Child and Dependent Tax Credit for Married Filing Separately

There are several reasons why some married couples opt to file taxes as married filing separately. However, this tax filing status can prevent individuals from claiming certain types of tax credits and deductions they might otherwise be entitled to if they filed their taxes jointly. Here is some information to understand about this filing status and its impact on the child tax credit (CTC) and the child and dependent care tax credit (CDCTC) from the accounting professionals at TMD Accounting.

Why Would People Choose to File Taxes as Married Filing Separately?

When couples file tax returns as married filing separately, they can’t claim many credits to which they would otherwise be entitled. Before the passage of the Tax Cuts and Jobs Act (TCJA) in 2018, there was somewhat of a “penalty” for married couples who filed jointly because the standard deduction for joint filers was not twice that of single filers. However, the TCJA changed the tax brackets to make the standard deduction for joint filers double that of single filers, eliminating this so-called penalty.

Even though filing as married filing separately might make some people ineligible for certain tax credits, it might be advantageous for people in the following types of situations:

  • When a spouse has unpaid student loan or tax debt to avoid a refund being seized to pay for it
  • When one spouse believes the other is inflating deductions or otherwise being dishonest on their tax return and does not want to be liable by signing a joint return
  • When one spouse is applying for income-contingent student loan repayment plans
  • When one spouse’s income is substantially lower than the other spouse’s, and the lower-earning spouse does not want to be liable for the higher-earning spouse’s tax bill
  • When one spouse is unwilling or unable to sign a joint tax return
  • When the spouses are planning to separate or divorce
  • When the taxes owed on the separate returns equal the taxes owed on a joint return to avoid liability for each other’s tax bills

If you do have a good reason for choosing the filing status as married filing separately, here’s how that might impact your ability to claim the child tax credit and the child and dependent care tax credit.

Understanding the Child Tax Credit vs. the Child and Dependent Care Tax Credit

The child tax credit (CTC) is a tax credit parents can claim for each qualifying child they have up to age 17. This credit can be used for any type of expense and is provided in recognition of the fact that parents who have children have less disposable income and more expenses than others who make the same levels of income.

By contrast, the child and dependent care tax credit (CDCTC) is a tax credit a parent can claim to offset the cost of the child or dependent care so the parent can work. The CDCTC is available only to parents who have to pay for child care or adult dependent care so that they can work. On the other hand, the CTC is available to parents who have children younger than age 17 regardless of whether they have to pay for care to work.

Effect of Married Filing Separately Filing Status on the Child Tax Credit

The American Rescue Plan Act of 2021 temporarily expanded the child tax credit during that year, increasing the CTC of $2,000 for children younger than age 17 to $3,600 for children under age six and $3,000 for children ages six to 17. Eligible parents also could receive advanced payments of one-half of the child tax credit each month while receiving the remainder when they filed their 2021 income tax returns.

However, the enhanced CTC was allowed to expire at the end of 2021 and has not yet been renewed. While some people believe the expanded child tax credit might be renewed, it hasn’t been thus far. This means that the existing child tax credit of $2,000 for children ages 17 and younger is currently what might be available to tax filers when they file their 2022 returns.

People who file their tax returns as married filing separately can only claim a reduced child tax credit. The amount that someone with this filing status can claim is one-half of the available credit, and only one parent can claim it.

Effect of Married Filing Separately on the Child and Dependent Care Credit

In general, married couples can only claim the child and dependent care credit if they file joint returns. However, there are a couple of exceptions under which one spouse might be able to claim the credit even when their tax filing status is married filing separately.

According to the Internal Revenue Service (IRS), someone who is living apart from their spouse or who is legally separated might still be able to claim the child and dependent care credit. If you are legally separated from your spouse, the IRS does not consider you to be married and allows you to take the CDCTC if you file as head of household instead of married filing separately. To file as head of household, your child must primarily live with you, and you must pay at least 50% of the costs of supporting them during the year. You will also need to pay for care so that you can work.

If you are married and living apart from your spouse, you can claim the

CDCTC if the following criteria apply:

  • You file a separate tax return from your spouse
  • You maintain a separate household for you and the qualifying dependent for more than half of the year.
  • Your spouse does not live with you during the last six months of the tax year.
  • You pay more than 50% of the costs of maintaining your home.
  • You pay for child or dependent care during the year for the qualifying dependent so that you can work.

Get Help from TMD Accounting

Understanding the best filing status to choose for your situation and the potential impact on your available credits is important. To learn more about optimizing your taxes, contact TMD Accounting today at 1-856-228-2205.

Are GoFundMe Donations Tax Deductible?

Many people and organizations have turned to crowdfunding to raise money for various needs and causes. One of the most popular crowdfunding platforms available is GoFundMe. While many of the entities raising funds on GoFundMe are charitable, some people worry about whether donations they might make via the platform can be deducted from their taxes.

Whether or not donations made on GoFundMe can be deducted from your taxes depends on whether the donee is a qualified 501(c) organization. If the recipient of your donation is a qualified 501(c) organization, then you can claim your donation as a deduction on your tax return. If the recipient is not a 501(c) organization, your donation is considered personal and can’t be deducted. Here is some more information about crowdfunding donations and when they can be deducted from the tax professionals at TMD Accounting.

