Frequently Asked Questions
When it comes to tax and accounting, people often get confused with the jargon and other nuances. We have answered a couple of frequently asked questions for you. If you have any more questions, please feel free to contact our team.
Why Is an Accountant Necessary for a Small Business?
Starting your own business can be difficult, especially if you have no prior business experience. The best method to simplify the financial aspect of this is to employ a professional who will keep you in compliance with the law and regularly examine your business’s health. Managing your own business may appear to be an excellent method to save money, but doing it poorly might harm you and your company not only now but also in the long run. An accountant can assist you in determining the optimum business structure, developing an accounting plan, preparing and interpreting financial statements, closing your books at the end of the year, and, most significantly, avoiding IRS audits.
What Effect Do Tax Deductions Have on Your Taxes?
Tax deductions help to minimize your taxable income’s tax liability. In other words, the deductions reduce the amount of income on which you are charged.
To reduce their adjusted gross income, taxpayers can claim either the Standard Deduction or the Itemized Deduction, whichever is greater (AGI). In 2020, the Standard Deduction was $12,400 for single filers and married filers filing separately, $24,800 for married filers filing jointly and $18,650 for heads of household. Itemized Deductions cover a wide range of expenses, including medical expenses that exceed 10% of AGI, state and local taxes, real estate taxes, home mortgage interest, charitable contributions, and casualty and theft losses.
What Can I Deduct on My Taxes?
The Internal Revenue Code defines deductible expenses on a tax return filed to reflect the activities of a trade or business as those expenses that are usual, necessary, and reasonable for carrying on that trade or company.
The nature of the firm determines the types of expenses that can be deducted. Salary and payroll taxes, rent, telephone, internet, hosting costs, utilities, advertising, some taxes and licenses, bank charges, office expenditures, printing charges, and postage are all deductible expenses. If the company purchases fixed assets, depreciation charges to recover the cost of these assets are deductible. These are instances of deductible expenses; however, they are not an exhaustive list.
Employer Payroll Taxes: What Are They and When Are They Due?
The term “employer payroll taxes” refers to both employee payroll taxes withheld and payroll taxes borne by the employer. This will necessitate employer registration at both the federal and state levels. In terms of reporting the federal taxes taken from an employee’s paycheck, this will be done through the quarterly filing of Federal Form 941, as well as the annual filings of Form 940 and Form W-2. This section has reviewed these forms; Federal Form 941 is item number 40, and Federal Form 940 is item number 25. State reporting requirements for state taxes withheld, state unemployment taxes, and other payroll-related problems vary by state. This could include the need for disability insurance and worker’s compensation insurance.
What Happens If I Get Audited?
The details of the letter you receive from the IRS will reveal the portions of the return that the IRS agent will be investigating.
Then, it’s a matter of gathering the necessary documentation to back up the information on your tax return.
For example, you could have itemized your deductions and claimed a significant amount of unreimbursed medical expenditures.
You would assemble the documents to substantiate your payment of the claimed expenses. The amount of charitable deductions claimed may be required to be supported by canceled checks or letters from charitable organizations confirming the amount contributed.
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Business Taxes
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