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The Internal Revenue Service has launched a new Spanish-language version of its online tool, Child Tax Credit Eligibility Assistant, designed to help families determine whether they qualify for the Child Tax Credit and the special monthly advance payments of the credit, due to begin on July 15.
Available exclusively on IRS.gov, the new Spanish version of the tool, like its English-language counterpart, is interactive and easy to use. By answering a series of questions about themselves and their family members, a parent or other family member can quickly determine whether they qualify for the credit.
Though anyone can use this tool, it may be particularly useful to families who don’t normally file a federal tax return and have not yet filed either a 2019 or 2020 return. Often, these are people who receive little or no income, including those experiencing homelessness, low income households, and other underserved groups. Using this tool can help them decide whether they should take the next step and either register for the Child Tax Credit payments using another IRS tool, the Non-filer Sign-up Tool, or file a regular tax return using the IRS Free File system.
Save for Taxes
If you fail to put aside an adequate amount for your year-end taxes, you could be in for a nightmare this spring when tax season rolls around. The good news is that if you oversee your own business financials, you have control over how much money you are saving for tax season.
Reviewing your returns from the previous three to five years can help you determine how much you should be setting aside each month, but once you’ve set a reasonable figure, do not decrease this amount. It can be very easy to develop bad habits once you start borrowing a little here or a little there, so make sure that you are withholding consistent amounts on a predetermined day each month.
Modern accounting software has revolutionized small business bookkeeping. Most platforms provide everything you need to manage your company’s accounting, but that doesn’t mean you should settle for just any software.
Choose a software program that is specifically designed for small business owners, as these platforms will have built-in templates that allow you to easily input and track basic items, such as invoices, deposits, and check printing. By electing to use a cloud-based system, you can also access your files from anywhere and be sure that your information is securely stored in one reliable location.
The less cash you use to run your business, the better off you will be. As opposed to digital transactions, cash is extremely difficult to track, and if you’re hoping to write off significant expenses during tax season, cash makes it even harder to do so since there’s often little to no record of cash purchases.
However, by using debit or credit cards, you can track exactly how much you are spending, as well as when, where, and for what reason. Electronic payments help create an audit trail for you to reference should you ever need to substantiate any tax write-offs. You can also sync your company cards to your accounting software, which streamlines the entire bookkeeping process and helps ensure consistency and accuracy across the board.
Review Your Finances Regularly
The best way to keep up with your bookkeeping is to keep a strict schedule and vigorously review your company’s financials at least every other week. Twice each month, you should schedule roughly one to two hours to go over your company’s deposits, withdrawals, transfers, purchases, and other key items.
Even if you have invested in trustworthy software to help you manage your accounts, that software requires some human intervention and is still subject to human error. While reviewing your books isn’t the most glamorous task, the peace of mind that comes with having accurate records cannot be overstated.
Taking time to review will also give you a good opportunity to check your accounts receivable to ensure that your clients are paying their bills regularly and on time. If you notice any discrepancies or failure to pay, you can apply some gentle pressure so that your books will be current come tax season.
If you don’t have room in your busy schedule to review your finances on a regular basis, it might be time to start thinking about hiring a part-time bookkeeper ― we offer modest rates and excellent service. But be sure to use a bookkeeping service on a monthly or quarterly basis rather than waiting until the end of the year. This way, you can correct mistakes before they become something more troubling, and you’ll likely also get cheaper rates, as many services are looking to maintain consistent income during their off season.
Prepare for Major Expenses
If you fail to plan for major expenses, you will almost certainly find yourself regretting it at some point. This is especially true if you work in a highly competitive industry and are unable to take advantage of a golden opportunity simply because you do not have enough capital set aside.
However, saving requires a conservative approach to handling your day-to-day business needs. Be sure to save in minor increments over a scheduled period so you can continue to execute your daily operations at a high level; meanwhile, stash away a healthy rainy-day fund for future expenses like updated machinery or an upgrade to your company’s computer systems.
Compile all costs, including payroll payments and other overhead figures. Once you are confident that you have an accurate number, you also need to determine how much your business will need to clear each month to remain profitable, including the cost of insurance paid annually. From there you can detract average costs (be generous in your calculations) and then develop an accurate and ample savings schedule.
As a smaller business owner, there are lots of things that you need to worry about to move your startup to the next level. Not only are you concerned about the cash flow but you also carry the burden of overseeing the day-to-day activities of your startup. Technically, you are in charge of every aspect of your enterprise right from budgeting to marketing, customer service, business development, and accounting.
