Author: Donohoo Accounting Services

Tax Saving Tips for 2016

Even though we’re getting close to the last quarter of 2016, there’s still time to save on your taxes. If you want to be in the best possible position when the time comes to file this year’s taxes, here’s what to focus on for the remainder of the year:

 

Contributing to a Deductible Retirement Accounts

One of the best ways for just about anyone to reduce their tax bill is to make a contribution to a deductible retirement account. Although earnings and withdrawals for Roth IRAs are generally tax-free, it’s important to understand that they don’t provide tax breaks for contributions. However, most traditional IRAs, along with Keogh and SEP plans, are tax deductible.

For 2016, the contribution limit for all IRAs is $5,500 if you’re under 50 and $6,500 if you’re over 50. The other requirement for a full IRA deduction is those filing as single must have adjusted gross income of under $61,000 (the limit for joint filings is $98,000). And for individuals who are self-employed, the 2016 maximum annual addition to SEPs and Keoghs is $53,000.

 

Keeping Up with Estimated Tax Payments

A common reason that business owners end up getting hit with a big tax bill is they don’t make the correct estimated tax payments during the year. This is especially common with new business owners, as well as those who experience sudden growth in their business. Making this type of mistake can also result in an underpayment penalty. While some people panic and end up significantly overpaying, that’s not ideal. instead, it’s best to be diligent and try to pay as close as possible to what you owe.

 

Staying Organized with All Records

This is just as important for those who make estimated payments as it is for individuals who won’t file until next year. Keeping all your records and documents organized throughout the rest of 2016 means you won’t have to stress when tax season rolls around. Another advantage of staying organized is it makes it easier to itemize deductions.

Although the standard deduction is faster, itemized deductions can benefit individuals who are self-employed, as well as a variety of people in other situations. Having records that are in order when tax season comes around means you’ll be able to choose the deduction path that’s best for your bank account instead of avoiding itemized due to it requiring too much time.

 

Being Aware of Available Tax Credits

By being aware of what we covered in our blog post on the top tax credits, you can take care of any necessary requirements during the remaining months of 2016.

If you have any additional questions about maximizing your tax savings for 2016, professional tax planning from Donohoo Accounting Services can help.

Getting Started with Self-Employment Taxes

Making the decision to become self-employed is a big milestone. While this milestone can come with a lot of benefits like increased freedom, it also comes with a number of responsibilities. One of those responsibilities is paying self-employment taxes.

As an employee, you obviously still have to file your taxes every year. However, most of the work is done for you by your employer. But as someone who is self-employed, you have to do all of that work yourself. Not only do you have to keep track of what you owe the IRS, but you need to make sure those payments are made on time.

Since self-employment taxes present a steep learning curve for many new entrepreneurs and business owners, we want to touch on some of the basics that you absolutely need to know about:

 

Understand Your Tax Entity

One of the decisions you’ll need to make as you start down the self-employment path is how you want to structure your business. Available options include operating as a sole proprietorship, LLC, partnership, S-corporation or C-corporation. Each option has its own set of pros and cons. The type of tax entity you choose for your business will directly impact the taxes owed by it and yourself.

While it’s possible to change the type of entity for your business down the line, it’s best to take your time choosing upfront and potentially seeking professional advice so you can avoid the hassles that go along with having to change later.

 

Consistently Set Aside Money for Tax Payments

The standard method of paying taxes for individuals is to make estimated tax payments. These payments are made on a quarterly basis. A common and painful lesson for those new to self-employment is missing payment deadlines or not setting aside enough money to make payments on-time. Since those types of mistakes can increase what you owe and trigger additional penalties, it’s important to start setting aside money from the start.

While there are a number of ways to do this, many people find that having a dedicated savings account works best. Then you can decide on a schedule for transferring around 30% of what you make into that account.  

 

Look for Deductions Whenever Possible

Self-employed individuals are often surprised by how much they initially owe in taxes. Although that can be frustrating, the silver lining is there are a wide range of deductions and tax credits available. The key is taking the time to learn about those deductions and then ensure you complete any necessary steps to fully qualify for them.

