Strike up up a conversation today with Peden Accounting Services by going to their website, or by calling 703-967-1948. They’re your local tax and accounting firm.

When you start a business, you end up dealing with a lot more paperwork.

When you were an employee, you had someone else at your company who would take care of all the paperwork and tax forms that need to be filed to stay in compliance with all the rules set forth by the federal and state governments.

Now you are responsible for all aspects of your business, which means you will need to complete the paperwork and deal with any correspondence that comes your way.

One type of form you will need to deal with start with “1099”. These would be referred to as series 1099 forms, and are used to report various types of income you would receive. Let’s take a look at a few of them that you may receive as a business owner.

1099-A: Acquisition or Abandonment of Secured Property –If you borrowed money from a bank or other lender to purchase property, and you either abandon or have the property foreclosed, you may have to treat the property as being sold. The lender will have to send you Form 1099-A with all the relevant information needed to report the “sale” on your return. If you had purchased an office for your business, and you abandon it or it gets foreclosed, you should expect this form from the lender.

1099-B: Proceeds from Broker and Barter Exchange Transactions – One way to save on cash is to barter with another business for services. If you did that, you would receive this form if you engaged in bartering with someone else, or took part in a bartering exchange.

1099-C: Cancellation of Debt – Here is something that may seem a little strange: If you borrow money, and the lender cancels the remaining debt at some time in the future, you have to recognize the amount forgiven as income. If you think about it, it does make sense. You actually gain from not having to pay back the money. If your loan is forgiven, you will get a 1099-C from the lender showing how much you of the forgiven loan you need to record as income.

1099-K: Merchant Card and Third Party Network Payments –Do you accept credit cards in your business. Then you will be receiving this form if you received money from any online sales you made during the year that were paid for with a credit card. You want to make sure the amounts on these forms match with your records. If not, contact the sender to determine what is causing the variance.

1099-MISC: Miscellaneous Income – This is the one on this list that you will probably most likely receive during the year, and possibly more than one if you have more than one customer. Basically, this form shows the amounts your customer has paid you for the work you did for them, or if you rent a property to them. You will want to review this form to make sure the amounts match your records.

1099-S: Proceeds from Real Estate Transactions – Although most of the time you won’t receive this form unless you sell your home, you may have a property that you own for your business. You would receive this form if you sell:

1. Land, whether improved or unimproved,
2. Residential, commercial, or industrial building
3. A condominium unit
4. A cooperative housing corporation’s stock

While most entrepreneurs do not have to deal with the sale of real estate, you should be aware of this form so that when your business grows to the point of needing a headquarters, you will be ready for the form when it arrives.

Having to deal with all these new forms may be intimidating, but don’t let that stop you from starting and growing a business. Additionally, don’t let the forms be so intimidating that you don’t ask an accountant what they are about and what should be done.

I always enjoy helping my clients understand their tax situation, and I would rather have you ask what something means than have you make a decision based on information about which you are confused. If you have questions, drop me a line and I would be happy to answer them.

Individuals with disabilities as well as parents of disabled children are eligible for a number of income tax benefits. This article explains some of these tax breaks.

Now that we have a new year, it is time to start thinking about what you need to do getting ready for this so it doesn’t turn into a stress-filled experience.

What should you do to get ready?

The first thing you probably want to do is pick up an organizer from a local office supply store, with at least five pockets to organize your paperwork. The organizer will make it easier to sort the documents by their category to make it easier to prepare a return. You will want to put the documents into the folders based on the following categories:

1. Income received
2. Statements from banks and brokers
3. Statements from government
4. Receipts for expenses
5. Receipts for donations

By organizing your documents and receipts this way, it will make it easier for the preparer to complete the return in less time, usually resulting in a smaller bill.

Now that you have your organizer set up, you now have to go through your paperwork. So put on some good music and start looking for the following:

Records of income. You want to look for your W-2s, any statements from banks, brokers, renters, and customers. If you run your own business, you want to make sure that you have all the 1099-Misc that was sent to you. Not every customer will send you one, but check their total against your records, and be able to explain the difference.

