Tax Season Ain't No Thang!

Don't fear the tax man, follow these easy steps…

1. 2016: A Year in Review.  Go back and make a list of all the major financial and personal events from last year. If you have the stomach for it, download our tax questionnaire and tax organizer to help jog your memory. 

2. Start collecting your tax docs. Just to name a few forms:

•       W-2: Employee annual statement of wages

•       1099-MISC: Freelance/independent contractor statement of compensation

•       1095-A/B/C: Health care statement

•       1099-INT, 1099-DIV, 1099-B: Interest, dividend, capital gains statements from investments, respectively. (Think Betterment, Robin Hood, E-trade, and the like.)

•       1098: Mortgage interest paid

•       1098-T: Tuition paid

•       1098-E: Student loan interest paid

•       5498: Retirement contributions

3. Other things to give your CPA:

•       Copy of your prior year tax returns

•       Summary of any estimate quarterly tax payments (Fed & State). Include the amount and date paid.

•       Summary of other business and personal income and expenses.

•       And it’s not too late to contribute to an IRA for 2016 so ask your CPA if it’s right for you. 

4. Come say "Hi!" No, really! there’s nothing more helpful to a CPA than a good old fashioned chit-chat. It’s the best way we can save you big tax bucks. So call me up and come on through. The whiskey is on me!

5 Year End Tax Tips: Startups & Freelancers

This time of year for binge eating turkey, holiday cheer, and year end tax planning! Now is the time to rack up those deductions and to get your books in order for a smooth tax season come April. For all my startups and freelancers out there, use this list (and check it twice) before NYE comes.

My Year End Tax To-Do List

  1. Review Payroll. Make sure to put any additional federal and state income tax withholding through your payroll system. These will be treated as paid evenly throughout the year and will help avoid late payment penalties. Also, think about year end bonuses and salary increases so January's payroll is nice and clean.
  2. Retirement Contributions. Technically you have until you file your return to make tax deductible contributions but if you own a business and want to set up a new retirement plan through your business (like a 401k) you need to get the paperwork in ASAP. These plans have some huge benefits over a normal IRA so discuss with your CPA and CFP.
  3. Maximize Tax Deductions. To get your benefit now, make sure deductions are paid before Jan 1. The biggest ones: State & City income taxes, charitable contributions, and property taxes.
  4. Defer Income and Prepay Expenses. Since most small businesses are on a cash basis, waiting to get paid in Jan moves your taxable income to the following year. Similarly, prepaying expenses before Jan 1 gives you more deductions today. This trick is an oldy but a goody; use it if you can.
  5. Get your books in order! This isn't so much a tax saver but a time saver. Waiting to clean up your books after 12.31 can be a nightmare. Plus, without good records, you may not know if you're making money or losing money; so how can you possibly plan effectively?? Gather those receipts. Reconcile your cash. Chase down Account Receivables. Get it together!

Is The Student Loan Interest Tax Deduction Really Helping You?

CNN Money reports over 40 million Americans have student loan debt. Whether you’re one of these folks or not and with all the talk of a “looming student debt crisis” it’s important to know about the student loan interest tax deduction. Luckily this isn’t one of the more complicated tax laws but it affects many more than just those with debt - youngsters looking to go to college, folks considering going back to school, families starting to plan for their children’s education and so on. With that, here’s what I think everyone should know about the student loan interest deduction.

How much is the deduction?

The smaller of: (a) $2,500 and (b) the amount of interest paid during the year. However, if you start to make to make too much money your deduction can be reduced down to zero - called “phasing out.” IRS phase out table can be found here: (https://www.irs.gov/publications/p970/ch04.html#en_US_2015_publink1000178272) but to put it simply: if you’re single and make more than $80k you cannot get a tax break; $160k if you’re married filing jointly.

Food for thought: According to the Pew Research Center in 2009 the median monthly income for households headed by 25-34 year olds with a Bachelor’s degree was $7,232/mo or $86,784/yr meaning a large chunk of those people would not get any tax deduction if they had student loans needed to get their degree. (See actual report for study disclaimers).

