TK Accounting & Consulting

Tax Returns in 2022

Last year more than 30 million taxpayers had their returns and refunds held up by the IRS, and with tax season in full swing many taxpayers could see a repeat of 2021.

Based on the IRS’s sizable backlog of returns from 2021, with a few other issues, The Treasury Department officials warned in January that this year’s tax season would be a challenge with the IRS starting to process returns on January 24th. Typically the IRS has approximately one million unprocessed individual returns at the start of tax season, however; as of December 31st, 2021, the agency still had 6 million unprocessed individual returns.

Regardless, most Americans should get their refunds within 21 days according to the IRS. On February 11th the agency reported issuing 4.3 million refunds worth 9.5 billion already, yet millions more are still waiting. The IRS Commissioner, Charles Rettig, also recently noted that the IRS still has the same level of staffing as in the 70s despite the 60% growth in the U.S. population.

There are a few issues that could cause you not to meet the 21 day window which can include-

Claiming the Earned Income Tax Credit
Claiming the Child Tax Credit
Math errors
Incorrectly stating the amount of Child Tax Credit payments received
Missing information for 3rd stimulus check
Inadvertently claiming the wrong amount

These issues can slow down your tax return due to regulations to deter fraud or even cause your return to be flagged. This will lead to delays of weeks or months depending on which obstacle presents.

Nonetheless, if all goes well then taxpayers who e-file can receive refunds as quickly as one week according to trade publication CPA Advisor. However, the publication also noted processing time does tend to slow down as the tax season progresses and the IRS handles more returns.

Although the IRS has already issued several million refunds this tax year, the agency is backlogged and working through millions of previous returns so we warn that delays are likely. In order to help get your return in the 21 day window here are a few tips-

File Electronically
Obtain refund via direct deposit
Save letters from the IRS for stimulus

Tax Prep vs. Tax Planning

Tax preparation and tax planning are two different services. Tax preparation is a service that helps to make sure your tax reporting complies with both federal and state tax laws. However, tax planning is a service that assists you in optimizing your tax situation before reporting. The purpose of tax planning is to use legitimate ways to optimize your potential tax consequences based on your goals and plans for your future.

Some companies may offer you general tax guidance and tax savings advice based on past tax returns, however; many individuals do not get proactive tax planning advice such as:

How do I manage my tax bracket?
How do I maximize my charitable deduction in a tax-efficient way?
When should I do a ROTH conversion?
How do I use tax loss harvesting to offset my investment gains?
What do I do with my stock compensation from a tax perspective?
And many more questions

So why are you not receiving this information during your tax prep? Mainly because tax planning is a different service than tax prep. Tax planning requires additional information, time, and other various aspects of knowledge aside from tax filing.

Finding the right professional is important when wanting tax preparation and tax planning. A professional team that has the knowledge and experience in both tax prep and tax planning are ideal for individuals who need competent tax planning advice. Comprehensive tax planning requires a lot of additional data gathering, research, and analysis not necessary for tax preparation, therefore; most qualified tax professionals offer tax planning and tax prep as two separate services. Once you locate the right professional for you, specifically let your professional know you are looking for tax prep and tax planning.

Key Items Taxpayers Should Know

We strongly encourage taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include charitable contributions, economic impact payments, and advance child tax credit payments. For online tools, publications, and other helpful resources, taxpayers can visit IRS.gov/getready.

Changes to the charitable contribution deduction

If you don’t itemize deductions you may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and $300 for all other filers for cash contributions made in 2021 to qualifying organizations. You can check an organization’s eligibility to receive tax-deductible charitable contributions and information about an organization’s tax-exempt status on the IRS website.

Check on advance child tax credit payments

Families who received advance payments will need to compare the advance child tax credit payments they received in 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return. You should have received a Letter 6419 from the IRS last month with the total amount of advance child tax credit payments you received in 2021. Keep this form with your other tax records. Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their tax return. Eligible families that opted out of the monthly advance payments can still claim the child tax credit when they file a 2021 federal income tax return.

Economic impact payments and claiming the recovery rebate credit

Individuals who didn’t qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. If you haven’t received it yet, the IRS will be sending a Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. You can also create or log-in to IRS.gov online account to securely access your economic impact payment amounts.