Any Information about expenses that may help reduce your taxes. This would include receipts from childcare providers (including provider’s tax identification number), mortgage interest statements, donations to your church, costs incurred in seeking a college degree or taking courses to acquire or improve job skills, receipts for medical care. Additionally, you will want to make sure you have proof of payment of medical insurance premiums covering your children.

You will want to find any correspondence from government entities. This would include any receipts of sales taxes paid, as well as receipts for property tax payments. Additionally, you may have received a 1099-G, which shows how much was received in unemployment insurance benefits.

Any documentation of any amounts contributed to an IRA.

Lastly, look through your bank statement for items that may be income, or for amounts spent that may be deductions. Find the paperwork related to these transactions, and show them to your accountant to find out they are deductible.

By making sure you have all this information, you should have not only the amounts to include on your return, but the documentation of those items in case there are any questions down the road.

Next, you want to review your financial results for your business to make sure it is complete, so it is easier to complete your business’s tax return. The best thing to do is make sure you reconcile your bank account, which will point out any items you missed which need to be included in your financial records.

Lastly, if you don’t prepare your own return, make an appointment with your CPA. They tend to get busier as April 15th gets closer, so by getting to them early, they will have more time to analyze your situation, put together a return, and do so some tax planning for the coming year.

While you meeting with your CPA, keep in mind that they may ask you some strange questions. It’s how they make sure your return is complete and accurate. The more complete the return, the less trouble you will have with the IRS.

Preparing your tax return can be a bit of a hassle. However, if you start early, you will be able to make sure your information is complete and there are no issues with your return. If you have any questions about the preparation of a tax return, talk to a tax professional.

Peden Accounting Services in Manassas wishes you, your business, and your family a prosperous New Year! Call them today for all of your accounting and tax needs. 

At the end of the year, our thoughts turn to buy gifts for our family and friends.  We also think of those less fortunate than ourselves and donate either money or other items to help them. 

These gifts not only make lives better but also can be a deduction on your tax return.

A big question that pops up is to whom you can make a donation.  You can contribute to the following types of qualifying organizations:

1. Organizations that are set up exclusively for charitable, religious, scientific, educational, scientific, or literary purposes.
2. Organizations that have a mission to prevent cruelty to animals and children.
3. Organizations that put together amateur sports competitions, either here or abroad, as long as they do not provide the facilities or equipment.

To ensure that you can claim a deduction for what you give them, make sure you check with them before contributing to see if they can receive tax-deductible contributions.  The IRS has a website set up where you can check to see if they are a qualifying organization.

What if the organization is not based in the U.S.?  With the exception of certain Canadian and Mexican charities, you cannot get a deduction for these types of organizations. 

• However, you can donate to organizations within the U.S. who distribute the funds gathered to foreign charities, as long as the domestic organization controls to whom the funds are distributed.

Did you donate some type of art or collectible to charity?  You want to do a couple of things if you do this.

• First, get a letter from the organization stating that it intends to use the item donated in its main activity or tax-exempt purpose. 
• If you don’t get this letter, and the organization sells the property, your donation will be limited to your basis in the property when you donate it.
• Otherwise, you will have to deduct the fair market value of the item donated.

You probably know you can donate cash to these organizations.  And you know that you can donate property that is in good condition for the fair market value of the item at the time of the contribution. 

• But did you know that you can also deduct the transportation expenses you incur when doing charitable work?
• Transportation costs have to be directly related to charity work.
• You can deduct the cost of parking, tolls, fees, bus fare, and either the actual cost of gas and oil or the mileage times the current charitable mileage rate put out by the IRS (for 2019, it was $0.58 per mile).

If you volunteer your time with an organization, you cannot deduct the value of your time or the services provided. 

• Additionally, if you hire a babysitter to watch your children while you do volunteer work, you cannot deduct what you paid the babysitter. 
• However, if you had to purchase a special uniform that cannot be used outside of where you are volunteering, you can deduct the cost of this uniform.

Just in case you go hog wild and donate most of your possessions to charity, you will have to keep in mind that your deductions are limited. 

• You can only deduct up to 50% of your adjusted gross income for what you donate to most organizations.
• However, if you donate to certain private foundations, veteran’s organizations, fraternal societies, and cemetery organizations, you are limited to donating up to 30% of your adjusted gross income. 
• If you exceed these amounts for the year, you are able to carry over for five years any contributions above this limit.

