There have been some recent changes in the tax laws — and, yes, they're going to be on the test. The answers, and your overall grade, are at the end.
1. We'll start with an easy one. In 2019 the standard mileage rate for using your car for business purposes increased by 3.5 cents. What's the new deduction (per mile)?
File this under "Good Problem to Have." SASKIA, a Brooklyn jewelry startup, grew so fast that its bookkeeping demands soon exceeded the capabilities of its husband-and-wife co-founders.
Of particular concern was the company's irregular cash flow. At the start of each year, SASKIA had a lot of upfront expenditures for the materials needed to create their unique designs. The company relied on no-APR credit cards for purchases of up to $50,000, knowing the return on that investment wouldn't come until much later in the year. But in the meantime, they still had to meet their regular expenses, including payroll for eight employees. The math on how to accomplish that could get a bit fuzzy.
Into the Right Boxes
As is often the case, the first step in solving this problem was to acknowledge it. Partner/COO Scott Kerns, who had been doing the company's books, realized it was time to outsource that responsibility to a specialist. "We needed someone who could put things in the right boxes in the right way," he says, "Then we could look at all of the data together and make informed decisions based on where the money was flowing."
How did you do this tax season with the new Tax Cuts and Jobs Act? The answers (and your grade) are at the end.
1. If your small business constitutes a "pass-through entity," how much of your net business income are you allowed to deduct?
2. You spent $1.1 million in 2018 to repair your warehouse roof and buy much-needed new equipment. How much of that is deductible under Section 179?
Did you take our tax-prep quiz last year? If so, you were probably a lot better prepared for tax time this year.
We've updated our test for 2018 — take it, and see how you do. The answers (and your grade) are at the end.
1. You made a $100,000 equipment purchase in October. What's the maximum amount of that cost you could deduct this year?
2. Now that you've filed your employment taxes for 2017, you can safely discard your records from:
Individuals and tax preparers need to be aware of a significant impact on charitable giving that likely will result from a provision in the Tax Cuts and Jobs Act (TCJA).
While the consequences of the law, passed in December 2017, might be unintended, they are no less real for taxpayers — especially for charities. Vikki Sprull, President and CEO of the philanthropic network Council on Foundations, projects the new law "will result in a decrease of $16–$24 billion in charitable giving every year."
Subtraction by Addition
The bad news for charities came about as a result of what was supposed to have been good news for taxpayers. Under TCJA, the standard deduction doubles to $12,000 for individuals and $24,000 for married couples.
In April, New York Governor Andrew Cuomo announced the approval of a 2018 budget that included straightforward tax cuts for the middle class along with more complex fiscal measures. Let's unpack how those changes affect accounting professionals and tax preparers.
Sweeping Personal Income Tax Cuts
The tax cuts, also called the Middle Class Recovery Act, will eventually benefit 6 million New Yorkers. The cuts apply to two income brackets: those making between $40,000 and $150,000 a year and those making between $150,000 and $300,000 a year.
The lower bracket will see a reduction of 0.12% a year, reducing the rate from 6.45% to 5.5% by 2025. Those in the higher bracket will be see a reduction of 0.08% over the same time period, decreasing their rate from 6.65% to 6%.
Just as life insurance can protect a family from financial distress if the head of a household dies unexpectedly, key-person insurance can help a small business survive the untimely death of its owner or a crucial employee.
In fact, key-person insurance is life insurance. The only difference is that instead of providing benefits to the deceased's family, the policy provides money to the deceased's place of business. What the business does with those death benefits depends on the circumstances.
Can Your Business Live Without You?
If you work strictly for yourself, the question of key-person insurance is moot. When you die, so does your business. (You should have a conventional life insurance policy to protect your family, however.) But if you have one or more employees, you ought to consider how your sudden death would impact them.
Before you can answer the question posed above, you need to understand the difference between the two types of accounting.
Essentially, cash accounting is just what it sounds like — a pay-as-you-go approach that documents your payables and receivables in real time, more or less. With accrual accounting, there's a lag between the time you receive your "accounts payable" goods or services and the time you actually pay for them; the same is true on the "accounts receivable" side of the ledger.
As long as it all comes out in the wash, does it matter which one you use? The answer often comes down to timing — and to IRS regulations.
Opt for Cash Accounting
Let's say you have a modest nail salon and follow the standard calendar tax year (Jan. 1 – Dec. 31) for your financial reporting. Most of your work consists of manicures or pedicures that cost relatively little, and your customers pay in full each time. You reorder supplies and replace equipment on a regular basis.
If you're an attorney, careless bookkeeping with trust accounts could ruin your career.
Time for an honest look at how you did this year in getting your tax paperwork to your CPA on time and in an organized fashion. Take the quiz below to see how you scored and how you can improve. The answers (and your grade) are at the end.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