For additional help with self-employment taxes or other financial aspects of striking out on your own, be sure to take a look at what Donohoo Accounting Services offers.

The Top Tax Credits You Need to Know About

If you want to get as much money back as possible when you file your tax return, you need to take advantage of all the tax credits that are available to you. Since there are plenty of tax credits that many people don’t know about, we want to use this post to highlight some of the most significant ones:

  1. Earned Income Tax Credit

Although the Earned Income Tax Credit has been around since 1975, there are still plenty of people who haven’t heard of it or don’t know exactly how it works. This credit is for individuals and married couples between the ages of 25 and 65. This credit is designed to provide an incentive to work and offset the burden created by Social Security taxes. Speaking to a tax professional is the best way to get all the details on thresholds, other eligibility requirements and how much is available from this credit.

  1. Lifetime Learning Credit

Not only is this credit available for any years of post-secondary education, but it’s also available for people who aren’t pursuing a degree. This credit is available to both individuals and married couples. The credit can be as high as $2,000. When you look into this credit, it’s also a good idea to see if you’re eligible for the American Opportunity Tax Credit.

  1. Savers Tax Credit

If the name of this credit isn’t familiar to you, it’s worth noting that it was previously called the Retirement Savings Contributions Credit. This credit is intended to help lower income taxpayers make eligible contributions to accounts like 401(k)s or other retirement plans.

  1. Child and Dependent Care Credit

This tax credit is designed for parents. Its purpose is to help with the often significant costs associated with paying for daycare or other forms of childcare. It’s available to tax filers with a child under the age of thirteen. Depending on someone’s adjusted gross income, this credit can cover up to 35% of qualifying childcare expenses.

Don’t Miss Out On Any Tax Credits

While all of the tax credits covered above can be quite significant, they’re definitely not all that’s available. Given the immense size of the US tax code, the number of credits that may be available to you is quite large. If you want to ensure that you don’t miss out on any of those credits, you need to work with a Cincinnati tax professional. By letting an experienced professional handle your taxes, you can be confident that every applicable credit will be used for your return.

To get your tax return prepared and filed by a knowledgeable professional for a great price, call Donohoo Accounting Services today at 513-528-3982.

How to Get Your Maximum Refund When You File

No one wants to pay more taxes than they’re required to pay. And if you qualify for a tax refund, you want to get the maximum refund that’s available to you. Thinking about the best way to accomplish both of those goals should be the main influence on how you decide to go about preparing and filing your taxes.

Two Potential Options for Preparing and Filing Taxes

There are two main ways that people in Cincinnati can take care of their taxes. The two available options are using online tax software or working with a tax professional. When online tax software companies market themselves, they focus on how easy and affordable their products are. However, if you’ve ever tried that type of software before or spend time reading reviews from other people, you have likely discovered that it doesn’t always work as well as promised.

Additionally, if software causes you to miss any tax credits, it means you’re not going to get as large of a refund. So while it’s true that you might pay a little less for the option, it could actually end up costing you a significant amount in the long run.

5 Reasons to Go with a Cincinnati Tax Professional

If you want a fast refund and to ensure that you get back as much as possible, there’s simply no substitute for what a Cincinnati tax professional can offer. By working with a knowledgeable tax professional, you’ll actually save money by ensuring that you don’t miss out on opportunities like the earned income credit.

Working with a professional also means you’ll save time. While tax software makes it sound like this process is easy, everyone knows that taxes are complicated. Instead of spending countless hours on your tax return, an experienced professional who actually does deal with these issues all the time can take that task off your plate.

The third benefit of having a professional handle your taxes is they will reduce the risk of any errors being made. Filing a return that’s free of any errors will help you get your refund back as soon as possible. And in the event that you are ever audited for any reason, the fourth benefit of a tax professional is they will help you comply with any requests made by the IRS.

All the benefits of working with a tax professional in Cincinnati come together to provide peace of mind. So instead of feeling a sense of dread when tax season arrives, you’ll be able to get through this process with minimal stress and come out of it with the best possible refund.

To ensure you get your maximum refund when you file your taxes, call Donohoo Accounting Services today at 513-528-3982.