Cryptocurrency & Taxes

Cryptocurrency has become popular for young professionals and investors. Many people buy only a few units to keep in hopes of future potential growth, but active investors are dedicated to buying and selling cryptocurrency to maximize their profit and revenue. When it comes to filing taxes, you do need to be aware that you may need to report it.

As long as you are holding cryptocurrency as an investment and no income is being earned, you generally won’t owe taxes on crypto until you sell. So if you don’t earn any income on your cryptocurrency and you don’t sell in the given tax year, then you can avoid paying taxes on your crypto.

However, the IRS generally defines cryptocurrency as property and investors have to pay levies on the difference between the purchase and sales price. Furthermore, if there is a profit on your crypto (held for less than one year) it is a short-term gain which is subject to regular marginal tax rates up to 37% based on your income.

Cryptocurrency should be reported on Form 8949 and if not, it is likely you will face an IRS audit. Regardless if you had gains or losses we recommend you file your cryptocurrency in order to help avoid an IRS audit. You will want to calculate any crypto gains and losses, complete the IRS form 8949 mentioned above, include your totals on Form Schedule D, include any crypto income, then complete the remainder of your tax return. For most people who buy and trade crypto online, accounting for it in your tax return is relatively easy.

IRS Changes to Retirement Plans in 2022

This year, taxpayers can put an extra $1,000 into their 401(k) plans. The IRS recently announced that the 2022 contribution limit for 401(k) plans will increase to $20,500. The agency also announced cost of living adjustments that may affect pension plans and other retirement-related savings next year.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500, however; limits on contributions to traditional and Roth IRAs remain unchanged at $6,000.

“This 401(k) and IRA change probably won’t impact 90% of people,” says Jamie Hargrove, a Louisville, Kentucky-based estate and trust tax attorney. Only those who have maxed out their 401(k) contributions in previous years should be affected, as well as those who were reaching the maximum allowed income for IRA deductions or contributions.

Traditional IRA income phase-out ranges for 2022 are:

$68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan.
$109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
$204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
$0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan.

Roth IRA contributions income phase-out ranges for 2022 are:

$129,000 to $144,000 – Single taxpayers and heads of household.
$204,000 to $214,000 – Married, filing jointly.
$0 to $10,000 – Married, filing separately.

Saver’s Credit income phase-out ranges for 2022 are:

$41,000 to $68,000 – Married, filing jointly.
$30,750 to $51,000 – Head of household.
$20,500 to $34,000 – Singles and married individuals filing separately.

The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.

The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If neither the taxpayer nor their spouse is covered by a retirement plan at work, their full contribution to a traditional IRA is deductible. If the taxpayer or their spouse were covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated. The amount of the deduction depends on the taxpayer’s filing status and their income.

If you hit the $19,500 contribution cap in 2021, this limit increase is good news for you, as you can choose to increase your contributions up to the limit to continue fully funding your account.

If you contribute a lower amount to your account each year, the new limits may not affect you. In fact, only 8.5% of taxpayers who contribute to direct contribution plans like a 401(k) contributed the maximum amount, according to Congressional Research Data from 2021. According to investment firm Fidelity, the average 401(k) contribution as a percent of salary was 9.4% in 2021. So, to hit the $19,500 cutoff in 2021 while saving the average income percentage, a worker would have made $207,447.

If you do qualify to contribute more in 2022 than in 2021 and want to do so, it’s time to make a plan.

At a minimum, always exhaust your employer’s 401(k) contribution match. Not taking advantage of their match is essentially leaving free money on the table.

Saying Goodbye to 2021

The end of a year is filled with celebration of Christmas and festivities of ringing in a new year. However, for business owners it is also an important time to reflect on your financials, review your last year’s goals, and compare how your year went in regards to your budget and actual numbers.

Business owners should set aside some time to ask a few important questions such as:

Did you stay on track? If so, how?
In what ways were you successful?
Can you implement those ways in the future?
Where were you not successful? Why?
How can you learn from your unsuccessful moments?

While you do want to focus on the good things that happened in your business this year, it is important to also identify any negative aspects and failures. You will want to take the time to figure out what happened and how you can better address the situation if it comes up again in the future. Learning from your shortcomings will help you better navigate the future. Ask yourself what you need to do differently to eliminate the limiting factors within your company. Once you have determined this, choose solutions that are easily attainable and implement those solutions in the upcoming year.

