Southern CT Tax Group

Have you ever wondered where you pay your taxes?

Tax payments can be made in a variety of different ways

Whether you pay in to the system through payroll withholding or through quarterly estimated taxes just remember...

You've gotta pay your taxes!

Why not do a quick checkup and see if you’re withholding/paying enough

Click the link below:

www.irs.gov/individuals/tax-withholding-estimator
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#1099

The 2021 Standard Deduction can range from $12,550 to $25,100 depending in part on your marital status.

Since receiving the largest deduction is the ultimate goal, you may want to utilize taking the Standard Deduction.

However, you can always chat with our tax preparers to determine if the itemized deduction is a better fit.

Ask us any of your deduction questions. We're here to help!

If you received advance Child Tax Credit payments in 2021, you'll need IRS Letter 6419 to get the rest of the credit in 2022.

The IRS has already started to mail out this letter, so keep an eye out!

If you mistakenly threw out this letter, don't worry!

Your Child Tax Credit information is available via the Child Tax Credit portals on the IRS website.

Questions? Let us know below!

If you are a business owner and looking for one more New Years resolution, make it this:

Keep your books up to date in 2022!

One of the biggest mistakes entrepreneurs make is they are over-focused on revenue growth and not their overall business health.

Keeping your books current, and setting aside a day each month (or each week in the early days) will dramatically increase your likelihood of building a successful business.

And how about this: actually MAKING MONEY!

It’s of course fun to grow the top line and make more sales, but if you’re not monitoring profitability then you are not building a sustainable business.

So either do it yourself or hire it out, but make sure that

✅ Your transactions are input on a regular basis

✅ You reconcile your accounts by the 10th of each month

✅ You set aside a day each month (at least!) to invest 60 minutes in reviewing your numbers.

As tax season starts please be careful of unprofessional tax preparers trying to use your last paystub instead of your W2’s to prepare and file your taxes.

Wait for your W2’s!

There are VERY few situations where you'd file your taxes without your W-2. For instant, if you lost your W2 you file a special form and attach it to your taxes. BUT for most people this isn’t the case.

For most people, especially in the beginning of tax season, if they go to an unprofessional tax preparer, they may not want to wait for the W2 and file their clients taxes asap to collect their tax preparation fee. Without regard for what’s actually best for the tax payer(you).

Or in some cases they may want to sell you on a refund advance loan without having to wait for the official W2 to arrive.

In either case it’s just plain out wrong to file a tax return without the official W2 on file.

Now accepting new tax preparation clients!

Tap the call button in our bio

Or call us at 203-281-4748 to schedule an appointment

Ps, if you already scheduled your tax preparation appointment you will receive emails from us by the end of this week.

Southern CT Tax Group We help individuals and small business owners increase their net income and keep more of their hard earned money by reducing their tax burden to the IRS

It's now easier to call Southern CT Tax Group.

Wouldn’t it stink if you knew about all of the tax loopholes and took all of your deductions like you were supposed to but had them denied in an audit because you didn’t keep your records clean?

Happens more than you would expect!

Get the basics down before you try to do the fancy stuff.

You didn’t walk before you could crawl so don’t try to run in the tax code before you know how to crawl in it.

- Track your expenses and get receipts (meals and travel require a little more documentation)

- Track your income

- Track your miles

- Know your assets and liabilities

These are all major keys 🔑 a business owner should be doing with their bookkeeping. Of course, a good bookkeeper can help you track your sales and profitability on a much more detailed level, but the above are your most important when it comes to taxes.

Don’t be the guy who drops off their tax documents with their tax planner the week before taxes are due!

Plan ahead, and run numbers before year-end.

Not only will you be way less stressed, but you’ll also pay way less tax!

If you know me, you have probably heard me mention that we are in the middle of Tax Planning Season!

But what is Tax Planning Season exactly, and why is it the most wonderful time of year for business owners?

Tax planning is one of the main services where business owners actually make a profit on us Tax Planners.

We do that by meeting BEFORE year-end, annualizing your income numbers, and calculating what you will owe if you do nothing.

Then we come up with a list of action items that will save you 💰💰💰 for you to implement before year-end.

This is often the best use of your tax planner, and why we at Southern CT Tax Group are as busy this time of year as we are between February and April (when we are literally filing taxes).

I’ve recently received this question a couple times, so wanted to answer it for everyone: “Can I run two different companies out of the same entity and just file a DBA?”

The answer? Like any good accounting question: It depends.

If the two companies are very closely related, like offering fitness coaching and selling fitness-branded t-shirts, then you are probably ok running them through the same company.

But if they are totally different (like the recent comment I received about a barbershop and a real estate company), you could increase your audit risk.

This is because each business type has a specific code, and the way the IRS determines audits is by running every return by code and pulling outliers who have way different expenses.

