Tax Deductions Available for Self-Employed Individuals

 Being self-employed comes with a sense of freedom and control over your work, but it also brings its fair share of responsibilities, including managing your taxes. The good news is that self-employed individuals can access various tax deductions that can help lighten the financial burden and allow them to keep more of their hard-earned money.

In this blog post, we'll explore some of the critical tax deductions available to self-employed individuals and provide tips on how to make the most of them.

1. Home Office Deduction
   If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This deduction allows you to write off a percentage of your rent or mortgage, utilities, and other home-related expenses. To qualify, your home office must be your primary place of business, and it should be used regularly and exclusively for your business activities.
2. Business Expenses
   Self-employed individuals can deduct various business expenses necessary for their operations. These expenses might include office supplies, equipment, marketing, travel, professional fees, and more. Keeping detailed records of these expenses is crucial to ensure you can claim all eligible deductions.
3. Self-Employment Tax Deduction
   Unlike traditional employees, self-employed individuals are responsible for paying the employer and employee portions of Social Security and Medicare taxes. However, you can deduct the employer-equivalent portion of your self-employment tax, which can significantly reduce your overall tax liability.
4. Health Insurance Premiums
   Self-employed individuals often need to purchase their health insurance. The good news is that you can deduct the premiums you pay for medical, dental, and even long-term care insurance for yourself, your spouse, and your dependents as long as you're not eligible for coverage through another employer or government plan.
5. Retirement Contributions
   As a self-employed individual, you have various retirement savings options while enjoying tax benefits. Contributions to a Simplified Employee Pension (SEP) IRA, a Solo 401(k), or a SIMPLE IRA are deductible. They can provide a means to secure your financial future while reducing your current tax bill.
6. Education and Training
   Investing in your skills and knowledge is essential for any self-employed professional. Fortunately, you can often deduct the costs associated with business-related education and training, including workshops, courses, seminars, and relevant books or materials.
7. Business Use of Vehicles
   If you use a vehicle for your business, you can potentially deduct the expenses associated with its use. This deduction can be claimed by calculating the actual expenses related to the vehicle's business use or utilizing the standard mileage rate set by the IRS.

Navigating the world of self-employment taxes might seem overwhelming at first, but understanding the available tax deductions can significantly ease the burden. By keeping accurate records, seeking professional advice when needed, and staying informed about changes in tax laws, you can ensure that you're making the most of every deduction available to you.

Remember, every dollar you save on taxes is a dollar you can reinvest in your business and your financial well-being.

2024 Tax Credits & Deductions for Jackson County Taxpayers

 

Before I get you thinking about the new year and being tax savvy, let’s first address the 2023 tax filing season, which is fast approaching. 

 

It’s a good idea to go ahead and get on my schedule now to handle your 2023 tax filing. Though the IRS doesn’t officially start receiving 1040 forms until the end of January/early February, it doesn’t mean you have to wait to start sorting through your paperwork or make a deadline for yourself at the beginning of tax season rather than the end.

 

https://www.afitonline.com/appointments

 

And some really good news looking back on 2020 and 2021 (if you’re still paying off debts from those years), the IRS is waving the failure to pay penalties on assessed taxes less than $100,000. If you made payments toward your balance owed or already paid these, a credit will automatically be applied to any other tax year you still owe — otherwise, you’ll receive a refund. 

 

Now, let’s talk about this year. Yes, tax season is coming, and you’re probably thinking about 2023, but as your trusted Jackson County tax professional, I want to help you start planning for 2024, too. Because some tax changes are now in effect, it should influence how you approach the coming year. 

 

So, let’s jump into that today, and then in the coming weeks, I’ll be talking more about what you need to gather for your upcoming tax appointment.

 

2024 Tax Credits & Deductions for Jackson County Taxpayers 
“The way to get started is to quit talking and begin doing.” – Walt Disney.

 

As we usher in 2024, goals may be on our minds, but our wallets are giving the side-eye to the impending tax season. Though you’re probably more focused on the 2023 tax filing, which begins in little less than a month, it’s also the right time to start thinking ahead beyond that. 

 

The IRS has made some updates to various filing categories — specifically credits, deductions, and inflationary adjustments for the 2024 tax season.

