need to complete Form 941, the Employer’s Quarterly Federal Tax Return. This form allows businesses to report their quarterly wages, payroll tax liabilities, and claim the credits. The credits can then be used to offset the employer’s share of Social Security taxes. It is crucial for businesses to maintain accurate records and documentation to support their claim for Employee Retention Credits, as this can be subject to audit by the IRS.
Conclusion
Employee Retention Credits can be a lifeline for businesses struggling to navigate the economic fallout caused by the COVID-19 pandemic. By understanding the eligibility criteria and the potential benefits, businesses can make informed decisions to retain their valuable workforce and weather the storm. Consulting with a qualified tax advisor or professional can also be instrumental in ensuring businesses maximize their credits and comply with all applicable regulations. In these uncertain times, exploring every available option to support employee retention and sustain business operations is crucial, and the Employee Retention Credits program can be a valuable tool in achieving this goal.
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Priscilla A. Chesler CPA PC is a full-service accounting firm that offers highly personalized solution for your business, nonprofit or organizations. Priscilla gets to know client businesses in depth, often onsite, to ensure she can offer guidance and services that fit the needs of the organization. Her expertise and knowledge of tax law and best accounting practices are always current. Contact her today.
Understanding Gift Taxes: What Every Gift Giver Needs to Know
Gift-giving is a wonderful way to express love, gratitude, and generosity. However, it’s important to understand the implications of gift taxes to ensure compliance with the law and avoid any unexpected financial burdens. In this blog post, we will delve into the world of gift taxes and provide you with the essential information every gift giver needs to know.
1. What Is a Gift Tax?
A gift tax is a tax imposed on the transfer of property by one individual to another, where no money or compensation is received in return. The Internal Revenue Service (IRS) views gifts as a form of taxable income and requires the gift giver to report certain gifts and potentially pay taxes on them.
2. Understanding the Annual Gift Tax Exclusion
The IRS provides an annual gift tax exclusion, which allows individuals to make gifts up to a specific amount each year to an unlimited number of recipients without incurring any gift tax. The exclusion amount is adjusted annually for inflation.
3. Gift Splitting for Married Couples
For married couples, there is a unique provision called gift splitting. This allows one spouse to gift up to twice the annual exclusion amount to an individual, without incurring any gift tax. To do this, both spouses must agree to split the gift, and the gift must be reported on Form 709, the Gift and Generation-Skipping Transfer Tax Return.
4. Lifetime Gift Tax Exemption
In addition to the annual gift tax exclusion, individuals have a lifetime gift tax exemption. This exemption allows gift givers to give larger amounts over their lifetime without incurring gift tax. Any gifts made that exceed the annual exclusion or the lifetime exemption will be subject to gift taxes.
5. Tax Implications for the Recipient
It’s important to note that gift taxes are generally paid by the gift giver, not the recipient. The recipient of a gift does not have to report the gift as income, regardless of the value. However, if the gift generates income, such as interest or dividends, the recipient may have to report and pay taxes on the income generated from the gifted asset.
6. Gifts That Do Not Count Towards the Annual Exclusion
Certain types of gifts are exempt from the annual exclusion and do not require the gift giver to report them. These include gifts made for tuition or medical expenses paid directly to the qualifying educational institution or medical provider on behalf of the recipient. In these cases, the gift giver can make larger gifts without incurring any gift tax liability.
7. Gift Tax Consequences for Non-us Citizens
Gift taxes can also apply to gifts made by or to non-US citizens. Non-US citizens who are domiciled in the United States are subject to the same gift tax rules as US citizens. However, non-US citizens who are not domiciled in the United States have a lower annual gift tax exclusion of $100,000 for gifts to non-US citizen recipients.
8. Consult a Tax Professional
Navigating the world of gift taxes can be complex, and the rules can vary depending on individual circumstances. To ensure compliance with the IRS regulations, it’s advisable to consult with a qualified tax professional. They can provide personalized advice and help you navigate the tax implications of your specific gift-giving situation.