Second helping: the WSJ reports over 40% of Americans are not currently paying down their student loans. No payments > no interest paid > no tax deduction > an inefficient tax policy.

Who can claim it?

The requirements are pretty clear cut so to keep this short let’s assume if you got a Form 1098-E you’re eligible. If you didn’t get a 1098-E consult a CPA before claiming the deduction.

The more useful question is who isn’t eligible. Those are: (a) if you’re married filing separately or (b) if someone else is claiming you as a dependent (i.e. parent or guardian.)

Tip for students: if you file your own tax return check to see if your parents are claiming you as a dependent. If so, they would be the ones to get the student loan interest deduction (even if you made the payments.) If not, you’re good to go.

Final thought

In my opinion this deduction is nice in theory but poorly executed. For one, if you can even take the deduction the benefit you receive is rather small compared to how much debt you may have. At best it equals ‘$2,500 times your effective tax rate’ which let’s say for the sake of an example is 20%. That’s a savings of only $500 on loans that could be tens or even hundreds of thousands of dollars. That’s not much of an incentive to get a degree. And higher educated people are usually higher earners that may not get the tax benefit at all so this deduction is even less effective. All things to consider in our journey to learn about personal taxes.


(General blog disclaimers apply to this article. Consult a CPA. Views expressed in this article are mine alone.)

Freelancing Gigs in Canada - Taxes North of the Wall

Your passport isn’t the only thing you need to take a gig in Canada. Freelancers and startups - when working in Canada: BEWARE!

Before you go: Consider filing for a R105 tax withholding waiver. Without it Canada may require your employer to take taxes out on your behalf. That’s on the gross amount you’re paid, not net of any expenses - ouch!

While in Canada: You may need to file for Canada’s version of a Social Security Number called a SIN (social insurance number.) This is typically done in person at a local office. If you need one make sure you do this before you come back!

Back home: Just because you’re not Canadian doesn’t mean you don’t have to file a Canadian tax return. You may be required to file and pay taxes or if you had taxes withheld from your pay (see above) then you may be eligible for a refund. Check with your CPA and know your Canadian filing requirements & deadlines. And that’s not to mention the impact on your U.S. tax returns!


Working across borders makes your tax situation instantly more complicated. Check in with your CPA before working abroad. Don’t turn down the gig; just be prepared.

Please read all blog disclaimers. Seek advice from a tax professional. 

Startups: 3 Keys to Cash Management

Cash Is King. Everyone knows that. But with more ways of transferring money popping up startups and freelancers alike need to be on top of their cash management more so than ever. Here are 3 keys to cash (also pronounced “cayyyshhh.”)

  1. Sweep your cash. Don’t let money sit in 3rd party accounts like PayPal, Square, etc. Transfer that money to your bank as often as possible. It could take several days and you may have bills coming up.

  2. Segregate your cash. Set up different accounts for different functions. Have an “operating” account for day-to-day expenses, a “payroll” account for upcoming wages to be paid to employees/freelancers, “savings” acct for future projects, and so on. Work with your bank to save on fees, especially on transfers between your accounts.

  3. Reconcile! The infamous accounting word. Do it. Every month. AT LEAST. Don’t just match your books the your bank statement - that’s not true reconciliation. Identify differences and carry those differences until your books and bank statement sync up. For ex: an outstanding check to a vendor hasn’t been cashed yet. The money is still in your bank but your books show you paid the vendor - that’s ok. Once it’s cashed the difference goes away and the planets are aligned once again.  

Top 5 Accounting Questions All Startups Need to Be Able to Answer Instantly.

Startups - if you can accurately and quickly answer all of these questions then your books are in pretty good shape. If you can't, better accounting could be a total game changer. 

  1. How much cash do I have and where is it?

  2. Is it enough to pay my upcoming bills?

  3. What are my top 3 biggest monthly expenses?

  4. Who owes me money and how overdue is it?

  5. Did anything change significantly since last month?

The longer you wait to clean up the books the harder and costlier it becomes. Stay on top of it! 