Of course, a barbershop is going to have different expense categories than a real estate company…so you are massively increasing your audit risk.

The other element is separating liability between the two companies since people in the U.S. think you get rich one of two ways: winning the lotto or suing someone. But I’ll let an attorney answer that question.

Revenue and growth cover a lot of business sins, but when times get lean it is absolutely critical to monitor your cash.

What does it mean to monitor your cash?

It’s more than just looking at your bank balance.

Start by looking at the next couple months and forecasting out all the income you anticipated being collected (inflows).

From there, make a list of all your necessary outgoing expenses, and WHEN you will need to send out the cash (outflows).

Looking at the timing of your inflows vs outflows allows you to predict how much cash you will have on hand over the next few months to a year.

Because once a business runs out of cash, it becomes VERY difficult to keep the doors open and recover.

Do you consistently do this in your business, or is it something you need to hire out using a virtual CFO? Let me know in the comments!

Here’s the thing. For most taxpayers across this great nation of ours, a self-preparation software like TurboTax is all they need.

If you’re a W2 wage earner with no rental real estate, 1099 income, or businesses, your tax return has one correct answer. (And technology is getting really good at figuring out that one correct answer)

But if you step into the business owner side of the tax code, there is a whole complicated world of tax laws, strategies, and opportunities that you don’t want to leave to chance.

The tax code is literally so thick that if you printed it and held it in front of you, someone could stand across the room and shoot you with a C**t .45 Magnum, and the bullet wouldn’t reach your chest.

So for the business owners out there: don’t skimp on a good tax professional. You truly get what you pay for in this arena, and a great tax planner will save you 3x, 5x, or even 10x what you pay them.

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What are your purchasing and lending goals in the coming two years?

This is one of the key questions we ask our clients at Southern CT Tax Group when doing tax planning with them.

Between various planning strategies, we can take your income down to almost nothing, to the point where you look broke on paper.

But the key is, your tax payments are essentially you PURCHASING your borrowing power. Because if you bring your income down too low, you won’t even be able to qualify for a car loan, let alone a home or building loan for yourself or an investment property.

So whenever you analyze different tax planning strategies, keep your target income to meet your investment goals in mind. That way you aren’t surprised when it comes time to meet with your lender.

I hope this post gave you a new nugget of knowledge.

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A commonly uttered phrase in the business world is "you can only manage what you measure."

This is absolutely true, but sometimes MEASURING something is so tedious and costly (in time or actual dollars spent on tools to track it) that it costs you more to track a piece of data than you could possibly benefit from any adjustments you make as a result of that knowledge.⁣

This holds true for accounting as well. I've seen so many new clients that come on board and have a super-detailed chart of accounts that tracks where every single dollar is going down to an ultra granular level.⁣

For massive companies like Wal-Mart, knowing they're spending an extra 0.05% on selling green socks vs. red socks can make millions of dollars difference in profit; for most business owners, however, it's over-complicating the process to track that detailed.⁣

Keep your chart of accounts simple, and ideally map it to the tax return! This will keep your accounting costs (and headaches) to a minimum. Remember the key: you have to BENEFIT more from tracking something than it's going to cost you to track it.

One of the biggest perks of owning a business is that a large part of your car expenses can be deductible.⁣
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But how do you maximize the amount you can save on your auto expenses in your business?⁣
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Do you take the mileage rate the IRS gives you (57.5 cents per business mile in 2020)?⁣
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Or do you track ALL your expenses and multiply that by your business use percentage, known as the Actual Expense method?⁣
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Which results in a better deduction?⁣
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You may be surprised, but in almost every case the ACTUAL EXPENSE method results in a better deduction. And often it’s more than twice as beneficial to you.⁣
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This is because, when you factor in all repairs, fuel, depreciation, etc. there are almost no cars on the road that actually cost less than 57.5 cents per mile to drive.⁣
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Are you surprised by this, or have you already been taking actual expenses?

Paying for doctor visits and prescriptions can add up quick, especially if you have children who need regular check-ups.

If you spend money on medical expenses quite often, consider opening an HSA account to make sure ALL of those expenses are deductible, rather than just some of them.

The way the medical expense deduction works on your itemized deduction is that the deductions are capped by what’s called a “10% AGI limitation.”

This means that you don’t see a dollar of benefit until your medical expenses reach a total of 10% of your income.

So if you make $100k per year, the first $10,000 of medical expenses result in NO tax benefit to you.

Instead, if you open up an HSA account then the amounts you put into that account are tax-free, then you can use the money in that savings account to pay for co-pays, prescriptions, etc.

It is a great way to see a tax benefit from your first dollar of medical expense.

THE TWO DIFFERENT TYPES OF TAX SAVINGS.

Do you know the difference between PERMANENT tax savings and DEFERRING taxes?