When Are GoFundMe Donations Tax Deductible?

Originally starting as CreateA Fund in 2008, GoFundMe changed its name in 2010 and is a crowdfunding platform that can be used to raise money for nearly anything. Donations made on the platform are considered to be personal unless they are given to a qualified 501(c) organization.

If you give money to a non-501(c) organization on the site such as an individual who is trying to raise money for any purpose, your donation will be considered to be a gift and not a tax-deductible charitable donation. Even if you make a gift for a charitable purpose, it won’t automatically qualify you for a deduction.

Another thing to watch for is how much money you donate to an individual on GoFundMe. Since these types of gifts are not considered to be charitable by the Internal Revenue Service (IRS), if you give more than the annual exclusion amount for gifts, you might have to report what you gave and file a Form 709. The recipient will not be taxed on the amount they received.

How GoFundMe Works

Individuals, groups, or organizations can all raise funds on the GoFundMe platform. The site distinguishes between types of fundraisers, including standard campaigns and certified charity campaigns. Many organizers of standard campaigns are people who are raising money for any number of reasons and who can deposit any money they raise into their bank accounts.

While many standard campaigns are for worthy causes, the gifts that are made are given to individuals instead of registered charities. Donations to them are generally not tax deductible.

By contrast, certified charity campaigns are established by registered 501(c)(3) organizations. The organizers don’t handle the funds. Instead, the money is sent directly to the charitable organization through the PayPal Giving Fund. This is a fund that was created by GoFundMe to help registered charities receive donations. When you donate GoFundMe to a registered charity, you will receive a receipt from the giving fund so that you can claim a deduction on your tax return.

When GoFundMe Donations Are Tax Deductible

There are two exceptions under which a donation on GoFundMe could be tax deductible. First, if you give money to a qualified 501(c) organization on the platform, your gift will be tax deductible. Second, GoFundMe has established a program called “GoFundMe Causes”. Through this program, qualified organizations are grouped by their causes. You can make a tax-deductible contribution to the cause you choose, and the donation will be sent directly to the group of verified charities grouped by that cause.

Understanding Gift Taxes

The annual gift tax exclusion for 2022 is $16,000. If you give more than this annual amount to non-501(c) organizations, you could be required to file a gift tax return. While there are exceptions for donations given for educational or medical expenses, the exceptions require the funds to be sent directly to the institutions instead of an intermediary. Funds given on GoFundMe rarely are sent directly to institutions through standard campaigns.

Deductions for Charitable Giving

When you give money to a nonprofit organization, your donation will normally be deductible. You can deduct up to half of your adjusted gross income for cash donations, but there are limits set at 20% or 30% that might apply. Giving money to registered 501(c) organizations on GoFundMe could be a way to reduce your tax burden, but you will need to make sure to save your receipt. To claim a deduction, you will need to itemize your deductions instead of taking the standard deduction using Schedule A. A charitable deduction might be eligible as long as it is given to one of the following:

  • Nonprofit hospitals and schools
  • Some veterans’ groups
  • Local, state, and federal governments
  • Religious organizations

Donations to the following types of organizations generally cannot be deducted:

  • Political action committees (PACs) or political parties
  • Foreign organizations or governments
  • Individuals
  • For-profit hospitals or schools
  • Labor unions
  • Sports or social clubs
  • Homeowners’ associations (HOAs)
  • Responsibilities of Donees

Gifts are generally not considered to be taxable income. However, organizers should keep records to avoid problems.

If a donee receives donations in exchange for services or goods, the IRS might consider the donations to be taxable business income. Be clear in your campaigns that donors will not receive anything of value in exchange for making donations.

If you raise more than $600, the third-party payment processor will send you and the IRS a Form 1099. While the money you raise should not be considered taxable, you will have the burden to show that it was not income. Report the funds you receive on your tax return and then show a reduction of the same amount while including an explanation.

Talk to TMD Accounting

If you are unsure about whether your donations might qualify for deductions, you should talk to the professionals at TMD Accounting. Call us today at 1-856-228-2205.

Bookkeeping for Independent Contractors: Everything You Need to Know

If you work as an independent contractor, the Internal Revenue Service (IRS) classifies you as a business. You will need to perform bookkeeping and pay your business taxes to avoid potential problems. Unlike an employee, you won’t receive a W-2, and the businesses with which you work won’t pay the employer share of your Social Security and Medicare taxes. You will be responsible for paying the self-employment tax. Here’s what you should know about bookkeeping and taxes as an independent contractor from the accounting professionals at TMD Accounting.

Independent Contractors vs. Employees

Independent contractors are not considered to be employees of the businesses for which they work. Employees receive regular wages, have schedules created by their companies, and have taxes withheld from their paychecks. By contrast, independent contractors are paid for the projects on which they perform work, handle their schedules, and handle tax payments on their own.

You will also be responsible for buying private health insurance and will not be eligible for workers’ compensation if you are hurt on the job. Finally, independent contractors also are not protected by major employment laws.

