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Starting a Side Business to Make Extra Cash? Master these tax tips first.

Starting a Side Business to Make Extra Cash? Master these tax tips first.

Regardless of whether you just started your new side business or you’ve been operating for years, you’ll need to report the income on your 2020 tax return.

Some online services, including Uber, OnlyFans, DoorDash and Etsy, will issue you a Form 1099 in January, detailing the money you’ve earned in the prior year. A copy of this form goes to the IRS as well.

Here’s the catch: Not all services will give you this information. For instance, in order to receive a Form 1099-K, merchants on Etsy must have made at least $20,000 in sales via Etsy and they must have received at least 200 payments that year.

Even if you don’t get a 1099, you’re on the hook for accurately tracking and reporting income.

Here’s how to head off those first-year tax mishaps.

Set aside cash for taxes

Small business owners pay quarterly estimated taxes. The due dates are Jan. 15, April 15, June 15 and Sept. 15.

This can come as a surprise to new entrepreneurs who are accustomed to having income taxes withheld from each paycheck as employees.

Here’s another tax lesson: While employees share the burden of payroll taxes with their employer – 12.4% for Social Security and 2.9% for Medicare – self-employed people pay the entire amount themselves. It’s part of their quarterly payment to the taxman.

Watch your expenses

When it comes to deductibility of expenses, the IRS has a set of rules that determine whether a venture is a business or a hobby.

All income must be reported, but if you’re engaging in a hobby, you can’t deduct the expenses you paid to participate.

Nevertheless, track your costs and have them ready when it’s time to file your taxes.

Those breaks can include the home-office deduction, the mileage deduction, as well as expenses incurred when you bought materials and equipment necessary for your business.

Hire a professional

Invest in yourself. Hire an expert to walk you through year-end tax planning and get you on solid footing for 2021.

This tax year might prove to be a complicated one, given that taxpayers could be juggling a Form W-2 from their regular job, as well as multiple 1099s from unemployment and different sources of side-gig income.

IRS extends Economic Impact Payment deadline to Nov. 21 to help non-filers

IRS extends Economic Impact Payment deadline to Nov. 21 to help non-filers

The Internal Revenue Service announced today that the deadline to register for an Economic Impact Payment (EIP) is now November 21, 2020. This new date will provide an additional five weeks beyond the original deadline.

The IRS urges people who don’t typically file a tax return – and haven’t received an Economic Impact Payment – to register as quickly as possible using the Non-Filers: Enter Info Here tool on IRS.gov. The tool will not be available after November 21.

“We took this step to provide more time for those who have not yet received a payment to register to get their money, including those in low-income and underserved communities,” said IRS Commissioner Chuck Rettig. “The IRS is deeply involved in processing and programming that overlaps filing seasons. Any further extension beyond November would adversely impact our work on the 2020 and 2021 filing seasons. The Non-Filers portal has been available since the spring and has been used successfully by many millions of Americans.”

Special note: This additional time into November is solely for those who have not received their EIP and don’t normally file a tax return. For taxpayers who requested an extension of time to file their 2019 tax return, that deadline date remains October 15.

To support the ongoing EIP effort, many partner groups have been working with the IRS, helping translate and making available in 35 languages IRS information and resources on Economic Impact Payments.

To help spread the word, the IRS sent nearly 9 million letters in September to people who may be eligible for the $1,200 Economic Impact Payments but don’t normally file a tax return. This push encourages people to use the Non-Filers tool on IRS.gov.

“Time is running out for those who don’t normally file a tax return to get their payments,” Rettig added. “Registration is quick and easy, and we urge everyone to share this information to reach as many people before the deadline.”

While most eligible U.S. taxpayers have automatically received their Economic Impact Payment, others who don’t have a filing obligation need to use the Non-Filers tool to register with the IRS to get their money. Typically, this includes people who receive little or no income.

The Non-Filers tool is secure and is based on Free File Fillable Forms, part of the Free File Alliance’s offering of free products on IRS.gov.

The Non-Filers tool is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles who could not be claimed as a dependent by someone else. This includes couples and individuals who are experiencing homelessness.

Anyone using the Non-Filers tool can speed the arrival of their payment by choosing to receive it by direct deposit. Those not choosing this option will get a check.

Beginning two weeks after they register, people can track the status of their payment using the Get My Payment tool, available only on IRS.gov.

Oct. 15 deadline nears for taxpayers who requested tax filing extensions

Oct. 15 deadline nears for taxpayers who requested tax filing extensions

The Internal Revenue Service today reminds taxpayers who filed an extension that the Oct. 15 due date to file their 2019 tax return is near.