Both are very important ways to save on taxes

The basic concept is this:

With Permanent Tax Savings, you get the deduction which lowers your taxes, and you'll never have to pay it back.

An example of this would be if we decided to set you up as an S-Corp, which can dramatically reduce the 15.3% Self-Employment Tax on your income. This tax deduction is permanent and you'll never need to pay it back.

With Deferral Tax Planning, you take the deduction now which helps with cash flow, but will ultimately pay it back.

An example of this would be opening up a $7,000 tax-deductible IRA. By taking this deduction you'll be saving on your taxes for the year, BUT will have to pay that tax later when the IRA is touched at distribution.

They are both important planning items, but you want to always use up the permanent savings strategies first and then go after the deferral.

One of the greatest benefits of being an LLC taxed as an S-Corporation is that you can dramatically reduce the 15.3% Self-Employment Tax on your income.

Depending on your annual income, this could be up to $15,000 per year!

But doing so requires a special election to convert your LLC over to being taxed as an S-Corporation, and since we are almost halfway through 2020 you may be thinking you are too late to save these thousands on the income you earned in the first half of the year.

The good news is, there's an IRS election for that!

If it makes sense for you to be an S-corporation for general tax purposes, you can make a special election to treat your LLC as an S-corporation back to the beginning of the year.

Now, if you haven't already formed the entity you can't go back in time and create an LLC--but if you have an LLC you should consider if this is the right move for you.

Are you in the market for a car soon, and particularly a LARGE vehicle? If so, you may be able to deduct up to 100% of the vehicle's cost THIS YEAR!

You do this by using a deduction called Section 179, which allows you to deduct 100% of the business use portion of your vehicle in the first year.

What are the requirements to be eligible for this deduction?

First, you must use the vehicle for AT LEAST 50% business use. This means that if you put 20,000 miles per year on the car, at least 10,000 of them must be specifically for your business.

Next, the vehicle must be at least 6,000 pounds. The idea is that the deduction is for large work trucks and other heavy vehicles that are used for production.

The truck does NOT have to be new! You can buy a used vehicle and still take this deduction as long as the above criteria are met.

Now, this doesn't mean that just because it's over 6k pounds you get to deduct the whole purchase price. The amount eligible for deduction is still limited to the business use percent (so if you buy a $50k vehicle that's 80% used for business, $40k is eligible for deduction). There are also different limits at the state level depending on your state. But overall it can be a great way to offset the cost of the vehicle!

If you previously racked up a lot of debt, and are considering settling the balance of that debt (or recently settled a balance), it is important to know how that will affect your taxes.

There is something called “Cancellation of Debt Income” that requires you to pay taxes on any debt that is forgiven.

This means that if you charged up $30,000 of credit card debt, then worked with the credit card company to only need to pay $20,000 back, you will owe income tax on that $10,000 forgiven balance.

Why is this the case? Think of it this way: Essentially, by spending $10,000 you received the BENEFIT of that $10k (in the form of clothing, food, whatever you spent it on) and now no longer are required to pay it back. The IRS sees that as income to you, and so you must pay taxes.

Bottom line, it’s important to be aware that the settled money doesn’t just magically disappear; Uncle Sam will come knocking for his share when that debt is forgiven.

Now, with these PPP loans Congress has made a special exception that for federal purposes the debt forgiven will NOT be taxable...but every state is different, so make sure you confirm how your state will treat the PPP forgiveness.

Otherwise, you could wake up a nasty state tax bill next year.

The 50/30/20 rule is a simple way to allocate your money and use it wisely. Following this rule can be helpful for someone who is just starting to learn how to manage their money.

Research shows that 66% of Americans do not set a budget for themselves, but setting a budget is important for long-term financial health.⁠

According to the 50/30/20 rule, you should divide your money into three categories upon receiving a paycheck:

1) Your Essential Needs

2) Your Wants

3) Savings and Investments

Your state may not be open yet, but when it does many of us will be ready for a getaway!

If you pair that weekend getaway with conducting business on Friday and the following Monday, it could be deductible!

This is a strategy known as “wrapping a weekend;” and the IRS states that if you travel for business and work both Friday AND the following Monday, then the Saturday and Sunday in between count as business days.

What that means for you is that your hotel and meals during that weekend are entirely deductible.

It used to mean that your activities would also be deductible, but since they eliminated the entertainment expense deduction those no longer can be taken.

Still, tax-deductible hotels and meals make for a nice little discount on that weekend getaway! Just remember to document your business activities on both Friday and Monday so you have proper records!

Are you heading anywhere this weekend? Lol just kidding.

Jaw-dropping numbers!! 😱

More than 20 percent of the civilian labor force has applied for or is receiving benefits in three states:

1) Michigan (21.8 percent)

2) Connecticut (21.5 percent)

3)Vermont (20.9 percent)

Another 13 states have rates of 15 percent or higher.