 

So, let’s cut to the chase and dig into those updates. The IRS has made a few noteworthy moves for 2024…

 

Standard Deductions & Tax Rate Increases

 

The standard deductions are seeing bumps, thanks to IRS adjustments for inflation in 2024. 

• For married couples filing jointly in tax year 2024, the standard deduction has increased to $29,200. That’s a $1,500 increase from what you can claim for 2023’s taxes. 
• Singles have a bumped-up deduction of $14,600, marking a $750 increase. 
• Heads of households get a substantial $21,900, up by $1,100 from the previous year.

 

Marginal tax rates for 2024 remain the same, with the top rate at 37% for individual single taxpayers with incomes over $609,350 (or $731,200 for married couples filing jointly). 

 

Also, the AMT exemption (Alternative Minimum Tax) amount for 2024 is $85,700 ($133,300 for married couples filing jointly), signaling an increase from the $81,300 in 2023. Remember, it starts to phase out at $609,350 for individuals (phase out at $1,218,700 for married couples filing jointly).

 

Taking Credit

 

Tax credits are also seeing a boost in 2024, which should help offset rising costs for you. 

1.    The Earned Income Tax Credit (EITC): This credit increases to $7,830 for qualifying folks with three or more qualifying children (up almost $400 from 2023). 

2.    The Child Tax Credit (CTC): The CTC is up to $2,000 per qualifying child. To qualify, the child must be 17 or under (or 24 if they’re full-time students) and living in your house for at least half the year. 

3.    Adoption Credit: The maximum credit allowed for adoptions in 2024 is up to $16,810, increased from $15,950 in 2023. 

4.    Estate Tax Exclusion: Estates of decedents who die in 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 in 2023.

5.    Gift Tax Exclusion: The annual gift exclusion increases to $18,000 for calendar year 2024, up from $17,000 in 2023.

 

Medical Expense Deductions & Other Credits

 

Suppose you’ve spent more than 7.5 percent of your AGI on medical expenses. In that case, there are some deductions you can snag, including prescription drugs, hospital visits, home improvements for health, dental, and vision costs, and even travel expenses to medical spots. 

So, if your AGI is $50,000 and you have $10,000 in total deductible medical expenses, 7.5% of $50,000 is $3,750. You can deduct $6,250 of medical expenses from your itemized deductions.

This does not include elective cosmetic procedures, though. 

And if you’re a freelancer or independent contractor – you can likely deduct your long-term care insurance and health insurance premiums. 

Other Highlights

Let’s fast-track through some other credits and deductions you can optimize for in 2024.

Education Credits. If you’re investing in education, credits like the American Opportunity Credit can ease the financial load of post-secondary education expenses.

Energy-Efficient Home Upgrades. Sprucing up your San Jose home? There are tax credits for that – from upgrading windows to installing solar panels..

Saver’s Credit. If you’re saving for retirement and fall in the low-to-moderate income bracket, the Saver’s Credit can give you a little extra boost when you contribute to retirement accounts (up to $1,000 credit or $2,000 if filing jointly).

As you navigate the tax landscape for 2024, keep these updates in your toolkit. And we’ll keep you posted on developments for these so you can make the most of each opportunity. 

And make sure to stay tuned for more helpful info about 2023 tax filing in the coming weeks.

Ready for 2024, 

 

Mike Mead, EA, CTC

What Happens If You Don't Pay Your Taxes?

 

Taxes are the lifeblood of any functioning society, providing the necessary funds to support government programs and services. Filing and paying taxes might not be the most exciting aspect of adult life, but it's a civic duty we all share.

Failure to pay taxes can have serious consequences, ranging from financial penalties to legal troubles. In this blog, we'll explore what happens if you don't pay your taxes and why fulfilling this obligation is crucial.

1. Accruing Interest and Penalties
   One of the immediate consequences of not paying your taxes on time is the accrual of interest and penalties. Tax agencies often charge interest on the unpaid amount, which can compound over time and increase your overall debt. Additionally, there are usually penalties associated with late payments, which are typically calculated as a percentage of the unpaid taxes. These financial consequences can quickly snowball, making it even more challenging to settle your debt.
   