Taxpayers should file their tax returns on or before the Oct. 15 deadline. For those who still owe, pay as soon as possible to reduce any penalties and interest.

Convenient electronic filing options, including IRS Free File, are still available. Taxpayers and tax professionals should continue to use electronic options to support social distancing and speed the processing of tax returns, refunds and payments.

Although Oct. 15 is the last day for most people to file, some taxpayers may have more time. They include:

Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.
Taxpayers in federally declared disaster areas who already had valid extensions. For details, see the disaster relief page on IRS.gov.

Boosting Hispanic Small Business Owners During National Hispanic Heritage Month

Boosting Hispanic Small Business Owners During National Hispanic Heritage Month

 

BOOSTING HISPANIC ENTREPRENEURS DURING NATIONAL HISPANIC HERITAGE MONTH

National Hispanic Heritage Month runs from September 15 through October 15, and it’s the perfect time to celebrate the contributions of Hispanic small business owners to our nation’s economy and discuss how we can help them thrive and grow their businesses.

Hispanic-owned businesses generate significant economic benefit, spurring innovation and building wealth in diverse communities throughout America. Hispanic-owned small businesses are opening at a rate far above the national average, with the Hispanic share of all U.S. business owners growing 46% between 2007 and 2012. To encourage these positive trends, the small business community should offer more support, training and resources that enable Hispanic entrepreneurs to build and expand their businesses.

Fortunately, many small business assistance centers do already provide education focused on the Hispanic community, including many that offer resources in Spanish. Read on for a list of organizations that offer assistance specifically to Hispanic business owners:

  • The United States Hispanic Chamber of Commerce (USHCC) represents more than 4.37 million Hispanic-owned businesses through its network of 200 local chambers of commerce. USHCC and its local affiliates offer information and networking opportunities for Hispanic entrepreneurs. They also offer education on policy issues facing Hispanic small business owners, like access to capital, international trade, immigration, education and workforce development, and infrastructure.
  • The Minority Business Development Agency, part of the U.S. Department of Commerce, oversees a network of business centers that offer help in finding capital, securing government contracts and other aspects of expanding your small business.
  • The National Hispanic Business Group is one the nation’s largest networking organizations for Hispanic businesses of all sizes.
  • The National Minority Supplier Development Council works nationwide to help minority-business owners expand through a national network of minority suppliers.
  • Centro Community Partners is an organization that helps entrepreneurs launch their business ideas through a number of programs. Many of these programs, including their basic program to build a small business and their app for developing a business plan, are available in Spanish.
  • Code2040—named in recognition of the fact that the U.S. will be majority people of color in 2040—is a group working to support black and Latinx technology entrepreneurs with a goal of making tech more inclusive and representative.
  • SCORE Mentors is a national nonprofit organization that matches entrepreneurs with mentors who can help them navigate the process of starting a business, and you can filter by language to find Spanish-speaking mentors.
  • Your local Small Business Development Center (SBDC) or economic development agency likely offers resources in Spanish, especially if you live in a Hispanic-majority community. Find your local SBDC to see if they can provide support to your small business.
  • Many national small business organizations have dedicated Spanish-language resources:

This list is far from exhaustive, but it’s a good place to start looking for organizations that work to promote and inspire Hispanic entrepreneurs. As we celebrate National Hispanic Heritage Month, we should focus on how we can better support this community by helping current business owners grow their businesses and empowering aspiring entrepreneurs.

IRS Offers Disaster Relief to California Tax Payers

IRS Offers Disaster Relief to California Tax Payers

Victims of California wildfires getting IRS disaster relief.

California has been hit by a series of wildfires going back to Aug. 14. Taxpayers now have until Dec. 15, 2020 to file their various individual and business tax returns and make any tax payments.

The IRS says the relief is for taxpayers and businesses in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance.

This currently includes Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties in California. Taxpayers in other localities that are added to the disaster declaration later will automatically get the same relief.

The most current list of eligible counties and locations is available on the disaster relief page on IRS.gov.

The IRS says these relief measures postpone various deadlines that occurred starting Aug. 14.

“As a result, affected individuals and businesses will have until December 15, 2020, to file returns and pay any taxes that were originally due during this period,” an IRS release states. “This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Dec. 15, 2020, to file.”

It should be noted, however, that because payments related to these 2019 returns were due by July 15, 2020, those payments are not included in the relief package.

The Dec. 15 deadline also applies to quarterly estimated income tax payments due Sept. 15 and the quarterly payroll and excise tax returns normally due Oct. 31. It also applies to tax-exempt organizations operating on a calendar-year basis that had a valid extension date to run out on Nov. 15.