Summary
Understanding gift taxes is essential for every gift giver. Being aware of the annual gift tax exclusion, gift splitting for married couples, the lifetime gift tax exemption, and the tax implications for the recipient is crucial to ensuring compliance with IRS regulations. Additionally, knowing which gifts do not count towards the annual exclusion and understanding the implications for non-US citizens can help prevent any unexpected tax burdens. When in doubt, consult a tax professional to receive personalized advice tailored to your specific circumstances. Happy gift giving!
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Priscilla A. Chesler CPA PC is a full-service accounting firm that offers highly personalized solution for your business, nonprofit or organizations. Priscilla gets to know client businesses in depth, often onsite, to ensure she can offer guidance and services that fit the needs of the organization. Her expertise and knowledge of tax law and best accounting practices are always current. Contact her today.
How to Choose the Best Legal Structure for Your Business
Starting a new business is an exciting endeavor, but it also requires various important decisions to be made. One of the most crucial decisions you will need to make is determining the legal structure of your business. The legal structure you choose will have long-term implications on your business operations, taxes, personal liability, and ability to raise funds. With a plethora of options out there, it can be overwhelming to choose the right one. In this blog post, we will guide you through the process of choosing the best legal structure for your business.
Understand the Different Legal Structures
Before diving into the selection process, it is essential to have a clear understanding of the different legal structures available. Here are some of the most common options:
1. Sole Proprietorship: This is the simplest form of business structure, where you are the sole owner and operator of your business. However, you are personally liable for all business obligations.
2. Partnership: A partnership involves two or more people who come together to carry on a business. In a general partnership, all partners share equally in profits and losses, while in a limited partnership, there can be general partners and limited partners with differing levels of responsibility and liability.
3. Limited Liability Company (LLC): An LLC is a hybrid structure that combines elements of a corporation and a partnership. It offers limited liability protection to its owners (known as members) while allowing flexible management and pass-through taxation.
4. Corporation: A corporation is a legal entity separate from its owners (shareholders). It offers limited liability protection to its shareholders and the ability to raise capital through the sale of stock.
Assess Your Business Goals and Needs
To determine the best legal structure for your business, you need to align it with your specific goals and needs.
1. Liability Protection: If protecting your personal assets is a prime concern, forming a legal structure that provides limited liability, such as an LLC or corporation, is advisable.
2. Tax Considerations: Consider the tax implications of each legal structure. For example, a sole proprietorship or partnership allows for pass-through taxation, where business income is reported on the owner’s personal tax return. In contrast, corporations are subject to double taxation, where the corporate income is taxed, and any dividends distributed to shareholders are also taxed.
3. Business Flexibility: Evaluate the level of management flexibility you require. Sole proprietorships and partnerships provide maximum flexibility as you have control over all business decisions. However, if you are seeking investors or planning for long-term growth, a corporation may be more suitable.
Consult with Professionals
To ensure you make an informed decision, it is wise to seek advice from professionals, such as a lawyer and an accountant. They can provide invaluable insights into the legal and financial implications of different legal structures based on your specific circumstances.
1. Legal Counsel: A lawyer specializing in business law can help you navigate the intricacies of different legal structures, draft necessary legal documents, and ensure compliance with local regulations.
2. Accountant: An accountantcan assist you in evaluating the tax consequences of each legal structure and help you maintain accurate financial records.
Consider Future Growth and Funding Options
When choosing a legal structure, it is important to consider your future growth plans and potential funding options.
1. Expansion Plans: If you envision significant growth and expansion, a corporation may be beneficial. It allows for the issuance of different classes of stock and ease of ownership transfers. However, if you prefer to maintain control and flexibility, an LLC may be a better fit.
2. Funding Options: Different legal structures offer varying options for raising capital. For instance, corporations can attract investors by issuing shares of stock, while partnerships rely on partners’ contributions or loans. Evaluate what types of funding sources are most likely to be available to your business and choose a structure that aligns with those options.
Make an Informed Decision
After considering all the relevant factors, it’s time to make an informed decision regarding your business’s legal structure. Remember that this decision is not set in stone and can be changed as your business evolves.
1. Finalize the Paperwork: Once you decide, you will need to complete the necessary paperwork and filings to register your chosen legal structure with the appropriate government agencies.
