Do you operate a small business as a sole proprietor? There are many tax rules and considerations involved in operating this way. For example, you may qualify for the pass-through deduction on qualified business income. You must pay self-employment tax and make estimated tax payments on income earned. You can deduct health insurance costs as a business expense. If you hire employees, you need a taxpayer ID number and must withhold and pay employment taxes. Keep complete records of income and expenses. Also, consider setting up a qualified retirement plan. Contact us if you want more information about the tax aspects of your business, or if you have questions about recordkeeping requirements.
To claim a tax deduction for a donation of $250 or more, you generally need a contemporaneous written acknowledgment from the charity. “Contemporaneous” means you receive it by the date you file your return, or the extended due date of the return. If you made a donation in 2021 but don’t have a letter from the charity, request it from the organization and wait to file your 2021 return until you receive it. Additional rules apply to certain types of donations. Under COVID-19 relief laws, taxpayers who don’t itemize deductions can claim a federal income tax write-off of up to $300 of cash contributions to qualified charities for the 2021 tax year ($600 for married couples filing jointly).
Traditional and Roth IRAs can help you save for retirement on a tax-favored basis. Contributions to a traditional IRA reduce your current tax bill, if you’re eligible, and earnings are tax-deferred. However, withdrawals are taxed in full (plus a 10% penalty if taken before age 59½, unless an exception applies). Roth IRA contributions aren’t deductible. But earnings are tax deferred and withdrawals are tax free if certain conditions are met. The maximum annual IRA contribution is $6,000 for 2022 and 2021 ($7,000 if age 50 or over). In addition, your contribution can’t exceed your compensation includible in income for the year. There’s no age limit for making contributions if you’re eligible.
Businesses must keep records of their income and expenses. Carefully record them in order to claim the full amount of tax deductions to which you’re entitled. You also want to make sure you can defend the amounts on your tax returns if you’re ever audited by the IRS. Certain expenses, such as automobile, travel, meals and home office expenses, require special attention because they’re subject to special recordkeeping requirements or limits on deductibility. Contact us if you need assistance retaining adequate business records. By taking a painstaking approach to how you keep records, you can protect deductions and help make an audit much less difficult.
The IRS began accepting 2021 individual returns on Jan. 24. Here are three quick tips to help speed processing and avoid hassles this tax season. 1) Contact us soon for an appointment to prepare your return. 2) Gather all documents needed to prepare an accurate return. This includes W-2 and 1099 forms. In addition, you may have received statements or letters in connection with Economic Impact Payments or advance Child Tax Credit payments. 3) Check certain information on your prepared return. Social Security number(s) should appear exactly as printed on Social Security card(s). Make sure names aren’t misspelled. If you’re receiving your refund by direct deposit, check the bank account number.
