Accounting and Tax Tips and Information

written by Lauren Bakken, owner of Bakken CPA PC and co-author of the book, One-Income Household

Bakken CPA PC is dedicated to providing timely, professional, personalized service to businesses and individuals.

Tag Archives: employee deductions

Is Your Small Business Ready To Take On Its First Employee?

Whether you just recently started a small business or you have been up and running for a while and working as the entire staff on your own, there may come a time when you decide you need to hire your first employee.  Before you jump into adding new staff to your workforce, be sure you are ready for it, as there are things you need to have set up in order to start off correctly.

If you think you are ready to take that step, here are a few reporting and regulatory issues you should think about:

  1. Determine the General Position: Think about why you are looking to hire a new person. Is this person going to be someone that will manage the store some of the time that you will not be there?  Is he or she going to do administrative tasks to free up some of your time to do billable work? Will the new employee work full or part time? And what are you willing to pay the person for their services? These are few very important questions that you will need to think about before you even begin looking to add a new person to your business.
  2. Obtain an EIN: Before you hire your first employee you must request an Employer Identification Number from the IRS. If your company is a partnership or corporation, you will already have one, but a sole proprietor will most likely need to request one.
  3. Employer Requirements: Check to be sure your soon to be employee can legally work in the United States. Once you’ve hired someone, you must report this to your state employment department. Before you start paying the new hire, get everything ready to easily pay in income tax withholdings to the IRS and state, FICA taxes at the appropriate rates, and unemployment taxes.
  4. Decide on Benefits: Depending on your state and if your new employee is full time or part time, there may be certain requirements on benefits you must offer. Look into rules on benefits, such as sick time and health insurance.
  5. Ask a Professional: Although you can find out a lot about rules on hiring employees online, it does not always cover every detail you may need to know. You should still contact a professional, whether it is an accountant or a payroll service provider, they can guide you to making sure you have all of your bases covered. In the end, it will save you time and help you avoid penalties for non-compliance.

Contact your accountant today to set up an appointment to go over your strategy for your new hire. They know the requirements for the type of business you own as well as for the state your business is in.

Bakken CPA PC is Now an All in One Service Provider

We, at Bakken CPA PC, consider saving our clients time, effort and money a main priority. If there is something we can do that will make our client’s day a little easier, we try to offer it. In order to fulfill this goal, we have added a new service to our package of options we are able to offer our clients.

We can now not only assist with your accounting and tax needs, but also your payroll needs! We feel that by offering our clients the option of having us complete their payroll processing, we can give you a more complete package of services that will make running your business a little easier.

Consider this; now that we can complete your bookkeeping, while servicing your payroll, we are able to keep your business’s books more accurate year round. Once it comes time for us to complete your yearly tax return, your books will already be accurately complete for the year, which saves us time and saves you money. Not only that, but we will also already have all of the information for your payroll for the entire year, which will save you more time and money! This would be a great position for you to be in during the tax season, which can be stressful for a business owner. Our goal is to help you manage your business more efficiently and effectively by taking over tasks where we have expertise which then allows you to focus on yours.

Our payroll processing service we offer includes a range of options that will not only help you focus on your business, but attract and retain employees.

Some of our benefits include:

  • Full Service Direct Deposit
  • Electronic Employer Access to Payroll Records All Year
  • Electronic Employee Access to Payroll Records All Year
  • Automatic Payments of Taxes and Fees
  • And more!

We strive to give you old fashioned personal service while still being able to offer you the latest in technology. If our new payroll service seems like something that you’d be interested in, give our office a call today. We will be happy to provide more information to you.

How Your Commute to Work May Save You Tax Dollars

Whether you drive to work or take public transportation, it could get you a deduction on your Massachusetts tax return. For tax years starting with 2006, the commuter deduction allows taxpayers to take a deduction for tolls paid through a Fast Lane account or for weekly or monthly transit commuter passes for MBTA transit, bus, commuter rail or boat. But, this does not include amounts reimbursed by an employer or otherwise.

This deduction is allowed for amounts paid over $150 but cannot exceed $750. Transportation costs are deductible in different areas of a tax return, so you must choose which area you would prefer to receive the deduction, as you cannot use the same expense twice.

It is important to know that this is an individual deduction, so it is allowed for both a taxpayer and spouse, up to a total $750 each. But, an excess deduction cannot be transferred to the other spouse. This can also be used for a dependent’s commuting expense in place of one of the spouses. The maximum allowable is two individual deductions, or $1500 total.

If your commuting expense is paid by your employer and included in your W-2 as income, then there are different rules to calculating your allowable deduction. On your W-2, the amount of the pass that exceeds $105 is included in your income. You should exclude this amount from your calculating the cost of the pass, the remainder is the amount of qualifying expenses. The amount that is deductible must still be over the $150 threshold and cannot exceed the $750. If your commuting expense is paid by a payroll reduction out of your paycheck, then the entire amount is considered eligible expenses.

In order to verify the deduction, be sure to keep a record of the monthly passes or the FastLane reports, credit card or bank statements or paystubs, whichever is applicable to your situation. It is important to keep yourself informed about tax deductions that may be out there that will help you, check with your tax preparer today to find out!

Earned Income Credit, Are You Eligible?

EITC, the Earned Income Tax Credit, also called EIC is a tax credit to help you keep more of the money you earned when you go to file your tax return. It is a refundable federal income tax credit for low to moderate income working individuals and families. The tax credit was approved originally in 1975 to offset the burden of social security taxes and to provide an incentive to work. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who qualify for the credit.

To qualify, you must meet the requirements and file a tax return, even if you do not owe any tax or are not required to file.

The Requirements are:

  • You must have a social security number
  • You must be a US Citizen or resident alien, or a nonresident alien married to a US Citizen
  • You cannot be the qualifying child of someone else
  • You cannot file as Married Filing Separately
  • You must have earned income from employment, or self-employment
  • Your Adjusted Gross Income must meet the limits listed below
  • Your Investment Income cannot exceed $3,150 during the year
  • You cannot Form 2555 or 2555-EZ, which relates to foreign earned income

Your Earned Income must be less than the following*:

  • $43,998 ($49,078 married filing jointly) with three or more qualifying children
  • $40,964 ($46,044 married filing jointly) with two qualifying children
  • $36,052 ($41,132 married filing jointly) with one qualifying child
  • $13,660 ($18,740 married filing jointly) with no qualifying children

The maximum amount that anyone is entitled to, based on his or her tax situation, can be up to almost $6,000. It is phased out based on the number of qualifying children you have and your income level. Once you have surpassed the amounts listed above you no longer eligible for the earned income credit.

If you think you meet all of the criteria above and your income will be within these limits, you may be eligible to claim your earned income credit! You should consult your tax preparer to be sure you are getting as much of your money back into your pocket as possible!

 

* Based on 2011 figures