2. Obtain Licenses and Permits: Depending on your location and industry, you may need to obtain specific licenses and permits to operate legally. Research and apply for the necessary approvals to comply with local regulations.
3. Communicate with Stakeholders: Inform your stakeholders about the chosen legal structure and any changes that may affect them. This includes employees, suppliers, partners, and investors.
Conclusion
Choosing the best legal structure for your business requires careful consideration of your goals, needs, and future plans. By understanding the different legal structures, seeking professional advice, and evaluating your growth and funding options, you can make a well-informed decision that will set your business up for success.
Got Questions?
Priscilla A. Chesler CPA PC is a full-service accounting firm that offers highly personalized solution for your business, nonprofit or organizations. Priscilla gets to know client businesses in depth, often onsite, to ensure she can offer guidance and services that fit the needs of the organization. Her expertise and knowledge of tax law and best accounting practices are always current. Contact her today.
Estimated tax payments are a routine aspect of the tax system. Employers will commonly withhold taxes each pay period. However, when you’re self-employed, you have to pay your taxes automatically. The Internal Revenue Service (IRS) uses the withholding amount and other factors to establish an estimated tax payment requirement. This can lead to unwelcome surprises if you don’t meet the deadlines.
Estimated tax penalties are most likely the last thing you’d like to think about, but you should. In case your self-employment or side gigs comply with a certain threshold, you must submit estimated taxes. In case you don’t, the IRS may impose penalties and interest.
Below are tips on how to avoid estimated tax penalties:
1. Know When to Pay Estimated Taxes
To avoid estimated tax penalties, the first thing you’re required to do is find out when they are due. People who are self-employed income owners are required to pay estimated taxes quarterly. The deadlines are typically:
– April 15 for January through March
– June 15 for April through May
– September 15 for June through August
– January 15 of the following year for September through December.
In some cases, a shift in your income can also affect an estimated tax payment deadline. Take note of these deadlines and make a point to submit your payments before they pass.
2. Know How to Calculate Your Estimated Taxes
For those who are self-employed individuals, you’re required to compute taxes on estimated net income. Three methods can be used to calculate estimated taxes:
– Prior year calculation: This is computing it using your tax information from the prior year.
– Annualized income: This method demands more work since you’ll need to calculate your net income for every quarter.
– Current year tax rate: This one is self-explanatory. The most recent tax rates will be used to calculate the payment.
Whatever method you decide to utilize, make sure you accurately compute your estimated taxes. Inaccurate payments may lead to penalties.
3. Keep Track of Your Expenses
Self-employed workers are allowed to deduct business expenses from their net income. These deductions help reduce the tax burden. Keeping track of your expenses throughout the year will aid in estimating your quarterly payments. As a result, you decrease your chances of incurring penalties.
4. Use the Right Forms to Submit Payments
It is important to use the correct forms to submit your payments. Individuals and businesses submit estimated tax payments using forms 1040-ES for the estimated tax payments. In case you decide to use another form, you may not receive credit for your payment. It’s essential to pay attention to instructions whenever submitting payments.
5. Set Aside Money for Taxes
One of the necessary things a self-employed individual needs to do is set aside money for taxes. As there are no taxes subtracted from your paychecks, you’ll need to keep track of the amount you owe to the IRS. Try to set aside funds from every payment to ensure that you have sufficient money available when it’s time to submit your quarterly payment.
6. Avoid Underestimating Your Payments
A common mistake the self-employed make when submitting payments is underestimating the amount they owe. To help avoid this mistake, try to calculate your payments accurately or consult an accountant for assistance. Inaccurate estimates may lead to penalty payments.
7. Use Electronic Payment Options
The IRS encourages taxpayers to use electronic payment options since they are secure, convenient, and provide the necessary documentation. The Electronic Federal Tax Payment System (EFTPS) and the Online Payment Agreement (OPA) are two electronic payment options available. These payment options make it simple to monitor your payments and avoid penalties.
8. Keep Good Records
Good record-keeping can also help you avoid estimated tax penalties. Maintain a record of your expenses, tax payments, and revenue. It will make estimating your income easier, making it a fast process for computing quarterly payments.