Businesses with extensions also have the additional time, including, among others, calendar-year corporations whose 2019 extensions run out on Oct. 15.

3 Major Benefits of Updated Bookkeeping and Accounting Records

3 Major Benefits of Updated Bookkeeping and Accounting Records

(This story originally appeared on Due)

Last week in a discussion with a business coaching client, I asked if she had updated bookkeeping and accounting records that would help her make the best business decision for a big question about her business. “No,” she replied, she didn’t have updated books. Without them, any decision regarding product lines, pricing, or customer capacity is just a guess!

Guessing is not the way to run a business. On the contrary, every business big and small should have regularly updated bookkeeping and accounting records so business leaders can make the right decision with a foundation in the data. Follow along to learn three big benefits of keeping your bookkeeping and accounting records updated on a regular basis and some tips to get you started with your bookkeeping for your business.

Strategically ladder-up your revenue

As a freelance writer for my primary income, one of my biggest goals is finding the best clients that offer me the most significant return on my time invested. While freelancing is a business that is tough to scale, I like to do something I call “laddering up” my clients where I climb up and add new high-quality clients while letting go lower-quality and lower-paying clients as they are replaced.

This process is great in theory, and most freelancers and business owners understand the concept. But why do they continue to struggle with low-quality clients? Because they don’t look at the numbers and objectively look for ways to bring on better clients and get rid of the bad ones. With no metrics, you might not even know which clients are draining your resources and which lead to the best profitability in your business.

A few months after quitting my job to go full-time online, a look at my own updated bookkeeping records showed that about 76% of my income came from writing while around 15% came from website development and support. That is a clear 80/20 rule example. I cut the 15% of my income that was taking way too much of my time and my total income roughly tripled over the next few months!

Cut under performing products and services

The focus of my conversation with the coaching client focused on turning her services into a product she could sell for a fixed monthly subscription rate. But with no detailed accounting records beyond the reports she gets from her payment processor, she didn’t have any real records to show her income by customer or product. It doesn’t matter if you are a solo freelancer or a business with thousands of employees, you absolutely need this information!

With the right details in hand, you can pick out the one product that sucks away too much of your time for too little money. You can identify expensive recurring tasks you may be able to outsource or eliminate. As you can see from the example above, sometimes cutting underperforming products or services can lead to significant growth.

Success in this area of your business comes down to focus. But without properly updated bookkeeping and accounting records, you don’t know where to focus. You might be wasting hours and have no idea because you don’t have the data. End that big mistake right away. Get those accounting books together and keep them updated, at least monthly, so you can make the best management decisions.

Save time and money at tax time

If increasing revenues and cutting costs were not enough motivation to keep your books updated, here is one last lynchpin: your taxes. You have to do taxes if you have a business. That is not optional. What is optional is making it a stressful period by ignoring your accounting throughout the year and rushing to get it all done in April before the deadline.

Instead of this method, plan and keep your books updated at least once every month. I go a little over what most people need and update my accounting records weekly. But whatever you do, quarterly should be the bare minimum for bookkeeping updates for tax purposes.

While most individuals have to file and pay taxes once every year, most business owners and many side hustlers have to pay quarterly estimated taxes. While you can file and pay based on last year’s tax rates, keeping your books updated can help you get a better estimate if you need to pay more quarterly to avoid the big one-time lump payment in April.

If you have your bookkeeping updated, you just have to print out a P&L and balance sheet and can finish your taxes from there. No other prep needed!

Don’t ignore updated bookkeeping and accounting needs!

If you find the idea of accounting and bookkeeping intimidating, you can always hire an expert to handle it for you. We can help, give us a call at 714-400-9201.

However you decide to do your bookkeeping is great as long as you stick with it! If you don’t, you’ll quickly find yourself behind and with useless financial reports. With the right focus on your books, you have the right information to put your business on track to thrive for years to come.

IRS advice for those who missed the July 15 2020 deadline, file now to avoid bigger bill

IRS advice for those who missed the July 15 2020 deadline, file now to avoid bigger bill

For those who missed the July 15 tax deadline and didn’t request an extension, the Internal Revenue Service reminds taxpayers about some important tips, including filing electronically as soon as possible to reduce potential penalties.

Some taxpayers may have extra time to file and pay any taxes due without penalties and interest. These include:

The IRS offers these after-tax-day tips:

File to get a tax refund

The only way to get a refund is to file a tax return. There is no penalty for filing after the deadline if a refund is due. Use electronic filing options including IRS Free File available on IRS.gov through October 15 to prepare and file returns electronically.