Accounting for Independent Contractors

The first thing you should do is determine which accounting method to use, including the cash-basis or accrual-basis accounting methods. The cash-basis method is simple and simply means that you track your income upon its receipt and your expenses at the time you pay them. The accrual-basis method involves counting your income when you earn it and your expenses at the time they accrue rather than when you receive or pay them. A certified public accountant (CPA) at TMD Accounting can help you choose the method that is best for your independent contracting business.

How Independent Contractors Pay Taxes

As an independent contractor, you will have to pay the self-employment tax, which means you will pay taxes to Medicare and Social Security. The self-employment tax is reported on Schedule SE. Before you complete Schedule SE, you will first need to use Schedule C of Form 1040 to calculate your business’s total income or loss.

If you earn more than $600 while working for one of your clients, your client will send a Form 1099-MISC to you and the IRS. If you do not receive this form, you are still responsible for including the money that you earned. You should have a separate saving account you use to deposit money throughout the year to pay your self-employment tax so that you don’t have a huge tax bill at the end of the tax year. Independent contractors typically also must make quarterly estimated tax payments throughout the year.

Bookkeeping for Independent Contractors

You must conduct proper bookkeeping throughout the year as an independent contractor. Having organized books can also help to ensure that you don’t forget to pay accounts receivable, that you send your invoices on time, and that your bills and expenses are paid on time.

You will need to track all of the money that comes in and that you pay out for business-related expenses. You should have a separate business bank account and keep your personal account separate.

Track all business-related expenses and save receipts, including the following examples:

  • Office lease expenses
  • Business computer, phone, and printer receipts
  • Hours spent per project
  • Jobs you have completed
  • How much you charge per hour for each client
  • Operating expenses
  • Money paid to you
  • Bank transfers
  • Travel expenses
  • Bills for utilities, phone, and internet
  • office supplies
  • Career-related courses, subscriptions, and books
  • Accounting software receipts

Establish your Business Entity

It is a good idea to register your business with the state and choose a legal entity structure under which to operate. You can opt to register as a sole proprietor, but this type of entity will not protect your personal assets from potential liability claims. Many independent contractors instead choose to form limited liability companies (LLCs), which offer liability protection. You should also apply for a federal employer identification number (FEIN) from the IRS even if you don’t have employees.

Once you establish your entity structure and get a FEIN, you can open a business bank account. Make sure to also open a business saving account to save money for your taxes and set aside at least 30% of your income each month. Keep your personal and business accounts separate to avoid potential problems.

Reconcile your accounts at the end of each month to make sure your books and accounts accurately reflect your income and expenses. Accounting software can be helpful, and hiring a professional from a firm that offers small business accounting services can be even more so. Most independent contractors can benefit from hiring a CPA to help during tax time to help prevent potential mistakes. Depending on your business, you might also benefit from having a CPA help throughout the year to provide guidance and support that could help you save money as you grow your business.

Find an Accountant for My Small Business

When you are an independent contractor, you are also a small business owner. Keeping on top of your books and taxes is critical to prevent potential tax problems. Call TMD Accounting today for help with your business accounting at 1-856-228-2205.

5 Important Principles of Modern Accounting

Every business needs to have a strong accounting system in place so that they can understand their finances and make accurate projections about the direction of their companies. Accounting involves continuously observing and exercising control over your company’s economic activities. The success of your business will largely depend on your accounting, and it’s important for your company to strictly follow the generally accepted accounting principles (GAAP) in your accounting practices.

As a discipline, accounting is strict and follows the GAAP to prevent inaccurate or incomplete information from being reported. Here is what to know about modern accounting and the five generally accepted accounting principles from the professionals at TMD Accounting.

Principle 1: Revenue Recognition

The revenue recognition principle is the first principle your business should know. When you record data, you need to think about the time during which you recognize revenues your company earns through its income statements. When you will recognize your revenues will depend on whether your company uses the cash-basis or accrual-basis method of accounting. If you are using the cash-basis method, you will recognize your revenues during the period in which your company receives them. If you are using the accrual-basis method, you will recognize your revenues during the period in which you provide services.

The revenue recognition principle states that companies should only recognize revenues when they have mostly or totally completed the process of earnings. This means you should record revenues at the time when the purchaser takes possession or when you have completed your service. The revenue recognition principle helps businesses to keep accurate track of their accounts and prevents them from counting profits too early.

Principle 2: Cost

Businesses should also record their assets at the time they purchase a service or product to accurately track their expenses. YOu should record the cost of anything on which your business spends money and properly account for depreciation. Under the cost principle, businesses should not record the resale cost of items in their books. You should instead use the item’s historical cost. For example, if you own an office, use the historical cost of the property instead of its fair market value while making certain to account for overhead costs.

Principle 3: Matching

Businesses should make sure they match the revenues they have recognized with their expenses during the same period and record them when the expenses were incurred. If your business recognizes revenues for services or products you sold, you should also recognize the cost of those services or products during the same period.

Every expense item should match a revenue item under the matching principle. For example, if you sell t-shirts, you should recognize the revenue of a t-shirt when a customer purchases it while also accounting for the expense involved in your business purchasing the item at its wholesale price. When you apply the matching principle, you are using the accrual-basis method of accounting.

Principle 4: Full Disclosure

When your business creates its financial statements, all of the information must be complete and transparent. You should not include any information that is misleading so that your clients or partners are aware of all relevant information about your company.