Summary
It is possible to avoid estimated tax penalties with good planning, organization, and knowledge. Know when to pay your taxes, keep accurate records, estimate correctly, and organize your payments. If you require additional support, endeavor to seek an accountant’s assistance. Avoiding underestimations of your payments and setting aside money for taxes will ensure that you’re compliant, and you’ll avoid penalties.
Filing taxes can be a daunting task for many individuals. The complex forms and ever-changing tax laws can make it easy to make mistakes. However, these mistakes can lead to delays in refunds or even trigger an audit from the IRS. To help you avoid these common errors, we have put together a list of tips on how to prevent mistakes when filing your taxes.
1. Gather All Necessary Documents and Information
One of the most crucial steps in avoiding mistakes when filing taxes is to gather all the necessary documents and information. This includes W-2 forms from your employer, 1099 forms for any freelance work or investments, and receipts for deductions and credits. By having all the required documents in one place before you start, you can ensure that you are providing accurate information when filling out your tax return.
2. Double-Check Your Math
Mathematical errors are one of the most common mistakes made during tax filings. Simple calculation mistakes can lead to incorrect amounts, which can result in either overpaying or underpaying your taxes. Avoid these errors by using a calculator and double-checking all calculations to ensure accuracy.
3. Review Your Filing Status
Choosing the correct filing status is crucial for accurate tax filings. Whether you are single, married, or head of household, your filing status determines the tax rates and deductions you are eligible for. Take the time to review the IRS guidelines for each filing status to determine the one that best applies to your situation. Choosing the wrong filing status can result in an incorrect tax liability.
4. Be Mindful of Typos and Errors in Personal Information
While it may seem minor, typos and errors in personal information, such as your name, Social Security number, or address, can cause significant issues when filing taxes. These errors can lead to delays in processing your return or even increase the chances of identity theft. Before submitting your tax return, carefully review all personal information to ensure accuracy.
5. Pay Attention to Deductibles and Credits
Deductibles and credits can significantly reduce the amount of tax you owe or increase your refund. However, it is essential to be aware of the specific requirements and limitations for each deduction and credit. Common mistakes include overlooking eligible deductions or credits, or incorrectly claiming ones that do not apply to your situation. Take the time to research and understand the deductibles and credits that are relevant to you, or consult with a tax professional to ensure accurate claims.
6. Keep Thorough Records
Keeping thorough records is essential for accurate tax filings. This includes maintaining receipts, invoices, and bank statements related to your income and expenses. By having organized and complete records, you can ensure that you have all the necessary documentation to support your tax deductions and credits. Additionally, maintaining these records helps in case of an audit by the IRS.
7. File Your Taxes on Time
Filing your taxes on time is crucial to avoid penalties and interest charges. The deadline for filing taxes is typically April 15th, unless an extension has been granted. Make sure you mark this date on your calendar and set a reminder to prevent any delays. Late filings can result in penalties, and if you are due a refund, it will be delayed if you file late.
8. Seek Professional Help if Needed
If you find yourself overwhelmed by the complexities of filing taxes, do not hesitate to seek professional help. Tax professionals, such as certified public accountants or tax attorneys, can provide guidance and ensure accurate filings. While there is a cost involved, the peace of mind and potential savings from avoiding costly mistakes can make it well worth it.
Final Thoughts
By following these tips, you can prevent common mistakes when filing your taxes. Taking the time to gather all necessary documents, reviewing your filing status, double-checking calculations, and paying attention to deductibles and credits can significantly reduce the chances of errors. Additionally, maintaining thorough records, filing on time, and seeking professional help when needed are all essential steps in ensuring accurate and hassle-free tax filings.
Need a hand filing your taxes? Let us help! Contact us today to learn more about what we can do for you!
In these uncertain times, businesses across industries are facing the harsh reality of reduced revenue and the need to make tough decisions regarding their workforce. While furloughs and layoffs might seem inevitable for some, it is essential to explore all available options to maintain your talented employees and keep your business afloat. One such option that has gained significant attention is the Employee Retention Credits (ERC) offered by the U.S. government. Understanding this program and its potential benefits can be a crucial lifeline for businesses in need.