The IRS reminds taxpayers that, while we continue to process electronic and paper tax returns, issue refunds, and accept payments, we’re experiencing delays in processing paper tax returns due to limited staffing. If a taxpayer filed a paper tax return, we will process it in the order we received it. Do not file a second tax return or call the IRS.

Taxpayers can track a refund using the Where’s My Refund? tool on IRS.gov, IRS2Go and by phone at 800-829-1954. Taxpayers need the primary Social Security number on the tax return, the filing status and the expected refund amount. The tool updates once daily, usually overnight, so checking more frequently will not yield different results. The “Where’s My Refund?” tool cannot be used to track Economic Impact Payments.

File to reduce penalties and interest

Normally, taxpayers should file their tax return, or request an extension, and pay any taxes they owe by the deadline to avoid penalties and interest. Taxpayers need to remember that an extension to file is not an extension to pay. Penalties and interest will apply to taxes owed after July 15.

Even if a taxpayer can’t afford to immediately pay the taxes they owe, they should still file a tax return as soon as possible to reduce possible penalties. The IRS has more information for taxpayers who owe the IRS, but cannot afford to pay.

Ordinarily, the failure-to-file penalty is 5% of the tax owed for each month or part of a month that a tax return is late. But if a return is filed more than 60 days after the due date, the minimum penalty is either $435 or 100% of the unpaid tax, whichever is less. Filing and paying as much as possible is important because the late-filing penalty and late-payment penalty add up quickly. The basic failure-to-pay penalty rate is generally 0.5% of unpaid tax owed for each month or part of a month. For more see IRS.gov/penalties.

Taxpayers who have a history of filing and paying on time often qualify for penalty relief. A taxpayer will usually qualify if they have filed and paid timely for the past three years and meet other requirements. For more information, see the first-time penalty abatement page on IRS.gov.

Pay taxes due electronically

Those who owe taxes can view their balance, pay with IRS Direct Pay, by debit or credit card or apply online for a payment plan, including an installment agreement. Several other electronic payment options are available on IRS.gov/payments. They are secure and easy to use. Taxpayers paying electronically receive immediate confirmation when they submit their payment. With Direct Pay and the Electronic Federal Tax Payment System (EFTPS), taxpayers can opt in to receive email notifications about their payments.

Taxpayer Bill of Rights

Taxpayers have fundamental rights under the law that protect taxpayers when they interact with the IRS. The Taxpayer Bill of Rights presents these rights in 10 categories. IRS Publication 1, Your Rights as a Taxpayer, highlights these rights and the agency’s obligation to protect them.

Six Ways Outsourced Bookkeeping Can Save Your Small Business $$

Six Ways Outsourced Bookkeeping Can Save Your Small Business $$

80% of business owners, who use outsourced bookkeeping, say they can spend more time on their businesses. Now, you no longer need to worry about doing your bookkeeping. You can have outsource bookkeeper do the job for you.

With bookkeeping out of the way, you can focus on what matters most to you, your business. Below we will review some of the ways that hiring an outsourced bookkeeper can save you money.

Outsourced Bookkeeping Is Quick and Efficient
You or your employees may not know what they are doing when it comes to bookkeeping. You’ll be wasting a lot of time working on your books when you should be focusing on what you’re truly good at. That could be running your establishment or your employees doing the main tasks of their job.

When you outsource this position, it will reduce the amount of time that will be spent on bookkeeping. An SME will have the bookkeeping done quickly. They will be familiar with what needs to get done and how it needs to get done.

On top of that, you’ll avoid paying any penalty fees as your books will be done on time every time.

Moreover, this saves you money as it will give you and your employees more time to focus on your business. You won’t be hiring your employees on for longer hours. You’ll be hiring someone else to do this job for you at a cheaper rate.

No More Errors
When you hire an outsourced bookkeeper you won’t have to worry about errors in the books. If something is miscalculated you could spend a lot of time fixing a simple mistake.

Then again, maybe some items didn’t get logged, this will show discrepancies in your books. Discrepancies can lead to fines which will cost you more money down the line.

Moreover, with an outsourced bookkeeper, they will know all the standard regulations (GAAP). They will adhere to these regulations. SMEs will know what they are doing so you can breath easier.

Outsourcing Increases Productivity
When you or your employees don’t have to focus on bookkeeping, more time spent can be spent on your business. It is one less distraction from the main duties and tasks that need to be done.

When there are more tasks to be done it can feel overwhelming. You or your employees can become overworked and fatigued. This means no one will be fully engaged in the duties that matter and they may make more mistakes.

