Month: June 2022

Summertime Tax Planning Tips

Now that Memorial Day has passed, many people are thinking more about summer vacations than taxes. But summer is a great time to review withholding and see if your summer plans will affect next year’s tax return. Here are some common summertime tax situations and tips to help you figure out if they apply to your tax situation.

Getting married

If you’re a newlywed and your name has changed, you should report the change to the Social Security Administration. You should also report any address change to the United States Postal Service, your employer, and the IRS. To report a change of address for federal tax purposes, complete Form 8822, Change of Address, and submit it to the IRS. This will help make sure you receive the documents you will need to file your taxes.

Sending kids to summer day camp

Unlike overnight camps, the cost of summer day camp may count towards the child and dependent care credit.

Working part-time

Summertime and part-time workers may not earn enough to owe federal income tax, but they should still remember to file a return. They’ll need to file early next year to get a refund for taxes withheld from their checks this year.

Gig economy work

You may find it convenient to earn summer income by providing on-demand work, often through an online platform like an app or website. Examples include ride sharing, delivery services and other activities. If this sounds like you, be aware that you may be categorized as either an employee or an independent contractor, depending on the nature of your work.

Normally, employees receive a Form W-2 from their employer to account for the summer’s work. They then use this to prepare their tax return. If you are categorized as an employee, you should receive your W-2 by January 31 next year. Employees will get a W-2 even if they no longer work for the summertime employer.

Independent contractors, on the other hand, won’t receive a W-2 for their work, and aren’t subject to withholding. This makes them responsible for paying their own income taxes plus Social Security and Medicare taxes.

Adjust your withholding now to avoid tax surprises next year

You can avoid a tax surprise next filing season by reviewing your withholding now. Life events like marriage, divorce, having a child, or a change in income can all affect taxes. If you contact our office, we can help you assess your situation and determine whether you need to change your withholding by submitting a new Form W-4 to your employer.

Work Opportunity Tax Credit Extended

Everyone knows that it’s tough to find employees right now. It seems like every business has a “Help Wanted” sign in their front window. With the employment market so tight, the federal government has taken steps through the Work Opportunity Tax Credit (WOTC) to encourage businesses to consider employees that have historically been overlooked by employers.

The WOTC, which encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment, has been extended through the end of 2025. The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. The WOTC may be claimed by any employer that hires and pays wages to members of one of 10 targeted groups. In general, the WOTC is equal to 40% of up to $6,000 (up to $2,400 maximum) of wages paid to an individual who:

  • is in their first year of employment;
  • is certified as being a member of a targeted group; and
  • performs at least 400 hours of services for that employer.

The ten targeted groups are:

  • Temporary Assistance for Needy Families recipients
  • Qualified unemployed veterans, including disabled veterans
  • Formerly incarcerated individuals
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Supplemental Nutrition Assistance Program recipients
  • Supplemental Security Income recipients
  • Long-term family assistance recipients
  • Long-term unemployment recipients

Claiming the credit

If your business would like to claim the WOTC, the job applicant will need to be certified as being eligible for this credit. On or before the day that an offer of employment is made, the employer and the job applicant must complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit). The employer has 28 calendar days from the new employee’s start date to submit Form 8850 to the designated local agency located in the state where the employee works. Additional forms may be required by the Department of Labor to obtain certification. Following receipt of a certification from the designated local agency that the employee is a member of one of the 10 targeted groups, taxable employers file Form 5884 (Work Opportunity Credit) and tax-exempt employers file Form 5884-C (Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans) to claim the WOTC.

If you would like more information about the Work Opportunity Tax Credit and whether your business might be able to take advantage of it, please contact our office so that we can discuss your specific circumstances.

Tax Benefits for Small Businesses

It’s tough owning a small business in the current environment. It can be difficult to get needed supplies, prices keep going up, and it can be stressful trying to grow your business. Luckily there are a few tax breaks that can make running a business a little bit easier.

Enhanced business meal deduction

If you find yourself often entertaining customers, there is an enhanced tax deduction that you may be able to take advantage of. For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Usually, the limit is 50% of the cost of the meal.

As usual, there are a few conditions. To qualify for the higher limit, the business owner or an employee of the business must be present when food or beverages are provided. Also, the expense can’t be lavish or extravagant, so that $800 bottle of wine you’ve had your eye on probably won’t count. But all in all, this is a change that will be welcomed by any business owner that relies on entertaining to close sales or maintain customer relationships.

Home office deduction

With a growing number of business owners now working from home, many may qualify for the home office deduction (known more formally as the deduction for business use of a home).

Usually, a business owner must use a room or other identifiable portion of the home exclusively for business on a regular basis. Exceptions to the exclusive-use standard apply to home-based daycare facilities and to portions of the home used for business storage, where the home is the only fixed location for that business.

There are different ways to calculate this deduction, so if you qualify for it, we encourage you to contact our office so that we can discuss which calculation would be more advantageous given your circumstances.

Other tax benefits

In addition to the two deductions discussed above, there are a variety of other deductions that a business owner might qualify for. There is a deduction for business start-up expenses, qualified business income, and even health-insurance for people who are self-employed. Now is the perfect time to start planning for the 2022 tax year, so please contact our office so that we can help.

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