Finance Tips

If you are running your own organisation you have the process of finishing your tax returns, often a new organisation owner will decide to keep costs low by doing his/her own taxes. Whilst it can be nice to do taxes yourself without paying for a chartered accountant a business should be conscious of the various catches and dangers that skulk in tax returns. This is especially true if a business has a lot of tax deductions, as what was a legitimate tax deduction last year may not necessarily be the case this year.

The undeniable answer is to hire a proffesional accountant to look after your company’s books. A chartered accountant will be up to date with the alterations and refreshments to the tax code leaving you to focus on managing your day to day business. Perhaps the most inspiring thing about working with a proffesional accountant is the observation that you won’t be alone should the tax office spring an audit on you. More importantly it is human nature to be cautious when sending tax returns but being too cautious means you’re paying too much in tax and leaving money on the table. A professional accountant will guide you through the process, sailing close to the lines at all times making sure that they get as much back for your company as they possibly can within the boundries, in fact it is often said that a goo tax accountant will save you more than you pay them in fees.

If you decided to complete your tax return yourself and wrongly complete a document then, at best, it’ll be sent back to you to do again, at worst, it will be sent back to you in the hands of a tax inspector who wants to examine every single piece of paper you have. Continue reading ‘Why should we use an accountant’ »

If you are running your own organisation you have the process of finishing your tax returns, often a new organisation owner will decide to keep costs low by doing his/her own taxes. Whilst it can be nice to do taxes yourself without paying for a chartered accountant a business should be conscious of the various catches and dangers that skulk in tax returns. This is especially true if a business has a lot of tax deductions, as what was a legitimate tax deduction last year may not necessarily be the case this year.

The undeniable answer is to hire a proffesional accountant to look after your company’s books. A chartered accountant will be up to date with the alterations and refreshments to the tax code leaving you to focus on managing your day to day business. Perhaps the most inspiring thing about working with a proffesional accountant is the observation that you won’t be alone should the tax office spring an audit on you. More importantly it is human nature to be cautious when sending tax returns but being too cautious means you’re paying too much in tax and leaving money on the table. A professional accountant will guide you through the process, sailing close to the lines at all times making sure that they get as much back for your company as they possibly can within the boundries, in fact it is often said that a goo tax accountant will save you more than you pay them in fees.

If you decided to complete your tax return yourself and wrongly complete a document then, at best, it’ll be sent back to you to do again, at worst, it will be sent back to you in the hands of a tax inspector who wants to examine every single piece of paper you have. Continue reading ‘Why should we use an accountant’ »

Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability. In fact, the head of the IRS once said that millions of taxpayers overpay their taxes every year because they overlook one of the many key tax deductions that are available to them.

1. One of the most overlooked deductions is state and local sales taxes.
2. Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services, and contributions to a traditional IRA.

Of course, some tax deductions disappear as adjusted gross income increases. And some deductions are subject to sunset provisions, which your tax professional can help you navigate.

Another key deduction is unreimbursed medical and dental expenses. For medical and dental bills paid during the past year that weren’t covered by insurance, a household may be able to deduct the amount that is greater than 7.5% of its adjusted gross income when calculating income taxes. Continue reading ‘What Tax Deductions Are Still Available to Me?’ »

The Flaw of Accounts Receivable in Financial Accounting to Non-accountants

In my previous publication, The Unresolved Flaws in Financial Accounting I addressed some of the complex flaws in financial accounting that add to the confusion and frustration non-accountants face in trying to decipher financial reports. This time, I look at accounts receivable.

Accounts receivable is an asset account in a balance sheet. It allows a company to hold revenues and expenses within the period they occur which is a generally accepted accounting principle. This recognizes transactions irrespective of when actual payments take place. What this means is that when a firm sells on account, it considers future payments for its goods and/or services as assets thus increasing revenue.

To a non-accountant investor or stockholder, this recording appears easy to understand on a newly released balance sheet. The truth is that there are other entries that derive from the accounts receivable recording. The net realizable value of this account is the actually amount that the firm expects it will actually receive in payments. Off the back, that means that the amount recorded in accounts receivable though making assets look good will not be actualized. This amount is however an estimate based on previous experiences, trends, and ratios.

The net realizable value creates another account, the allowance for bad debt expense. This account holds the difference between what that actual accounts receivable and the net realizable value. Most firms use an aging method, usually in 30-day blocks to make adjustments to the value of their assets on the balance sheet. These uncollectible payments are described as “contra assets” because they reduce the vale of previously declared assets.

Most non-accountants do not understand the forward and backward entries and adjustments to pages and pages of detail reporting regardless of how many pages of accompanying notes there are. The question becomes, why not subtract the estimated bad debt from the account receivable entry? The problem is that though the firm knows or rightfully estimates that some payments will not be received, it cannot write-off an account unless it specifically knows which accounts will be in default.

The danger with this estimated is that if the allowance for bad debt is under estimates, then accounts receivable and net income will be overstated and returns on investments and equity (ROI and ROE) will be inaccurate. This usually is the case when an entity wants to appear conservative in its estimates of uncollectible debts. Continue reading ‘The Flaw of Accounts Receivable in Financial Accounting to Non-accountants’ »

Is an individual taxpayer, you are subject to two tax systems, the regular income tax and the alternative minimum tax (AMT). You are liable for the larger, and only the larger, of the two taxes. The original purpose of the AMT was to ensure that taxpayers who were allowed special favorable treatment on certain tax items pay at least a minimum amount of tax on their economic income. As personal incomes tend to rise each year, more taxpayers have become subject to the AMT. This is primarily due to not indexing the AMT exemption for inflation (which reduces your exposure to the AMT) while your regular tax deductions and exemptions are indexed (increased) for inflation.

The AMT tax computation starts with your regular taxable income that is then increased for certain tax benefits (in the regular tax liability computation) called preferences and adjustments. These include certain itemized deductions, the standard deduction, personal exemptions, certain tax-exempt interest, and income related to exercising certain stock options. You then reduce the amount by the AMT exemption, which for some high-income taxpayers is phased-out. The AMT is then computed and, as previously stated, you pay the larger of the regular tax or the AMT. Continue reading ‘What Is the Alternative Minimum Tax?’ »

Looking for a tax-advantaged college savings plan that has no age restrictions, no income phaseout limits, no residency requirements — and one you can use to pay for more than just tuition?

Consider the 529 savings plan, an increasingly popular way to save for higher-education expenses, which have more than tripled over the past two decades — with annual costs of more than $30,000 per year for the average private four-year college.1 Named after the section of the tax code that authorized them, 529 plans (also known as qualified state tuition programs) are now offered in almost every state.

Most people have heard about the original form of 529, the state-operated prepaid tuition plan, which allows you to purchase units of future tuition at today’s rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. It’s practically guaranteed that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions. Prepaid tuition programs typically will pay future college tuition at any of the sponsoring state’s eligible colleges and universities (and some will pay an equal amount to private and out-of-state institutions). Continue reading ‘529 Lesson Plan: High Scores for 529 College Savings Program’ »