Bookkeeping is an essential component of any business that enables you to record and track a variety of your business expenses. Poor bookkeeping can lead to a wide range of problems that can bring down your small business. Here are some of the potential issues that may arise should your small business perform poor bookkeeping.
Poor Business Decisions
There is no way you can make accurate business decisions for your enterprise if you don’t understand its current financial health. When you are making tough decisions about hiring or firing of employees, marketing, and business development, you need an accurate and detailed picture of the financial situation of your company. This information is quite crucial since it helps you run critical financial reports and make informed decisions based on the current economic trends that your business startup is experiencing.
Late Filing of Your Taxes
Keep in mind that if you don’t file your tax returns, you will pay interest and penalties which tart to accumulate the day after the due date. You can’t afford to pay such penalties and interest if you are running a startup and you are still struggling to become stable. As if the penalties aren’t enough, a late filing is also a red flag for the IRS that will lead to a business audit. However, you can avoid the problem of late filing by ensuring that your records are up-to-date all the time.
Poor Bookkeeping Can Lead to Cash Flow Problems
What will happen if it is that time of the month that you are supposed to pay your employees, yet you don’t have enough money in your business bank account? You need to keep in mind that certain costs will always come up every month and you need to be prepared to handle them.
However, if you aren’t tracking your cash inflow and outflow, you might be caught up in an awkward situation where you don’t have sufficient funds to cater for your business bills. Such problems can be avoided by practicing proper bookkeeping.
Bad Bookkeeping Can Destroy Your Staff and Client Relationships
Although it might seem like a small issue to let some of your bookkeeping details slide, the results can be costly. The moment you lose control of your books, you are destined to hurt the people you love most; your clients and staff members. Since it is difficult to find the right people to help you grow your business, you have to do everything possible to keep them. You need to make sure that they are paid on time and feel comfortable. Simple mistakes in your bookkeeping can cost you in the long run with high turnover. Clients will also shy away from your business if you can’t conduct proper invoicing.
A happy employee is a productive employee. That is why it is in your best interests to learn how to boost employee morale as an entrepreneur. Being in a startup is inherently stressful, and you will need every trick in the book to ensure that the pressure doesn’t crush your team. Here are 7 ways you can keep employees motivated and working hard, no matter what:
1. Shift to a Shorter Work Week
Many studies have shown that throwing more work hours at a task does not necessarily result in higher productivity. Going with a six day work week, for example, is more likely to lead to mass burnout rather than getting more tasks accomplished. Instead, go the opposite direction. Shift your office to a four-to five day work week. Doing so allows your employees to live better lives outside the office, get higher quality rest, and makes the days they are at the office more efficient and productive.
2. Get the Team Under Natural Sun Light
Natural sunlight impacts the human body differently from manmade lights. Being under the sun can drastically improve mood and nourishment through vitamin D. If possible, open up the office windows and let the light in. Alternatively, you can encourage people to spend more time outdoors through activities or events to get more sun onto them.
3. Keep a Goal Tracker
Not knowing how far along the company is to its goals and milestones can grind away at an employee’s morale. They can feel like their efforts are going nowhere. Keep that from happening by tracking goals and distance to milestones. Even a vague gauge that slowly fills up the closer the team gets to completing a task can keep morale going
4. Recognize Critical Achievements
Nothing gets morale going like public recognition, and if you have a good team, there will always be something to recognize. Make it a special and weekly event. If you have the resources, you can also offer a reward of some sort. It does not have to be compensation. Even a cake or gift card can work well.
5. Incentivize Employees with Rewards and Bonuses
If you want a motivator, look no further than rewards and bonuses. You do not even have to tie them to achievements. Make them more fun, such as awards for having great jokes or a well-decorated cubicle.
6. Plan Team-Building Activities
Push your employees too hard for too long, and you will end up making them feel like cogs in a machine. Those feelings can eat away at their self-esteem and mood, damaging their engagement and ultimately limiting their productivity. Don’t forget to treat your employees like people. Let them just socialize with their team members, even remotely, with team-building activities. Even a few minutes of dedicated “hanging out” time can develop relationships between team members and cheer them up.
7. Encourage Physical Exercise
A person’s physical state can directly impact their mood and productivity. Sickly or unhealthy people will find it difficult to keep a smile on their face and their heads in the game. Encouraging your team to stay fit – or at least physically active – can help mitigate issues common in office workers and work from home employees. To help them along, you can lead by example by exercising yourself.