Hanging out with my nephew Liam today! 😄

*My Schedule*

- File tax returns

- Feed Liam

- File more tax returns

- Watch Sesame Street with Liam

It's gonna be a good Tuesday

Every business wants a good planner as a partner to guide them with proper tax planning and profitable business growth. One of the largest complaints I get when speaking with business owners is that their CPA isn’t proactive enough.⁣⁣
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While I agree that there are plenty of tax professionals out there who simply fill out the forms, here is something to consider: in order to utilize a proactive tax planner, you must be proactive YOURSELF. ⁣⁣
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If you say you want to do tax planning and review your finances to know your numbers, then make sure you are responsive when your tax planner asks for information.⁣⁣
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Whether it’s questions on transactions in the books, sending in your documents timely, or making time on your calendar for a call, we tax planners need you, business owners, to play a part in an overall proactive relationship.⁣⁣
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Because if you don’t have your books up to date and don’t answer the phone when we call during tax planning time, ultimately we can’t help you earn a profit on us in the form of tax savings.⁣⁣

What this means is if you really need the money and are in financial hardship you can withdraw up to $100,000 from your retirement accounts without being penalized for withdrawing early. ⠀

Keep in mind that the withdrawn amounts are taxable over three years, but you can also recontribute into their retirement account for three years without affecting retirement account caps (meaning you can contribute back the money without any caps).

The eligible retirement accounts include (IRAs), 401Ks and other qualified trusts, certain deferred compensation plans, and qualified annuities. ⠀

To qualify as a coronavirus-related distribution the distribution must be for an individual:

(1) who is diagnosed with COVID-19

(2) whose spouse or dependent is diagnosed with COVID-19

(3) Someone who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary

IT OFFICIAL 🎉

The Secretary of the Treasury has just extended the Tax Filing Deadline to July 15th.

He also said if you have a refund you should still file to get your refund ASAP.

Are you filing your first tax return as a business owner this year?

Many sole proprietors who file their tax return in their first year of business get a wallop of a surprise on tax day. This is because they get hit with Self-Employment Tax for the first time. What exactly is Self-Employment Tax?

It is your portion of Social Security and Medicare as a self-employed individual. As a W-2 employee, you have your gross wage and then amounts withheld from your paycheck--this includes income taxes, as well as line items for Social Security and Medicare. Those two items total about 7.5% of your paycheck.

Your employer then matches that and sends 15% to the IRS; this is what funds those programs.

When you're self-employed, however, there's no one to match the 7.5% and no one to withhold amounts from your pay. So you end up stuck with 15.3% on top of your income tax, on the net income of your business.

It can be mitigated by forming an S-Corporation, but just be aware if you're in business for the first time that you could get a surprise nasty bill at Tax Day.

If you need help with forming that entity or want to know if it’s right for you, shoot me a message and we’ll get you on the right path!

This is one of the most misunderstood elements of income tax: that being in a high bracket makes your taxes skyrocket.

While making more income does increase your tax rate, it doesn’t increase it for ALL your income, only the next dollar you make.

This is called your marginal tax bracket.

What happens when you cross over into the 24% bracket, for example, is that every dollar you make above that threshold is taxed at 24%. But not all of it.

The money you made before crossing that line is still taxed at 12%, then 22%. It doesn’t suddenly make everything taxed at the higher rate.

The total tax you pay divided by your income is your EFFECTIVE tax rate and is a much more important number to review than your marginal tax bracket.

A really special gift came during tax season this year!

Congratulations to Emily Kelting & Ryan Kelting for welcoming this handsome baby boy into the world 💕💕 Little Liam, you are so loved already. Mom and Baby are happy and healthy.

I am very excited to be an uncle 😄

This week I am traveling to a couple of different cities for business. During that time, I’m also seeing some sights and enjoying a couple of personal days.⁣⁣

Nothing beats some quality time with my pup Mr. Kip 😄
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Given that, I thought I’d share with you how to make trips just like this deductible for you!⁣⁣
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If you are traveling for a conference or other business reason and want to stay for some fun before or after that event, is it still deductible?⁣⁣
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Thankfully, yes—to an extent.⁣⁣
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The way business travel works is this: If over 50% of your trip is business days then 100% of your flight is deductible; if it’s less than 50% then none of your flight is (travel days to and from don’t count in the total).⁣⁣
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When it comes to hotels and meals, the percentage of business days on your trip is the percent of those expenses you can deduct.⁣⁣
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So next time you are planning a trip that combines business and pleasure, make sure to keep these rules in mind!⁣⁣
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Also, when it comes to bringing your spouse: if you have them on the payroll then you are bringing an employee, which means their flight and meals would also be deductible.⁣⁣
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And make sure you are documenting your business activities on each of your business days!⁣⁣