Now that you know what you can donate, you need to be sure that you keep good records of what you have donated. 

• This means that you keep a listing of any items donated, the date they were donated, and the name of the organization to which the donations were made. 
• You will also want to get a receipt from the organization acknowledging the donation.
• A list of the cash contributions made, along with the date and organization to which the payment was made will make completing your tax forms much easier, and ensure that you will be able to substantiate the deduction if the IRS questions it.

Peden Accounting Services in Manassas wishes you and your family Happy Holidays and a prosperous New Year! Call them today for all of your accounting and tax needs. 

One of the things that makes people nervous is when they get a tax deficiency notice in the mail.  However, this does not mean that you will be audited, pay a large fine, or have to go to jail.

Why it matters: Not responding to a notice could make matters worse.  A prompt reply to the notice can help mitigate any potential problems that arise.

The big picture: Sometimes, the notice is just a request for more information.  If it more than that and you disagree with any additional amounts due, you do have the right to appeal.  If you do agree with the amount owed, but cannot pay it, you can set up a payment plan that allows you to pay your debt over time.

If you do get a notice of deficiency, talk to a CPA to see what your options are, and what can be done to lessen the effects of additional amounts due if they are levied.

Go Deeper: https://www.pedenaccountingservices.com/blog/did-you-just-get-an-irs-notice-of-deficiency-heres-what-to-do-next/44174

If you hire your children to perform bona fide work for your business, and you pay them reasonable compensation for that work, you can take a deduction for the amount you pay them.

Why it matters: As a parent, you want to give your children a head start on building a career.

• As a business owner, you want to find the best way to lower your taxable income.
• Hiring your child to work in your business can accomplish both of these goals.

The big picture: Along with being a deduction for your business, the income is shifted to a lower tax bracket, and may be tax-free if the child makes less than the standard deduction amount.

Here are a couple of guidelines to keep in mind.

• The work should be directly related to your business
• Be sure to keep a timesheet with the dates, hours, and services performed.
• You can pay your child with a check, and deposit the check in an account in the child’s name.
• This can be made into a Roth IRA, Section 529 college savings plan, or custodial account.

Get more with exclusive information from our Peden Accounting Services blog!

• Learn what ages the kiddie tax applies to, as well as how much they can make.

It is hard to believe that the year is almost over.

• You may be starting to think about some ways to cut your tax bill before the year ends. You wonder, “Are there some things I can do to reduce my tax bill?”
• There are a few tax breaks you can take that will benefit your employees as well as giving you a break on your taxes.

Setting up a retirement program

The majority of people will agree that saving for retirement is something that they should do, but not everyone takes the time to do so.

• If you set up a retirement plan for your employees, you will be eligible for a credit for setting up a retirement plan, as well as helping them plan for their future.
• This credit will be for 50 percent of the amount you spent to set up or maintain a new qualified plan. The maximum amount you can claim in the first three years the plan is in effect is $500.
• You will qualify for this credit if you have 100 or fewer employees, and have not maintained a qualified retirement plan in the three years immediately preceding the first year this plan put into effect.

Paying bonuses early

Do you want to reward your employees? If you give them a bonus, you can.

• Even though you get a deduction for this year, you don’t have to make the payment by December 31.
• As long as you pay the bonus within two and one-half months of the end of your tax year, you can still take a deduction for it.

Making your facilities handicap accessible

Do you have employees who are handicapped?

• You may be able to claim a tax credit of 50% of the costs to make your facility handicapped accessible if you spend more than $250, but not more than $10,250.
• This would be for not only the removal of physical barriers, but also for costs related to interpreters and devices for the deaf and blind.

If you want some more ideas on how to save money on taxes, give Peden Accounting Services a call to set up an appointment to see how to reduce your tax bill.

Chris Peden, CPA, CMA, CFM, is the Chief Advisor at Peden Accounting Services in Manassas. He specializes in helping people and businesses not only meet their tax filing obligations but also develop plans to save money on taxes, as well as helping businesses understand their financial information and take action to grow their business.