Prinicple 5: Objectivity

At all times, your accounting information should remain accurate and free from opinions. You should make sure your accounting data is supported by evidence, including receipts, invoices, and vouchers. When you remain objective, your financial reports will be more reliable. You should steer clear of anything that could call your work into question because of your subjective opinion.

Under the objectivity principle, your books should include verifiable information that is supported by objective evidence and should not include any unsupported data. The values used in your reports should not be subjectively measured even when subjective data is more favorable than the data that can be verified. If you violate this rule, it could lead to confusion because of making it difficult to comprehend the subjective data. It is best to only include data that others can verify in your financial reports.

Why Is It Important for Businesses to Know Accounting Principles?

The five generally accepted accounting principles are justified, and they provide a good foundation for your company’s budgeting and planning processes. By strictly adhering to these five principles, you can avoid conjectures that could lead to financial problems.

Following basic accounting principles can also help to improve the cohesiveness of your organization. Depending on your business’s size, different employees might be in charge of different accounting principles. If you don’t have a plan, it could be impossible for your employees to perform their jobs so that you can get a clear picture of your business’s financial health. If left unchecked, this can result in significant financial problems and potential business failure. Making sure your plan is founded on the five generally accepted accounting principles can help to avoid these types of issues.

The basic principles of accounting provide a straightforward method for reporting your finances. Each principle has a role in the big picture of your company’s financial health. When you establish these principles at your business, you can facilitate a more productive and organized environment to track your cash flow and avoid problems such as unverified data and missing funds.

Find an Accountant for My Small Business

When you work with TMD Accounting, we can help you establish the generally accepted accounting principles at your business to facilitate your company’s growth and success. To learn more, call us today at 1-856-228-2205.

Everything You Need to Know About the Business Travel Tax Deduction

Self-employed people and small business owners are generally allowed to deduct business travel expenses when they are required to travel away from home for business purposes. However, you need to ensure that you understand the definition of home from the Internal Revenue Service (IRS) and what ordinary and necessary expenses are to ensure you deduct your business travel expenses accurately. Here is what to know about the business travel tax deduction from TMD Accounting.

What Are Ordinary and Necessary Expenses?

The first thing you should understand is how the IRS defines ordinary and necessary expenses. Ordinary expenses are those that are accepted and common within your industry. Necessary expenses are those that are appropriate and helpful for your company.

How the IRS Defines Home

Your business travel expenses can be claimed when you are away from your business home, which is not necessarily where you live. The city in which your business is located is your business’s tax home, which might not be the same place where your family lives.

For example, imagine that you live in Colorado Springs, Colorado and have a permanent business location in Denver. Just because you might stay during the workweek in hotels in Denver and eat out, you won’t be able to deduct those expenses from your taxes or the costs of your transportation when you drive back to Colorado Springs on the weekends. This is because Denver will be your business’s tax home, so you can’t take deductions for your ordinary and necessary expenses during your time there.

Deductible Transportation Expenses

If you have to travel for business by bus, train, or plane, you can deduct the cost of your ticket and baggage fees. If you have to pay for a last-minute ticket, you can claim the higher price as an expense. However, if you pay for the ticket using your frequent-flyer miles, you won’t be able to deduct it.

Transportation expenses can be deducted when you have to travel away from your business’s location for business reasons. For example, if you have to fly from Denver to Los Angeles for a work conference, you can deduct the cost of your airfare to and from Los Angeles. You can also deduct the cost of renting a car in LA while you are there. The IRS allows you to deduct the actual costs or the standard mileage rate. During the first half of 2022, the standard rate was 58.5 cents per mile. For the second half, the mileage standard rate was increased to 62.5 cents per mile. You can also deduct parking fees and tolls you might have to pay during your business trip.

Deductible Taxi Fares

While you are away on business, you can also deduct the fares you pay for taxis or shuttles. The following types of fares you pay can be deducted:

  • Fares paid to get to and from the airport, train station, and your hotel
  • Fares paid to and from your hotel and your work location
  • Fares paid to and from clients in the city

For car rentals, you can deduct the expense as long as you exclusively use the vehicle for business. if you also use it for personal reasons, only deduct the portion of the rental costs that you used for business. For example, if you are in LA and drive to the conference and then back and forth to a few client locations, you can deduct the mileage and rental car expenses for those trips. However, if you later decide to go out to dinner or a movie from your hotel, you can’t deduct the expenses involved with that.

Deductible Incidental Expenses

You can also deduct the costs of your hotel, business meals, and tips as long as they are reasonable under the circumstances. Your meal deduction is limited to half of the actual cost of your meal or the standard meal allowance. The meal allowance is based on the federal per diem rate based on when and where you travel.

In general, business travelers can only deduct 50% of their meals. However, in 2022, the IRS is allowing business travelers to deduct the full cost of business-related meals and beverages that they purchase at a restaurant. If you decide to take the standard meal allowance, the deductible amount for incidental expenses is $5 per day for tips given to staff at your hotel, baggage carriers, or porters. It is still a good idea to keep receipts and track of the actual costs you pay.

What Qualifies as a Business Trip?