Freelancer’s Guide to Charitable Tax Deductions - The Basics

You may have heard that you get a tax break for giving to charity - whether it’s cash, going to a fundraiser, or donating a garbage bag of old, raggedy clothes. For those of you that do your own taxes, have you ever wondered if you actually got any tax benefit from your gift-giving? Well, just because you gave a donation doesn’t mean you got money back from the Tax Man. Here’s a few of the basics of the charitable tax deduction.

The Need to Know

To understand your eligibility for the charitable deduction we need to take a step back and explain the standard deduction vs. itemized deductions. This is a very stripped down explanation but the idea is this: add up all the money you’ve made during the year. The IRS then says, before we start taxing everything we’re giving you two choices to make your tax bill lower: a) reduce your income by the annual amount (set by Congress), called the standard deduction, or b) Congress has made a list of personal expenses that, if they add up to more than the annual amount, you can take the sum of those expenses and subtract it from your earnings before the IRS starts taxing you. These expenses are the “itemized deductions.”

Now Here’s the Kicker 

The charitable deduction is an itemized deduction. So if you are someone that does not “itemize” but rather takes the standard deduction your tax bill is no smaller had you given to charity or not. Well, then who are people that “itemize?” Typically people that either have home mortgages, pay lots of state/city income tax, have extremely high medical bills or lots of unreimbursed business expenses "itemize" on their personal tax return. 

A few other important tidbits for tax savings:

  • Gifts must be given to IRS approved charities meaning the buck you gave the Showtime kids for not kicking you in the face doesn’t count.
  • Keep receipts of all gifts: cash, clothes, anything.
  • There is no tax deduction for your time given to a charity.
  • Exclude the value of anything received in return such as a gift, meal, drinks, etc. For ex. You spend $125/ticket for a gala and a $50 meal is served, your deduction is $75. Charities should tell you the value of what you received. 

Like most things in the tax world, there are limits and rules to everything the likes of which are beyond this blog. Before making a large contribution to a charity (cash, stocks, or other property) run it by your CPA to make sure you get the biggest bang for your buck.

Final thought: Conflicting reports say whether tax incentives really spur more charitable giving but it is surely a motivator to some. For whatever reason you choose to give it’s still important to report it correctly on your tax return. Happy giving!


Disclaimer - previous blog post disclaimers apply. Seek advice from your personal tax adviser.

To LLC or not LLC? 5 Keys to Incorporating

Being a tax guy in New York City I hear a lot about freelancers setting up their own LLC’s or filing for D.B.A.’s. While these sound really professional and can make you look legit it’s a decision too often made on a whim. Understanding the all the in’s and out’s before filing anything can save you a lot of time and money. Here are some key pointers around LLC’s and “incorporating” in general.

  1. You don't need a LLC to start a business. If you’re starting a new project all by your lonesome or just picking up some freelancing gigs then you’re called a sole proprietorship. There are no filings or fees. Just snap your fingers and you’re done. But as the name suggests, only you can be an owner.

  2. LLC vs. DBA (“doing business as”). This sounds simple and intuitive because it kinda is: A DBA is only a name but a LLC is its own actual legal entity. To put it in other words, if someone sues a LLC they can only go after the LLC’s assets (i.e. your personal assets have protection.) If someone sues a person using a DBA they’re suing the person which means all their personal assets are fair game - home, car..all of it (minus some exclusions we won’t get into here.) So legal protection is a key difference (however see #3). LLC’s are also more expensive and require more filings and fees. In short, don’t get an LLC unless you need it and if you do, consider the alternatives.

  3. LLC’s aren’t all they’re cracked up to be. If you’re the only owner (Member) of a LLC it’s referred to as a Single Member LLC or SMLLC. Recently some states have been denying SMLLC’s legal shell, opening the owner’s personal assets to potential risk - a concept called “piercing the corporate veil.” One of the main reasons to create a LLC in the first place is legal protection! This alone should cause you to rethink LLC’s.

