Author: Donohoo Accounting Services

5 Tips to Lower Your Tax Bill

As tax season approaches, it’s important to make sure you’re getting the most on your return. If you think you’re paying too much on your taxes it may be because you may not be taking advantage of the available tax credits and deductions. Because your taxes are based on your taxable income rather than your gross income, there’s plenty of ways to use standard deductions or “write-offs” to pay less taxes. These 5 tips can help you reduce your bill and get the most on your refund this tax season.

Claim the Right Credits

Claiming tax credits is one of the best ways to help lower your tax bill and there’s a number of options available to claim. The IRS offers a number of credits for individuals and families ranging from credits for dependents, earned income and savings, housing, as well as healthcare and education. Finding the right credits and taking advantage of them helps you reduce what you pay and maximize your return.

Check Your Deductions

Unlike a tax credit which is a dollar-for-dollar reduction of your tax bill, a tax deduction reduces the amount of tax you are liable for, lowering your taxable income. The money you spent contributing to healthcare savings accounts or an individual retirement account can be deducted from your taxable income. There are also specialized deductions, including deductions for self-employed individuals and teachers for out of pocket expenses on supplies.

Contribute to Your Retirement Fund

One of the easiest ways to reduce your tax bill is with contributions to your individual retirement account or IRA. Individuals can contribute up to $6,000 to their retirement account per year. Any money you add is considered a pre-tax contribution, which can be deducted from your taxable income, helping to lower your tax bill. Additionally, most IRAs are tax-deferred, which means you won’t have to worry about paying taxes on them until you’re ready to withdraw the funds.

Donate to Charity

Volunteering and giving to charities are more than just a way to give back to your community. In addition to monetary donations, clothing, toys, books and other goods are considered charitable deductions that can go towards reducing your tax bill. And while your time spent volunteering isn’t eligible for a deduction, certain expenses are including purchasing supplies and travel costs.

Invest in a 529 Plan

If you have children, investing in their education not only benefits them, but your contributions can help lower your tax bill. Current 529 college savings plans are one of the easiest ways to save money for college and in many states, you can deduct your contributions off your taxable income. While these deductions aren’t allowed on federal income returns, they can be applied to your state income taxes.

The best way to lower your tax bill this season is with the help from knowledgeable professionals. For the last 20 years, Donohoo Accounting Service has been helping businesses and individuals in the greater Cincinnati area find the most deductions and maximize their tax returns. Contact us today or call us at 513-528-3982 for a free consultation. Check us out on Facebook, Twitter or LinkedIn for our latest updates!

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5 Tips for Claiming the Qualified Business Income Deduction

Some forms of taxable business income now have a lower rate, thanks to a new deduction for qualified business income (QBI). If you like the thought of paying tax on 20 percent less of certain kinds of business income, be sure to follow these five tips:

Qualifying Income

Only individuals and business owners with certain kinds of income are able to claim this new QBI deduction (also known as the Section 199A deduction). The QBI deduction may allow you to reduce your taxable business income by 20 percent if it’s earned by a domestic business that is operating as:

  • an individual,
  • sole proprietorship,
  • partnership,
  • S corporation,
  • real estate investment trust (REIT),
  • publicly traded partnership (PTP), or
  • some types of trusts and estates.

Income paid to you as an employee and income from C corporations is not eligible income for the QBI deduction. 

Income That Does Not Qualify

Qualified forms of income, minus deductions and losses, total your QBI. Wage income, as well as a dozen other varieties of income, do not figure into your QBI. A tax professional can walk you through the list of income types that do not count toward QBI.

 The Deduction’s Limitations

The 20 percent QBI deduction is only available to certain types of trades and businesses and allowable only under defined income levels. For example, domestic trades or businesses operating as sole proprietorships, partnerships, S corporations, trusts or estates with taxable income at or below $157,500 for those filing as individuals ($315,000 for a married couple filing a joint return), including the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Other limits may also apply. Your tax professional can help you decide which ones apply to your situation. Itemizing your deductions by using Schedule A, or taking the standard deduction, does not affect your ability to claim the QBI deduction.

Trades or Businesses That Qualify

Any trade or business listed under Internal Revenue Code Section 162 qualifies except for three kinds:

  • Those conducted by a C corporation,
  • Performing services as an employee, or
  • A specified services trade or business (SSTB), one that relies upon an individual’s endorsement, likeness, voice, or identity (within certain industries) where the principal asset is the reputation or skill of at least one of its employees or owners. There are exceptions, however. IRS Publication 535 provides additional details about qualifying businesses.

Computing the QBI Deduction

Publication 535 also contains worksheets to help you compute the QBI deduction. In some cases, the Form 1040 instructions will be appropriate to guide you through the computation. Have a tax professional help you decide which method is right for your business. Donohoo Accounting is prepared to answer your questions and find the most deductions that apply to your particular business. Talk with one of our specialists or schedule an appointment today by calling 513-528-3982 or email us. Check us out on Facebook, Twitter or LinkedIn for our latest tips and updates!