To qualify as a business trip and qualify for the business travel tax deduction, your trip must meet each of the following criteria:

  • Your trip caused you to leave your business’s tax home for more than a normal work day
  • Your trip must primarily consist of business
  • Your trip should qualify as an ordinary and necessary expense
  • Your trip should be planned in advance

Speak to an Accounting Professional

If you are unsure which expenses you can deduct under the business travel deduction, you should speak to the accounting and tax professionals at TMD Accounting. We can review your receipts and the purpose of your trip and explain what can and can’t be included. To learn more, call us today at 1-856-228-2205.

Best Practices For Effective Budgeting and Forecasting

If you are a small business owner, you are always on a search to improve your bottom line. Forecasting and budgeting your expenses is one of the best ways to boost your revenue. With that, you can ensure your business is on track for both short- and long-term goals. Here are some of the best practices to incorporate into your business for effective budgeting and forecasting.

Create a Budget

Effective budgeting and forecasting need to start with a plan. You cannot make a solid business decision without a budget. Your business needs to create a budget and stick to it. This step can help your operations stay on track. With a budget, you have a road map to track the progress of the business. Once you have created a budget, please do not ignore it. A budget is there for a reason: to help manage your expenses and other costs.

Plan for Short- and Long-Term Business Expenses

If you want effective budgeting and bookkeeping, you must always plan for your business’s short- and long-term expenses. With this plan, you can ensure you have the necessary resources to meet your current and future financial needs. Take time to list all of your current expenses, including both variable and fixed ones. By doing that, you can see where the money is going for each month. After that, consider your long-term goals. Whether you have to make improvements or expand your business, you need to factor those long-term costs into your business plan.

Always Anticipate Changes

Unfortunately, income and expenses will not stay the same. If you want to ensure your finances stay on track, you always need to anticipate those changes. While it may seem like an impossible task, you will want to review your financial statements regularly with your accountant. With a quick meeting, you can see where all the money is heading and whether there are any potential problems on the horizon.

After that, you can always make adjustments to your budget. If you are spending more than expected, adjust the figures so that your budgeting remains accurate. Forecasting is not always exact, but you can use these best practices to prevent any problems that could harm the financial future of your business.

Forecast To Predict Trends

Forecasting can help with your financial planning and budgeting. Look at past trends and use them to predict future patterns. You can make more informed decisions about where to spend money. There are several ways to forecast your financial future. No matter the method you use, you need to collect accurate data. Also, it is crucial to revise and review your forecasts as new data becomes available. Forecasting can be an invaluable source to help you make better decisions for your business by continuously updating your budgeting and examining the current data.

Review Your Budget

As previously mentioned, your budget will change. You should not think of a budget as a stationary number. Schedule a time to review your budget with your bookkeeper or accountant. If you need to make adjustments to keep you on track, that does not mean there is a problem. All businesses review their budgets from time to time. Use your budget as a tool to track your income and expenses. You can make better decisions about allocating resources and managing your operations with a budget.

Seek Experienced Financial Help

Forecasting and budgeting are vital tools for both small and large businesses. When you have a clear picture of your finances, you will be able to make better decisions. However, many business owners do not know where to start and often struggle to manage their expenses.

In those cases, you may want to seek professional help for your bookkeeping and accounting duties. Many business owners struggle to keep up with books, budgets, and other financial responsibilities. While you may not want to spare the extra expense, think about these professional services as an investment in your business.

An experienced and qualified accountant can offer some guidance and expertise to help improve your bottom line. With their help, you can develop a budget that will work for your business needs, giving you more clarity to make significant financial decisions. You should never be afraid to ask for help, especially regarding your finances.

Effective Budgeting and Forecasting Benefits

An effective budget can help your business save money and keep track of any spending. Along with that, it can help forecast your future income and expenses, which might help if you need to tighten costs down the road.

Don’t forget about forecasting. This tool is vital for making informed decisions for expansions, investments, and other financial moves. When you have effective budgeting and forecasting, you can make the most of your existing resources and keep all those finances on track for your business.

Budgeting helps your business in the present, and forecasting is essential for those future plans. With these best practices, you can ensure that your data is accurate, helping to move the business in the right direction.

Reach Out To an Experienced Accounting Firm

At TMD Accounting, we have over 40 years of experience helping small and big businesses reach their financial goals in Gloucester County. We are here for your business if you need help with bookkeeping, taxes, payroll, or financial planning. We provide affordable, flexible, and reliable solutions for your accounting needs. Schedule a consultation by calling 856-228-2205.

How to Find the Right Small-Business Tax Advisor for Your Business

Having a small-business tax advisor can help your business save money on taxes by working with you year-round. This is a certified professional who prepares and files business tax returns, provides financial and tax advice, and represents businesses when they are audited by the Internal Revenue Service (IRS). Certified tax advisors also perform record-keeping duties and help with tax planning to maximize your business’s returns. The tax advisor you choose should be experienced, qualified, and have specific knowledge about business taxes. Here is some information from TMD Accounting about how to find the right tax advisor for your small business.

What Are Tax Advisors for Small Businesses?