Keeping employee morale up as an entrepreneur can be difficult, especially in the precedent set by the coronavirus epidemic of 2020, but it is far from impossible. You just need to make the effort and put due focus on your employees’ mental and emotional health.
Trend #1: Remote work, but with options
For most of 2020, remote work wasn’t a choice. Due to mandates throughout most of the country, many firms didn’t have in-office employees for months on end. Even when these mandates are gone, however, companies allowing employees freedom with regards to when and how often they come to the office will remain. Companies like Twitter and Dropbox are moving to a “virtual first” workforce, proving that the need to go remote has demonstrated benefits for employers and team members alike.
Trend #2: Tech to keep us connected
The need to move people out of office forced firms to reckon with tech in new ways. You’ve likely experienced a case of Zoom fatigue this year but as much as you may be hoping otherwise, don’t bank on videoconferencing becoming a thing of the past anytime soon. Cloud-based apps like Zoom and Teams were many firm’s lifeblood during the pandemic. The value of those apps, and cloud-based platforms in general, won’t decrease in the coming years.
Trend #3: Wellness as part of work
As the professional and personal spheres of our lives grew more intertwined last year, many companies doubled down on providing support to their team members that goes beyond the strictly work-related. The simple fact is that what’s going on in our lives affects what goes on in our jobs. To help make sure those two things are in harmony for the people at your firm, take the time to consider wellness as part of your firm values.
There are countless ways to be mindful of your team members’ inner lives. From enforcing no-meeting days to providing subscriptions to apps like Headspace and Calm, it’s wise to offer services and create policies that allow team members freedom, flexibility, and the sense that they’re cared for. No matter what viruses are in the air, after all, taking care of your employees will always be a wise investment.
Who knows what else the rest of 2021 will have in store for us but after what we’ve been through, we should all be more than capable of rolling with the punches.
A tax credit is a dollar-for-dollar reduction of the income tax you owe.
Tax credits reduce the amount of income tax you owe to the federal and state governments. Credits are generally designed to encourage or reward certain types of behavior that are considered beneficial to the economy, the environment or to further any other purpose the government deems important. In most cases, credits cover expenses you pay during the year and have requirements you must satisfy before you can claim them.
How tax credits work
A tax credit is a dollar-for-dollar reduction of the income tax you owe. For example, if you owe $1,000 in federal taxes but are eligible for a $1,000 tax credit, your net liability drops to zero. Some credits, such as the earned income credit, are refundable, which means that you still receive the full amount of the credit even if the credit exceeds your entire tax bill. Therefore, if your total tax is $400 and claim a $1,000 earned income credit, you will receive a $600 refund.
Types of tax credits
There is an array of tax credits available to all types of taxpayers covering a wide range of expenses and situations. As incentive for taxpayers to protect the environment, the federal government offers a credit for the cost of purchasing solar panels for use in your home.
To help families wanting to adopt a child, the federal adoption credit can reduce your tax bill to offset some of the costs you incur that are necessary to adopt a child. Other credits cover the expense of child and dependent care as well as education credits.
Comparing credits to deductions
Tax credits generally save you more in taxes than deductions. Deductions only reduce the amount of your income that is subject to tax, whereas, credits directly reduce your total tax. To illustrate, suppose your taxable income is $50,000 and you have $10,000 in deductions, which reduces your taxable income to $40,000. If that $10,000 would have been taxed at a rate of 25 percent, then the deduction saves you $2,500 in tax. If the $10,000 was a tax credit instead of a deduction, your tax savings is $10,000 rather than $2,500.
State tax credits
Many states that impose an income tax on residents often times offer tax credits. For example, if you live in California, you may qualify for a renter’s credit if you pay rent for your housing, your income is below a certain amount, and you meet other state requirements. Many states also offer tax credits similar to the federal credits. For example, many states and the District of Columbia offer credits that mirror the federal earned income credit.
The Internal Revenue Service said it’s pushing the tax-filing deadline from April 15 2021 to May 17 2021.
“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities,” IRS Commissioner Charles Rettig said in a statement Wednesday.
The May 17 deadline is the deadline to pay any taxes owed, and it is the deadline to submit a return. People can still get an extension to Oct. 15, but that’s only more time to send in a return and does not afford more time to pay taxes.