Only Pay for What You Need
If you choose to hire an outsourced bookkeeper, you won’t have to pay part-time or full-time wages. What’s more, you won’t have to worry about providing them with benefits.

On top of that, there are a plethora of payment options that you can choose from. For example, you can pay a fixed rate or an hourly fee.

When you use an outsourced vs an in-house bookkeeper you can choose how often you use the service. You don’t need to keep someone on staff at all times.

Fewer Expenses
With an outsourced bookkeeper, you don’t need more office space or computer equipment. You don’t need to buy any of the accounting software that would be required to do the expenses.

Many firms even use cloud-based accounting software. This allows you to easily view your financial information.

Customize the Services You Receive
There are different services you can choose from when you outsource your bookkeeping. You only pay for the services you want and nothing more.

For example, you can hire someone to work on your income statements and balance sheets. At the same time, if you don’t want them to work on your cash flow management, you can opt-out of that service.

Is Outsourcing Right for You?
If any of these benefits appeal to you, outsourcing may be right for you. Outsourced bookkeepers will keep your business financially secure and help it thrive. With Alvarez Tax Inc. at your side, you will have better peace of mind.

Reach out to us today if you have any further questions on outsourced bookkeeping.

IRS Warns Against Corona Virus Fraud, and Other Scams

IRS Warns Against Corona Virus Fraud, and Other Scams

The IRS is reminding taxpayers to be on the lookout for corona virus fraud and other scams.

According to a release from the IRS, criminals continue to use the corona virus relief payments as a cover to steal personal information and money.

Below are some corona virus schemes the IRS is urging taxpayers to look out for:

  • Using relief payments as a cover to get personal information and money
  • Selling fake at-home test kits
  • Selling fake cures, vaccines, pills and advice
  • Selling large quantities of medical supplies through fake shops, websites, social media accounts and email addresses
  • Setting up fake charities
  • Offering opportunities to invest early in companies working on a vaccine for the disease
  • Phishing scams using emails, letters, texts and links

Scams should be reported to the National Center for Disaster Fraud hotline at 1-866-720-5721 or submitted through the
web complaint form here –> https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form

 

Delaying Payment of Old Tax Bills Is a Big Mistake

Delaying Payment of Old Tax Bills Is a Big Mistake

You know that long list of ways that the COVID-19 virus has affected our lives? Well, here’s another one. The IRS has completely flipped a switch on its priorities, and it is not even looking at paper tax returns that are being sent to it. The idea of all those envelopes piling up somewhere is a bit mind-boggling, but it’s apparently what’s happening as the Treasury Department focuses on generating the stimulus checks that American taxpayers need to get through the crisis.

If you don’t owe the IRS money and you’re not looking to amend a previously filed tax return, this shift won’t mean much to you. You can rest easy knowing that the tax return and payments that would have been due in April are now not due until July 15th. But if you were hoping to get a refund from a previous year’s return via a return you amended (or need to amend), or if you owe the IRS money, you need to pay attention.

For the first of these two categories – the folks with amended returns – what you need to know is that you’re not likely to see any kind of response for quite a while. There’s no way to find out what the status is and the agency is pointedly advising people not to interpret the lack of response as a need to send in a new one. Doing so would just confuse things more. You need to sit tight.

If, however, you owe the IRS money from before the crisis occurred, there are no breaks on the penalties and interest that are stacking up. It may take the agency a while to get around to figuring it out, but if you decide to sit and wait ‘til you hear from them, you’re going to be in for a big shock. Your liability is not only still there, it’s adding on interest from the time that it was due. This is true on amended returns that reflect a liability as well.

How much could the interest and penalty add up to?

In a word – it could add up to a lot. Not only do you owe the original amount, you are also subject to accruing interest and a failure-to-pay penalty of 0.5% of your original liability for each month (or partial month) that it hasn’t been paid. That can rack up to 25% of the liability. There’s also a penalty if you failed to file on time, and that can add up to another 5% of the amount that you owe each month. Even if you can’t afford to pay your entire liability all at once, you’re much better off paying small parts over time than waiting and having all of that interest added to your debt. You can contact the IRS online to arrange for one of their installment agreements.

Remember that mountain of returns piling up somewhere? Keep that in mind when you’re ready to send the IRS your money. If you write a check it’s going to just sit there, and your interest is going to keep adding up. Opt for paying electronically via direct payment. Don’t worry about the fact that the paperwork is sitting in that big pile. The agency will eventually get around to going through it, and they’ll figure out which payment goes with which amended return.