The IRS allows anyone to serve as a small-business tax consultant as long as they get a preparer tax identification number (PTIN) from the agency. However, you should look for a professional firm that offers both small business account services and business tax advice. The professional you choose should also be certified as a tax advisor by the IRS. Certified tax advisors have additional education, skill, and expertise requirements and can also represent you in case of an audit.

Enrolled agents are licensed tax professionals who must pass a specialized exam showing their tax proficiency and/or have worked for the IRS for at least five years.

Certified public accountants (CPAs) must pass the CPA exam and follow the requirements for CPAs. They are accounting professionals offering multiple services, including tax advice, preparation, and filing.

Finally, attorneys must pass the bar exam to obtain a license to practice law in their state. While all lawyers are included in this category, a business owner should look for an attorney who focuses on tax law and business taxes.

If you are searching for a tax advisor for your business, you should choose someone who falls into one of the three categories listed above. Make sure the professional you choose has experience with business taxes instead of personal taxes. Finding a certified tax advisor who is also familiar with your industry and with small businesses is even better.

How a Tax Advisor Can Benefit Your Small Business

A good business tax advisor can help your business in numerous ways throughout the year instead of just at tax time. Your tax advisor should provide you with all of the following benefits:

• Providing important information and advice to aid you in tax decisions
• Setting up a record-keeping system tailored to your business and its needs
• Preparing business tax forms and helping your business claim all of the deductions to which it should be entitled and highlighting red flags that could get your business in trouble with the IRS
• Providing advice and guidance when you are dealing with the IRS
• Representing you before the IRS during audits and investigations

Finding a Tax Advisor for Your Small Business

The first place to start is to ask your business’s accountant or bookkeeper for referrals and recommendations. If you are already working with a CPA for small business accounting services, they might also have the necessary experience to provide you with business tax advising services. You can also ask other business owners that you know and trust for their recommendations for business tax advisors in your area.

You can also ask your friends, banker, family, or attorney for recommendations and referrals to qualified business tax advisors in your area. Get several names. Look for listings in newspapers, directories, trade journals, referral panels, and professional associations. Look for CPA societies in your area or check online at www.cpadirectory.com for a CPA. If you want to find an enrolled agent, you can ask for help from the National Association of Enrolled Agents at www.naea.org. However, if you check an organization, you should consider referrals as the organization’s certification that it recommends the CPAs or EAs or that the names provided to you are competent professionals.

Once you have a small list of names, interview a minimum of three firms or individuals. Treat the consultation like an interview. You want to both test the prospective advisor’s knowledge and ensure that they are a good fit for your company. Ask them about their experience, certification, and their knowledge of your industry and of working with small businesses. Ask about the types of tax issues small businesses might face and how they address them. Ask if the prospective advisor represents clients during audits before the IRS.

Ask the tax advisor about any success stories they can share and the types of strategies they employ when dealing with tax problems. You want to make sure the advisor you choose doesn’t use overly aggressive strategies that could potentially get your business in trouble.

Once you have completed your consultations, don’t rush to make a decision. Consider which prospective advisor made you feel confident in their knowledge and ability to help your business with its taxes. Make sure you choose an advisor with whom you feel comfortable since you will have an ongoing professional relationship. Finally, search for a tax advisor in the fall or summer instead of trying to find someone during tax season.

Find an Accountant for My Small Business

If you are searching for a full-service accounting firm to handle all of your business’s accounting and tax needs, you should consider TMD accounting. We provide a full range of accounting services for small businesses, including tax advice and preparation. Call us today for a consultation at 1-856-228-2205.

Accounts Receivable Services for a More Efficient Business

Are you looking to become a more profitable and efficient business? Accounts receivable services may be able to help. Small business accounting services can streamline your billing process, ensuring that payments are received on time. Additionally, outsourcing these accounts receivable services allow you to focus on other parts of your business. Here is how accounts receivable services can help you have a more efficient business.

What Are Accounts Receivable?

Accounts receivable is the money a business has a right to receive because it provides services or goods on credit. In short, it is the money customers owe for services or products that have not been paid. For example, if your business sells a product on credit, a customer will have a certain period to pay you for the product. In many cases, the time frame is 30 days.

Your business must record the sale as an account receivable on the balance sheet. Once the company reviews the money, the account receivable would be removed from the balance sheet and replaced with cash. As you may tell, these accounts play a vital role in your bookkeeping since they represent future revenue. Accounts receivable will give your company insight into your overall cash flow and when you can expect timely payments from customers.

Generally, companies with higher amounts of accounts receivable could have more difficulty collecting payments from their customers than those businesses with fewer accounts. Customers who owe a large amount of money could default on their payments, meaning you could lose out on that income.

What Are Accounts Receivable Services?

You can track your customers’ payments and manage your cash flow with a professional accounts receivable service. These services handle many tasks, such as collections, invoicing, and customer service. An account receivable service will also allow you to gain insight into your customers’ behaviors. Also, accounts receivable services can optimize your billing and collection process, helping identify or correct trends. All these services can streamline the billing process, helping improve your bottom line.

Why You Need an AR Service

Using accounts receivable services will provide your business with the resources and tools to streamline invoicing, collections, and payment processes. There are plenty of benefits, and they include:

 

Reduce Administrative Costs

With an AR service, your business can save time and money by allowing them to handle all aspects of collections and invoicing, including sending payment reminders and following up with customers.