With a new year just around the corner, take the time to remember your vision for your business and set short term and long term goals for the new year and strategize on how to reach those goals. Be sure to write it all down, set deadlines where needed, and measure your progress as you go.

Daily & Weekly Accounting

Accounting is something small businesses should do on a regular basis. Small business owners often put off accounting when they become busy with assisting customers. However, when audit season comes small business owners will likely spend hours catching-up and trying to identify and resolve any accounting discrepancies.

Accounting isn’t a monthly, quarterly, and yearly task, accounting should be completed daily and weekly as well. Small business owners’ primary focus should be assessing how much cash they have available each day. This will allow them to keep track of when money is coming into and leaving their account. Completing a daily accounting checklist helps to ensure small business owners aren’t caught by surprise from a low account balance or worse, overdraft fees.

Daily Checklist

Reconcile cash and receipts- Completing this task daily helps you to locate cash shortages or overages quickly, this helps you determine where the money went or where overages came from.
Review/reconcile transactions- If your accounting software is connected to your bank and synced daily you don’t have to wait for monthly bank statements. Just log in to review and approve.
Record received inventory- Entering inventory daily helps you to have a more accurate look at your inventory. This assists in reordering delays and allowing your employees to know what is on-hand at all times.
Check account balance- Always be sure you are aware of your account balance, as well as checking the money moving in and out of your account.

Also, a separate weekly checklist will help keep you on track with your accounting and bookkeeping. This checklist is a bit more extensive than the daily accounting checklist, but once you get into the rhythm you will be more organized and have the ability to quickly check from your list. Plus, come audit season your hard work has been done throughout the year.

Weekly Checklist

Make deposits- Deposit earnings weekly to ensure a healthy cash flow for your business.
Record payments received- Record payments received and deposited to keep up-to-date records. Also, this allows you to view any electronic payments.
Send invoices- It is essential to ensure invoicing is completed once per week. Billing clients regularly helps them to be more-likely to pay on time.

Managing your business’ finances can be a big task if not done systematically. Creating realistic accounting checklists helps to give you a real-time view of your business’ activities. Adding daily and weekly accounting checklists will keep you attuned with the money your business is making, what your business is spending money on, and tax return preparation.

Steps to Reducing Your Taxes

Tax credits and deductions change regularly, and the Tax Cuts and Jobs Act of 2017 eliminated some deductions and limited some others. However, there are still ways for wage earners to lower their tax liability. Currently the federal income tax brackets range from 10% to 37%, but if you’re smart about claiming deductions and credits you can get away with paying less in taxes. Here are 10 steps to help reduce your tax bill.

1- Contribute to your retirement plan

As of 2021, you can place up to $19,500 per year into your retirement account. Contributions to traditional 401(k) and IRA accounts can be deducted from your taxable income and, as a result, reduces the amount of federal tax you owe. Also, employers generally contribute a certain percentage to this money.

Keep in mind, contributions to workplace 401(k) accounts must be made by the end of the calendar year while tax-deductible contributions can be made to traditional IRAs until the tax-filing deadline.

2- Avoid early 401(k) withdraws

Taking loans against your retirement fund leads to charges and penalties. Plus, if you take money out of your 401(k) before the age of 59.5, you will be charged an extra 10% above your income tax. If you leave your 401(k) untouched until retirement, you can lower your tax bill.

3- Open a Health Savings Account (HSA)

An HSA can lower your tax bill if you have a high-deductible healthcare plan. Contributions to these accounts offer an immediate tax deduction, grow tax-deferred and can be withdrawn tax-free for qualified medical expenses. Also, if you have a balance left at the end of the year it can roll over indefinitely.

4- Convert to a Roth IRA

Withdraws from a Roth IRA aren’t counted as income for federal (and usually state) income tax purposes like a traditional IRA. Also, there are no required minimum distributions every year with a Roth IRA, so the money can continue to grow tax-free in the account.

5- Home office deduction

More now than ever, many individuals are working from home. In order to qualify, the office must be used regularly and exclusively for business purposes. So if you have a home office, you can determine what percentage of your living space is used for the office and deduct that from rent and utility fees.