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Personal Tax Prep Checklist

Getting ready to file your 2019 personal income taxes can be a daunting task of collecting information. But don’t worry, the pros at Donohoo Accounting Services are here to help! The information required to file your income taxes neatly falls into four categories: Your personal information, dependents’ information, income sources and deductions.

Your Personal Information

While most people may have this information ready-at-hand for other purposes, others may have to locate it. Either way, you will need it to file your federal, state and local income taxes. Be sure to have your Social Security number or tax ID number, as well as the full name and Social Security number or tax ID number for your spouse if you are married. If you have this information in written or printed form, be sure to shred the document after your tax preparation for security purposes. Professional accountants take very good care to do this.

Dependent Information

You will need the full names of your children or dependents along with their Social Security numbers or tax ID numbers. Having either their Social Security cards or their names and numbers in written or printed form may make filing easier for your tax preparer. However, as mentioned above, be sure to shred the document after your tax preparation for security purposes.

Income Sources
This is where collecting income tax information starts to get tricky, but you can do this!

W-2 Forms

If you and your spouse work a regular full-time or part-time job, your employer will issue a W-2 Form that shows your earnings and tax deductions for the year. Some employers mail W-2 Forms to their employees while others provide access to an electronic document online that you can download and print. Either way, secure a paper copy of your W-2 Forms for yourself and for your spouse.

1099 Forms

Companies issue this form to contracted workers who earn more than $600 within one tax year. Additionally, you may receive a 1099 Form if you received income from non-work sources such as investments, rental income, prior years’ state and local income tax refunds, lottery or gambling winnings, unemployment compensation or retirement benefits. In addition to the 1099 Form, you may be required to provide additional documentation for income earned outside of your primary job. Your tax professional can provide details.

Deductions

Although this area of tax filing seems complicated to most people, taking deductions can reduce your tax liability and may increase the likelihood of your getting an income tax refund. More than a dozen kinds of income tax deductions can be taken, but the most popular deductions are for qualified charitable contributions, home mortgage interest, educational expenses and medical expenses. While you may receive year-end statements from the institutions that received your contributions or payments, consult with your tax professional for details about the kinds of records you need to provide when claiming deductions.

To help you find the most deductions and keep your personal information secure, contact Donohoo Accounting Services at 513-528-3982 for a free consultation. We have served and earned the trust of individuals and small businesses throughout the Greater Cincinnati area for more than 20 years.

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4 Cincinnati Non-Profits For End-Of-Year Giving

When it comes to end-of-year giving, it’s a time to be generous within your means, and also a way to reduce your tax burden. But where to donate? There are plenty of great non-profits in Greater Cincinnati, and here are a few of our favorites.

Dress For Success

The Cincinnati Chapter of Dress for Success helps empower women to achieve economic independence by providing a network of support, professional attire and the development tools to help women thrive in work and in life. They provide services and resources to nearly 1,800 women each year. In addition to providing professional attire to secure employment at no cost, they also offer resume coaching and mock interviews.

Pets In Need

Pets in Need of Greater Cincinnati, located in Lockland, provides low-cost veterinary care including vaccines, treatment and medicine to help those going through hard times keep and care for their pets. The group serves more than 1,700 pet families in our area whose household income is at or below 200 percent of the federal poverty level. There are no geographic restrictions and pet owners come from the entire Tri-state area, encompassing 15 counties and 127 zip codes.

Freestore Foodbank

The Freestore Foodbank is one of Ohio’s largest food banks, distributing 33 million meals annually through a network of 511 community partner agencies serving 20 counties in Ohio, Kentucky and Indiana. This includes food pantries, soup kitchens, shelters, community centers, program sites, senior centers and daycare facilities. It also operates the Kids Café, which provides hot meals each week to 20 after-school sites in Hamilton County and Northern Kentucky. The meals served at Kids Café are prepared by adult students from Freestore Foodbank’s Cincinnati COOKS! culinary job training program.

Brewery District Community Urban Redevelopment Corp.

Did you know the largest collection of Pre-Prohibition breweries in the country is in Cincinnati’s Over-the-Rhine? In addition to the blocks of historic buildings that comprise Over-the-Rhine, the Brewery District also contains Findlay Market, the state’s oldest farmers market. The CURC works to repopulate this historic neighborhood with visitors, residents and businesses. It also encourages tourism by supporting festivals like Bockfest, and permanent attractions like the Brewing Heritage Trail.

If you want to help non-profit organizations while also possibly reducing your taxable income, make your donations by December 31. Contributions are deductible in the year made. Donations charged to a credit card before the end of the year will count in that year – even if the credit card bill isn’t paid until later. For donations to count on your tax forms, you’ll want to make sure the organization has a 501c3 status, which is IRS speak for tax-exempt.

The experts at Donohoo Accounting Services are here to support your success so you can keep helping others. For the past 20 years, our accountants have helped our clients meet and exceed their personal and business financial goals. Call us today for a free consultation at 513-528-3982. Check us out on Facebook, Twitter or LinkedIn for our latest updates and tips!

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