Also, If you live in NY there’s an archaic publishing requirement that can be as costly as it is ridiculous, especially if you live in the city.

And there are entire tax courses about the tax differences between LLC’s, S Corps, and other types so I won’t even begin to bore you there. Trust me - I’ve taken plenty in grad school.

4. Why are you incorporating in the first place? If the answer is “someone told me I should” or “isn’t that what everyone does?” then you’re probably making the wrong decision. There are different types of companies for all kinds of reasons - none of which are the aforementioned.

This is a super broad guide just to paint a picture for someone starting out in freelancing:

      a. I just want to sound professional - Get a DBA and an EIN.

      b. I’m making a good living freelancing - Get an S Corp

      c. My partner(s) and I are starting a business but some are more into it than others, we need flexibility and it has to be cheap - Maybe go LLC here but consider an S Corp (clearly I really don’t like LLC’s.)

      d. I hope to get investors one day, pay people in stock, save the world with an app, go public, all that jazz - C Corp.

     5. Ask a pro BEFORE doing anything. Bouncing a few questions off a CPA can pay for itself multiple times over. Trust me - it’s what I do. Think I’m biased? Well, yeah, but if you screw up that means more work for me cleaning up the mess, more billable time, more fees for you… People helping people, folks.

 

**Please read disclaimers from my 1st post regarding legal and tax advice**

 

 

5 Things All Freelancers Need to Know About Taxes

Topic: The Basics

A recent study by Intuit (the company behind Turbo Tax) projects 40% of the U.S. workforce will receive at least 25% of their income from freelance jobs by 2010. They estimate that to mean there will be 7.6 million freelancers - 4x the workforce of Walmart Welcome to the “Gig Economy.” Those are staggering numbers and if you think half of them have difficulties with their taxes (and that’s probably conservative) then a huge chunk of Americans are in troubled waters when April 15th rolls around.  And that’s why we’re here, folks!  So let’s start with the absolute basics.

  1. Freelancers are Businesses - LLC or no LLC the IRS expects a lot more out of you now.

  2. Quarterly Taxes - almost all freelancers need to pay them. Never heard of them? Get on it!

  3. Deductible/Allowable Expenses - the IRS says the standard is something “ordinary and necessary” to do with your business but in the real world nothing is legit without proper records so…

  4. Proper Record-keeping - not all of us are accountants so at the very least you need: 1.receipts/proof of payment, 2. amount, 3. date, 4. location, and 5. business purpose (including who you are with if it’s a meal/entertainment expense & what you discussed.)

  5. Don’t Freak! - Owe taxes? You’re not alone. Have no idea where to start? Welcome to the club. It’s okay. Governments understand and they’re willing to work with you. Being a responsible taxpayer goes a long way. Get educated and take control of your business.

 

Intro - Hey, errrybody. I'm Dave.

Dave Burton, CPA here. For those unsure CPA stands for Certified Public Accountant. I have a Master's of Accounting degree from the University of Florida, am certified in NY & FL, and have spent time working at mega and micro firms alike (my own included.)

This blog is a social experiment. Taxes affect every one of us. The word "taxes" alone often triggers strong emotions like fear, anger, hatred, confusion, and even utter helplessness. It's ingrained in nearly every aspect of our life from buying a sandwich to proposing marriage and yet so many of us know so little about taxes. 

I'm here to help bridge that knowledge gap. I won't be able to answer specific questions (and see my gigantic disclaimer that this is NOT professional tax advice) because every situation is unique. Taxes are written in law and law is confusing. What I hope you take away rather is the ability to identify where a tax issue may arise and have the tools to make good personal and financial decisions.

 

 

Last disclaimer - I'm a practicing CPA with a small firm I'm trying to grow. Some things will be biased so let's just put that out in the world right off the bat. And if you read this and are interested in becoming a client please reach out! It almost always pays to have a professional do your taxes. If you hijack a car you can represent yourself in court but a lawyer is probably going to give you a better defense. DIY taxes may be cheaper but the reality is you probably don't know what you don't know. And they may not even be cheaper..