5 Productive Ways to Spend your Tax Return

If you are expecting to or have already received a tax return this year, you are probably pretty excited! It’s like a bonus right? Well, actually, this money was yours to begin with. Think of it as the IRS’s nice way of saving it for you.

Now you may have ideas of a wild weekend or a fancy new toy you could purchase with this money, but before you do that, let’s consider 5 other choices that may be a little more helpful to your financial situation. Evaluate your needs, and treat this check like you would any other paycheck before spending it all.

1. Pay off a high interest debt or credit card. If you have a lot of debt, one of the most productive things you can do with your tax refund is to pay off loans that cost you the most to carry each month. Pay down any Payday loans, credit cards, private student loans, car loans, or anything that, once paid, will increase your monthly cash flow and eliminate high interest payments each month.

2. Consider home improvements or refinancing. With good credit and a healthy understanding of the mortgage re-finance market, you may be able to take advantage of the record-low interest rates, saving you thousands of dollars on interest each year. If you are content with your mortgage rate, go through your home and decide if your tax return could be allotted to pay for kitchen repairs, a new roof, upgraded energy-efficient appliances, curb appeal, a new paint job, or maybe even a new pool.

3. Increase (or start) an emergency fund. Emergency funds are there for peace of mind. One would hope this money would never need to be used, but sometimes, without a backup plan, even a small financial surprise can send you into panic mode. It is prudent to maintain about 6-8 months worth of savings in an account to cover all types of emergencies, and you will be well-prepared when something unexpected comes up. As a good habit to follow up on, once your savings account has been established, continue to set aside a set amount or percentage each month.

4. Spend it on things you or your family needs. It is spring time, so it may be time for a round of new tennis shoes or sandals for the family. Take inventory, check with each member of your family, and find out what is pressing, including new clothing, school or activity supplies, medical or dental needs, or vehicle repairs.

5. Invest in family time. Perhaps you have everything you need, or maybe you allot a percentage to each of the ideas above and you have money remaining. One of the best investments you can make is time with your family. Plan a spring or summer trip together, even if it is a short weekend trip. Cut extra expenses by driving or camping. Go explore, see new tings, laugh, get dirty, enjoy each other. You will create memories that way outlast tax season!

We would love to hear how you chose to spend your tax return this year or even in the past. Have you don’t anything exciting or unique, or something that we mentioned here?

Business Taxes

Businesses pay a lot of taxes for several different things each year; these include income taxes, sales taxes, and payroll taxes. Sometimes, it’s difficult to keep them straight, so here is a simple breakdown.

Taxes payable represents a liability or an obligation a business needs to pay. This liability needs to pay taxes to several agencies, including the federal government, the state government, and the city government. You may chose to pay your business’ taxes monthly, quarterly, or annually, depending on its size and obligation. Taxes payable increases when the company gains additional tax obligations and decreases when the company makes payments.

Income tax refers to money the company owes based on its earnings. All businesses except partnerships must file an annual income tax return. (Partnerships file an information return.) The form you use depends on the business entity you have established. You can read more about which business entity is right for you here.

Sales tax refers to money the company collects from customers within their borders and sends to the state tax collector. In most states, each retail sale is taxable, and recently, more states have expanded the scope of their sales taxes to encompass leasing transactions and even some services. As the business owner, you are responsible for knowing what items or services are taxed at which rates.

Payroll taxes refer to money your business owes based on employee wages. They include federal unemployment tax, state unemployment tax, Social Security tax and Medicare tax. Businesses use an employee’s W-4 form to calculate how much federal income tax should be withheld from each paycheck. It’s important to remember that all money an employer pays its employees is subject to payroll tax, not just standard salary, wages and tips. Be sure to keep excellent records so that you are able to file and pay this tax properly.

Do you need help keeping excellent records? Contact us to Find out how we can help you get organized.

3 Tax preparation Tips

As the tax season is upon us, it is wise to be well-prepared instead of scrambling at the last minute, with sweaty palms and fingers crossed, hoping everything “goes through” okay. If you need any help applying these tips, our organized, highly-trained staff is here to keep your business records on track to keep this process more stream-lined for you.

1. Maintain complete correct records. You may hear this from tax professionals all year long, but proper record-keeping year-round is the first step to ensure that your taxes are filed accurately. It also helps to ensure that you have all the necessary paperwork and receipts to back-up your deduction claims in case you are audited. Use an accounting or software program that can help you centralize and track your income and expenditures so that your expenses are easy to deduct when the time comes.

2. Understand deductions. As a small business, what deductions can you take? You should not only know what your options are, but you should also have documentation and receipts to back them up. Tax credits and deductions change year by year, so we will not list them all here, but you should be able to write off business operating expenses, large expenses, and even personal expenses. Both your CPA and your current tax software can help guide you through these deductions by asking you questions. (This is why tip 1 is so important.)

3. Determine who is best-qualified to prepare your taxes. Many businesses hire a CPA, but it is common for sole proprietors, home-based business owners, or freelancers to prepare taxes themselves using a software program. Be aware, however, that not all software programs accommodate business tax filers, particularly those who need to file Schedule C. Before you purchase or sign up for a service, make sure it supports common business forms; some of these include Turbo Tax, H&R Block, and TaxAct. If you decide to entrust this job with a CPA, make sure you research his or her credentials, and find out how they have been reviewed by previous customers.

If you know of a tip, blog, or article that may help fellow business men and business women be more prepared to file their taxes this year, please leave them in the comments below. If we can help you maintain your records, please give us a call.

Post originally written by Bodhi Leaf Media for www.journeybookkeeping.com