Improve Cash Flow

These AR services can help you get money faster into your account by using automated invoice processing that can optimize your cash flow.

Keep a Focus on Your Business

Managing accounts receivable can be time-consuming, especially if there is no dedicated person or staff to handle these responsibilities. Outsourcing your accounts receivable tasks allow you to free up time to operate your business. With that, you can help grow your company and generate more revenue.

Increase Insight Into Your Customer Base

These AR services will give insight into your customers’ behaviors, including payment trends and patterns. With this information, you can improve your business planning and customer relations. You can see these trends to understand your clients’ spending patterns so that you can tailor your services and products to their needs.

Choosing an Accounts Receivables Service

These professionals are here to help improve and manage your cash flow. Along with that, they can help you reduce the time you spend on administrative tasks. Most AR services will cover a few areas in accounting and bookkeeping, such as reporting, invoicing, collections, and customer services. An AR service can reduce administrative costs, improve cash flow, and increase efficiency.

There are several things to consider when it comes time to choose an accounts receivable provider. First, when it comes time to find an accountant for my small business, they should have the experience and reputation to handle most of these tasks. You need to choose a company that can meet your specific needs. Some accounts receivable services will be able to provide you with generalized services. However, others may only specialize in a particular area. Choose one that will work best for your business operations.

Accounts Receivable Services Offer Many Benefits

When you need to keep your company’s financial accounts up-to-date and accurate, consider choosing an accounts receivable service for your business. Without help, tracking invoices or transactions with customers can become difficult. Selecting a professional AR service provider is essential to pursuing a healthy financial future.

Accounts receivable management is essential to all businesses, but it doesn’t have to be a hassle. When you want to ensure timely customer payments, you need to consider outsourcing these services. With that, you can save time, money, and headaches. Think of these services as an investment in your business. Your AR team will take care of those critical tasks as you manage other aspects of the business. By partnering with a reputable accounts receivable company, all of your invoices will be paid on time and in full.

Looking for a South Jersey Accountant?

If you are ready to choose a professional AR team for your business, reach out to TMD Accounting. We have over 40 years of experience helping companies with their accounting needs in the Gloucester County area. We are a family-owned and -operated business. We pride ourselves on being an affordable, reliable, and flexible solution for your accounting needs. Our team wants to help your business grow. One way to do that is by outsourcing your accounts receivable services. Schedule a consultation by calling 856-228-2205.

Understanding Your Small Business’s Financial Statements

Your business’s financial statements can be a key tool for managing your business. However, many businesses are confused by financial statements and don’t know what they mean or how they can be used. Here is some information from the professionals at TMD Accounting about your financial statements and how they can be used.

What Financial Statements Include

A financial statement tells you where your business money is, including its origin, how it was spent, and the current financial standing of your company. You can see this information by using the three primary types of financial statements, including your income statement, balance sheet, and cash flow statement.

These documents give you the following information:

  • The assets you currently have
  • Your business’s liabilities
  • The value of your ownership
  • Total sales/gross revenues
  • Losses and expenses
  • Net income
  • Cash flow, including the sources of money and how it has been used
  • Cash on hand at the start and end of a period

All of these types of information are crucial for your business so that you can make better decisions. Financial statements are an important component of running a financially stable and profitable business.

Why Financial Statements Are Important

Your financial statements will provide you with your business’s operational results, its current cash flow, and its current financial standing. They are important for all of the following reasons:

  • Documenting your business’s financial activities
  • Summarizing important accounting information about your business
  • Providing stakeholders with an accurate picture of your company’s financial situation

Lenders use financial statements to assess your level of risk when determining whether to extend credit to your business. They also include information that might be required under accounting standards and the law and contain the data that you need to complete your business tax returns.

What Is In Each Type of Statement?

You can analyze how your company is performing by using your financial statements.

The income statement will include information about your business’s total revenues, the cost of the goods or services sold, and other costs during a set period. It will then provide information about your company’s net income or a net loss.

Your balance sheet will provide data about your total assets, liabilities, and equity.

Your cash flow statement gives you information about your company’s financing, operations, inflows and outflows, and long-term debt.

How to Use Your Financial Statements

When you receive your financial statements, take a look at your income statement and treat it as a report card for your business. This might also be called a profit-and-loss statement and tells you how your business is doing over time. In the income statement, you can see the expenses your company has incurred and the revenue it has generated during the relevant period.

Income Statement

Your income statement can be used to gain an understanding of your business’s profitability and the steps that you can take to increase its profits. For example, you might see that you should cut back on some unnecessary expenses or focus on more profitable products or services. If you are searching for funding, investors will want to see your income statement to assess your degree of risk when deciding whether to give your company credit or venture capital.

However, your income statement won’t reveal the overall strength or weakness of your financial condition, show a list of your assets and liabilities, or show how money is flowing in ad out of your business.