6- Charitable donations

Charitable contributions are all deductible whether they are made by payroll deductions, checks, cash, and/or donation of goods. Also, if you make regular charitable contributions, bundling them could push you above the standard deduction and lower your taxable income. Just be sure to have a receipt for any contributions made to recognized non-profits.

7- Sell losing investments

If you have a losing stock you can sell off stocks for a tax deduction of up to $3,000. This should not be done to avoid taxes, only if you need to. Furthermore, your deduction will be withdrawn by the IRS if you buy back sold stock(s) within 30 days.

8- Avoid Capital Gains Tax by donating stock

You can also use stocks to make charitable gifts to avoid capital gains. If stocks have big gains, you can move them into a donor-advised fund which is not only exempt from capital gains, but can also be deducted if you itemize.

9- Early payments

Some impending expenses can get you a tax deduction, so if possible, pay these prior to December 31st. This could include medical expenses, a mortgage payment, or a charitable donation.

10- Remember state and local tax breaks

The federal tax reform lay eliminated miscellaneous deductions; however, many states still allow them or may lower your threshold for claiming them. For example, New Jersey taxpayers can deduct the cost of medical expenses exceeding 2% of their adjusted gross income. Federal tax forms only allow deductions for medical expenses more than 7.5%.

Tips on Effective Debt Management for Business Owners

It is important to have debt management skills when you own a business. However, if you find yourself further in-debt than you would like and you do not have debt management skills, don’t panic. There are options available. Below you will find useful and effective tips to assist you in taking control of your debts.

First, be sure to use a good accountant or accounting software so you can keep a close eye on your debt and monthly payments. You should always be aware of your finances and what is coming in and going out. Once you have obtained an accountant or accounting software, you will need to prioritize your monthly payments. Prioritizing will vary from business to business, but normally your top priority will be payroll. Without paying your employees they will find other jobs and you will be left with no one to provide goods and services to your consumers which will lead you further into debt and likely the closing of your business altogether. Not to mention the penalties you can incur by not paying individuals their earned wages.

During the prioritizing process it will be important to also determine how much is owed in total to each supplier and not just their monthly payments. A good starting point would be to make a list of how much you owe and to which providers, and how much you pay in fees and interest to each. While seeing these numbers can cause stress, it will give you a clear view of exactly where you’re at, and how different interest rates and fees could affect the amount you pay back. Just remember during this step, you are working towards paying these debts off. Try not to become overwhelmed with the total numbers you see.

Once you have a clear view of what is owed, how much you need to pay monthly, and your priority list, it can be beneficial to reach out to all of your creditors. You can call and explain your situation calmly and possibly have the opportunity to renegotiate, refinance, and/or consolidate what is owed.

You may be able to renegotiate monies owed so it’s spread over a longer term in order to reduce the interest payments and also the monthly repayment cost. You may also be able to combine your business loans into one payment that will reduce monthly costs and not adversely affect your credit score. Talk to debt consolidation companies about this, but read the small print carefully. If you roll your loans into one, it may also be easier to manage because you’ll potentially only need to make one payment rather than having to juggle several.

We mention time management a lot, and it’s no different when dealing with debt management as the two often go hand-in-hand. Paying your debts when they are due can often help you avoid late fees and interest charges. Remember, late payments will also negatively affect your credit score which will affect your ability to borrow money in the future. Consider setting up alerts to remind you when your payments are due.

Furthermore, you may also be in a situation where you can make more than one payment a month. If this is the case, we recommend doing so. This will decrease the time it will take to pay off your debt and also remove extra fees for interest charges which can potentially save you thousands. If you are not able to make more than one payment monthly, we suggest at least paying more than the minimum owed each month.

Reducing business costs and overhead is sometimes a good way to help in debt management. Not everyone will be able to cut costs, but at times small amounts can lead to great benefits. For example, reduce the amount of space you rent or lease, especially if you’re not using it all. Or you may even need to reevaluate the amount of marketing you do. Just be careful if you choose to reduce costs this way, if you decrease marketing too much it could negatively effect the amount of potential new customers you can obtain. Also, don’t assume cutting costs will automatically save you money. It’s where and how you cut costs that matters. Cut when you need to, but do it sensibly.

While looking at how to reduce your business costs, it will also be important to see where you can increase your profitable sales. Many business owners get too focused on top-line revenue and don’t realize that in some cases they may in fact be losing money on some products, services or even customers.