One caveat to IRS announcement
There is one caveat, however. The IRS notes the extended deadline only pertains to federal income tax payments. It doesn’t affect a state’s income tax deadline.
Throughout history there have been many strange, unusual, and weird taxes. Many of them were implemented to raise additional revenue, while the purpose of others was to promote social change. Here are some of the strangest ones:
Ancient Taxes from Around the World
- In Ancient Egypt, cooking oil was taxed, and on top of that, people had to buy their taxed cooking oil from the Pharaoh’s monopoly, and were prohibited from reusing previously purchased oil.
- In 1705, Russian Emperor Peter the Great placed a tax on beards, hoping to force men to adopt the clean-shaven look that was common in Western Europe.
- The French had a salt tax called the gabelle, which angered many and was one of the contributing factors to the French Revolution.
- In 1885 Canada created the Chinese Head Tax, which taxed the entry of Chinese immigrants into Canada. The tax lasted until 1923 when a law was passed banning Chinese people from entering Canada altogether with a few exceptions.
With 2020 finally behind us, it’s time to create new habits for 2021. Have you thought about your bookkeeping habits from last year? Did they serve their purpose and help your business grow, or could you stand to adopt better habits in 2021?
Here are a few ways you can improve your bookkeeping habits in 2021 and beyond.
Create a Business Plan
Whether you’re a brand new business owner or a seasoned entrepreneur, it’s essential to have a business plan. If you haven’t already done so, the start of a new year can be a great time to create one.
It doesn’t have to be long or complicated, but it should provide an operational guideline for your business. You’ll be required to have a business plan when you apply for grants, loans, and other capital opportunities. You may need to apply for funds to help your business grow or even to keep it viable if the pandemic continues through the year.
Don’t Forget to Pay Yourself
Cash flow challenges can happen to any business, and it’s become more prominent as the pandemic lingers on. A recent survey by lending platform Kabbage found that about a quarter of small business owners who responded went up to six months without paying themselves.
Regardless of the reason for this, it’s important to pay yourself, whether the business is booming or struggling. You wouldn’t expect your employees to work for free, and you shouldn’t either.
An essential aspect of bookkeeping is keeping track of cash flow, inventory, taxes, and compensation. If you find yourself spending hours on these tasks, it might surprise you that hiring a professional can not only save you time but find the money you can now use to pay yourself.
Make a Plan to Tackle Your Debts
For many businesses, debt is a necessary means to building your company. As a business owner, you wear many hats, which can cause essential aspects like debt management to fall by the wayside.
One way to stay on top of your debts is to automate them. Setting reminders and auto-pay can ensure you’re paying on time with little effort on your part.
If your business requires more capital to keep running, consider an SBA loan rather than maxing out credit cards or other high-interest options. It can be hard to determine the best way to incur more debt and handle existing debts without potentially harming your business.
Work with a Professional
Unless your business is bookkeeping or accounting, it can be worth hiring a professional to keep track of your business expenses and help you craft a winning strategy.
You may only think about your accountant as tax season approaches, but you can benefit from their expertise year-round. Think of your accountant and bookkeeper as part of your team or a business advisor. They can keep you on track, ensure your meeting your goals, and spot potential issues before they become a problem.
Here are some deductions and credits you might be able to claim on your 2020 tax return:
1. Charitable Deductions
If you like to give like no one else, we have some great news! In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to 100% of their adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize their deductions.3
What if you’re taking the standard deduction? Well, the CARES Act added a new “above-the-line” deduction that will help you write off up to $300 of charitable contributions you made in cash.4
2. Medical Deductions
If you spent a lot of time in the hospital or found yourself with some hefty medical bills last year, you might be able to find at least some tax relief.
You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken.5 For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2020. But you have to itemize your deductions in order to write off those expenses on your tax return.
3. Business Deductions
If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.6
But if you’re one of the millions of workers who were sent home to work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed individuals only. Sorry!
4. Earned Income Tax Credit
The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to $56,844 during the 2020 tax year might be eligible).7 Depending on your income, your filing status and how many children you have, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. But here’s a crazy stat: About one out of five taxpayers who are eligible either don’t claim the benefit on their taxes or don’t file a tax return at all.8 Don’t let that be you!
5. Child Tax Credit
Got kids? Families can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). And since this is a refundable credit, your family can receive up to $1,400 per child as a refund.9
And there are plenty of other deductions and credits that might be up for grabs depending on your situation! If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving any deductions or credits on the table.