Balance Sheet

Your balance sheet lets you see how strong or weak your business’s current financial condition is. Many investors typically begin by reviewing a business’s balance sheet to get an understanding of its financial condition. Your balance sheet includes key information on a specific date rather than your business’s profitability over a set period. It helps to show your business’s stability and how much liquidity it has. A balance sheet will include a list of your business assets, its liabilities, and the equity you have in it. The information included in a balance sheet can help show your business’s net value, your debt, how well your assets are being managed, and whether you are easily able to convert assets into cash when necessary. You can also see changes in your equity, earnings, inventory, and accounts payable and receivable by comparing information from your balance sheets.

Cash Flow Statements

You can use your cash flow statement to determine whether you have enough money coming in to sustain your business operations. Even if your business is profitable, it can still fail if you have cash going out of your business faster than it’s coming in. Reviewing your cash flow statement can help you to better manage where your money is going to increase your business’s chance of success.

Investors want to see cash flow statements to see evidence you can manage your business’s cash and have the resources to handle times when gaps in the in-flow of cash occur.

Find an Accountant for My Small Business

TMD Accounting offers small business accounting services and can help you set up and understand your business’s financial statements. Working with our experienced South Jersey accounting professionals might help to improve your business’s profitability by identifying areas that need work. To learn more, schedule a consultation by calling us at 1-856-228-2205.

What Financial Statements Does A Small Business Need?

Many business owners are intimidated by those financial statements. However, you need to learn some of the basics of these statements to get a clearer picture of your financial health. No matter how big or small your business, these three financial reports are vital to your success. The balance sheet, income statement, and cash flow statement are must-haves for your business. Let’s break down how these sheets work and affect your small business.

Balance Sheet

The balance sheet is also called the statement of financial position. This financial statement tracks your liabilities, assets, and owner-held equity. The balance sheet can indicate the approximate cash value of the business. Lenders will look at your risk and collateral, which can affect if you will receive funding for your business when you need it. There are two vital parts of the balance sheet: assets and liabilities.

Assets are everything that a business owns. For example, some assets can include signed service contracts or showroom stock. There are two types of assets: short- and long-term. Short-term assets will last for one year or less and can include cash, prepaid expenses, and inventory. On the other hand, the business must own its long-term assets for over a year. These examples include tools, property, and equipment. A company may also own intangible assets such as trademarks, copyrights, and patents.

Liabilities are everything that the business owes to a vendor or creditor. A liability may include a business loan balance. Like assets, there are short- and long-term liabilities. A business must pay all current liabilities within a year, including small business loans, payroll, and lines of credit. Long-term liabilities, including deferred income tax and mortgages, are paid over longer periods.

Along with assets and liabilities, owner-held equity is equally important. This equity is the cash value of the company. It is calculated as the assets minus those liabilities. The amount left over is the owner-held equity.

Income Statement

The income statement is often called a profit and loss statement. This statement accounts for the business’s revenues, gains, expenses, and losses. With this statement, you can gauge the profitability of the current operations. You can also use this statement to decide whether to cut or expand operations.

There are several parts to an income statement. Revenue is the income from operations and accounts. You can gain revenue from primary activities or secondary activities. Some primary activities include services rendered or product sales. Secondary activities include rent from a vacated space or accruing interest from an account.

Gains come from other future income, such as selling your assets. Expenses are derived from operations. Like revenue, these expenses can come from primary or secondary activities. Primary activities include expenses incurred from maintaining normal operating revenue. Secondary revenue often includes expenses incurred outside of the operating revenue. Losses are the value loss from selling assets, such as settling overdue taxes.

With this statement, you can see the profitability of the company. Income statements are formatted in two ways: single-step or multi-step. In a single-step statement, there will be one category for income and the other for expenses. However, these statements are not always reliable as they cannot calculate the profitability and efficiency ratio. For that reason, many small businesses use multi-step statements to separate the expense account based on their functions. Multi-step statements give owners a more rounded view of their financial health.

Cash Flow Statement

The cash flow statement is a detailed accounting of the cash generated by the business. How does a cash flow statement differ from an income statement? The income statement shows what the businesses have generated on an accrual basis. The cash flow statement will show the actual funds that have come into the business accounts. With these statements, you will know how much money is available to pay expenses or invest in the business. Any significant discrepancies between the cash flow and income statements could mean problems in business operations.

There are critical points in the cash flow statement. The operating cash flow statement is the cash paid from and to your account from the actual business operations. The income and expenses from selling and buying assets are called the investing cash flow. Investing cash flow can include buying operating equipment or selling real estate assets.

The cash actions related to the company’s stocks and bonds are called the financing cash flow. This cash flow might include paying dividends to the owners of repurchased stocks. When an owner draws on a small business account, that is known as a financing cash flow.

Cash flow statements can include other details, including document losses and gains of non-cash assets and miscellaneous cash actions. When you put this information together, you can see the location of the cash and how it moves in your business.

Understanding your financial statements can be complex. Finding reliable small business accounting services can help you to create and decipher these statements for your business. Knowing your finances is vital for any business. Without these statements, you will not know the financial health of your small business.

Need a South Jersey Accountant for My Small Business?

At TMD Accounting, we have small business solutions for you. Our family-owned and -operated South Jersey accounting firm has helped those businesses in Gloucester County for over 40 years. Whether you need help with payroll, taxes, accounting, or bookkeeping, we are your flexible and affordable way to manage your business. Schedule your consultation by calling 856-228-2205.

1 2 3