You have a lot on your plate as a business owner, but remember, you’re not alone! As business owners it is not uncommon to have some form of debt, it is all in how you manage that debt that matters. Don’t wait until your business hits a financial crisis. If you feel that your debt has become unwieldy or worrisome, be proactive! Do everything you can to keep your business running, and talk to your accountant to see what help they can offer as many have ideas that can positively impact your debt management strategy. With perseverance and a little bit of guidance, you’ll be able to turn your business around.

Work & Everyday Life Balance

Are you struggling to balance it all? It isn’t easy, and you aren’t alone. Many individuals struggle daily with balancing family, work, their personal selves, and hobbies. It can seem overwhelming at times and also cause us to feel like we are neglecting some aspect of our lives, and sometimes it’s not just a feeling we have but an actual truth. More times than not we don’t just FEEL like part of our life is being neglected, we can see that it actually is. Then the guilt sets in as we see that work has taken a backseat or our family, or even ourselves. It really depends on who you are as to which area is effected the most. However, when one area is effected by being off balance, they all are. So how can we balance everything and ease the guilt and stress?

Trying to manage everything and get it all taken care of causes us to become more stressed which can lead to loss of focus, irritability, and even depression. The more stressed we become over not being able to juggle it all, the more these areas are negatively effected. Also, overtime the stress and anxiety of these heavy workloads can cause our immune systems to be weakened and in today’s world that can be a lot worse than in previous years. Not to mention the damage it can do to vital organs as research shows chronic stress can increase our risk of heart attacks.

Nonetheless, we can achieve a good and healthy balance between everything. It is an attainable goal we should all work towards, and it starts with routine and time management.

Setting manageable goals each day can help at work and at home. You only have so much time in a day, so making to-do lists that have more on them than what is feasible in a day will only lead to more stress. Checking off items as you go will help you to visualize how productive you’re being, but having multiple items on your list at the end of the day that have NOT been accomplished can lead you to feeling like you have failed. Being able to meet your daily goals will give you a sense of accomplishment and control in which can lessen the amount of stress you feel.

Creating these manageable goals also helps to break-down larger tasks and can assist us in steering away from procrastination. Some individuals have a tendency to procrastinate more when the task seems too big, but when they are broken down into manageable goals we can tackle them more efficiently. Accomplishing bigger tasks this way helps us to be more productive and gives us the extra time we need to focus on our other goals which, in-turn, allows us more time with friends and family.

No one is perfect and we all need a break! Whether that be a 5 minute break or a 5 hour break (just not at work, the boss likely wouldn’t like that!), your mental health is important and a break can help! If you become overwhelmed and just can’t think clearly, step away for a few minutes and take five. You can find a quiet place to just sit, play a quick game on your phone, walk to a coffee stand, however you relax…just take the break. Small breaks can help you clear your mind and return to the task with a better mindset. This also helps if you are stuck on a task and are unsure how to proceed. If you have that block, a small break can assist in getting you back where you need to be to tackle what lies ahead.

This also applies at home. Sometimes parents need a time-out too, or you may even need a break from friends or a spouse. Breaks don’t make you a bad parent, friend, or spouse; rather, they can make you better!

This one is hard for many. Many of us don’t like to ask for help, feel like we need to do it all, and/or don’t feel like we have people we can ask. However, we cannot do everything no matter how hard we try. Asking for help is not a sign of weakness, it’s a sign of strength. Realizing you need help and reaching out for it is one of the strongest things we can do. Sometimes it isn’t even physical help that we need, rather just someone to talk to about what is going on in our lives or asking for others’ guidance.

Whether we have family to ask, friends, or co-workers- there is always someone if we simply try. Even reaching out to our boss and saying we need help can go a long way. Employers sometimes prefer we ask for help when needed, especially if it comes down to not getting the work done on-time. Do you mind helping others when you see the need is there? No? Then you need to see that it is also okay to ask for it or accept the help when it is offered.

There are many other ways to balance our lives, but it all comes down to actively trying to reduce stress and realizing we are only human. No one can do it all, and it is a continuous process as your family, interests, and work change. You may need to periodically evaluate and make changes where needed, but the work-life balance is possible and should be a top-priority. Most importantly, if your life feels too chaotic and you are still having trouble finding a balance that works for you, speak to a mental health care provider.