2. Tax Liens and Levies
   If you ignore your tax obligations, the government might place a tax lien on your assets. A tax lien is a legal claim against your property, such as your home or other valuable assets. This prevents you from selling or transferring these assets without settling your tax debt. In more severe cases, tax authorities can issue a levy, allowing them to seize and sell your property to satisfy the unpaid taxes. This can lead to significant financial distress and disrupt your life.
   
3. Garnishment of Wages
   If you have a regular job, your wages could be garnished to cover your outstanding tax debt. Wage garnishment involves the tax agency legally collecting a portion of your earnings for your tax bill. This can directly impact your ability to meet your day-to-day expenses and financial commitments.
   
4. Legal Action and Criminal Charges
   Tax evasion is a serious offense that can result in criminal charges. If you deliberately and knowingly avoid paying taxes, you could face prosecution. Criminal charges can lead to fines and even imprisonment, depending on the severity of the evasion and the laws in your jurisdiction. It's important to note that neglecting your tax obligations can still have legal repercussions even if you didn't intend to evade taxes.
   
5. Damage to Credit Score
   Unpaid taxes can also impact your credit score, making securing loans, credit cards, or favorable interest rates difficult. Many tax agencies report unpaid tax debts to credit bureaus, which can stay on your credit report for years. This can hinder your ability to make significant financial decisions, such as buying a home or starting a business.
   
6. Collection Efforts
   Tax authorities have various tools at their disposal to collect unpaid taxes. They can issue bank levies, where they seize funds directly from your bank account or initiate property seizures to satisfy your debt. These collection efforts can disrupt your financial stability and leave you in a difficult situation.
   

Avoiding tax payments might seem tempting in the short term, but the consequences are far-reaching and can impact your financial and legal well-being. It's crucial to understand that paying taxes isn't just a legal requirement but a responsibility supporting essential public services and infrastructure. Suppose you're struggling to meet your tax obligations.

In that case, exploring options such as installment agreements or seeking professional advice to navigate your situation while avoiding the most severe consequences is advisable. Remember, proactive tax compliance is in your best interest for maintaining a stable and secure financial future.

Tax Preparation Services for Blue Springs and Surrounding Areas

 

In our age of technology, most of us have become do-it-yourselfers. This usually makes sense, but not regarding individual or business tax preparation. Entering a few numbers into the latest tax software might be quick and easy, but it could cost you hundreds or even thousands of dollars if you make a mistake. Don’t take chances with your tax return; trust a real person to prepare your taxes. Contact the Blue Springs, Missouri tax accountants at Alliance Financial & Income Tax. now.

We’re your best choice for tax preparation in the Kansas City, Missouri area because we keep up on all the latest revisions and updates to the State and Federal tax regulations. We’re constantly searching for new tax breaks and deductions we can use to save our clients money on taxes. From personal income tax returns to business tax preparation services, we work hard to minimize tax liabilities for all our clients.

Individual and Business Tax Services

When you turn to us for tax services, you’ll receive top-notch customer service from our friendly staff of knowledgeable accountants and financial professionals. We’ll happily answer your questions and always promptly respond to your emails and phone calls. Request a consultation through our website today or give us a call at 816-323-6561 to get started.

• Business tax preparation - corporate, LLC, etc.
• Tax returns for individuals
• Estate tax returns
• Non-profit tax preparation services
• Expatriate tax preparation and FBAR filing
• Quicker tax refunds with E-file

Use the Tax Code to Make Business Losses Less Painful

 

Whether you're operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations.

Qualifying for a Deduction

The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly.

Eligibility for the NOL deduction depends on having deductions for the tax year that exceed your income. The loss generally must be caused by deductions related to your:

• Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
• Casualty and theft losses from a federally declared disaster, or
• Rental property (Schedule E).

The following generally aren't part of the NOL determination:

• Capital losses that exceed capital gains,
• The exclusion for gains from the sale or exchange of qualified small business stock,
• Nonbusiness deductions that exceed nonbusiness income,
• The NOL deduction itself, and
• The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren't eligible, but partners and shareholders can calculate individual NOLs using their separate shares of business income and deductions.

Limitations

Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could carry back NOLs for two years and carry them forward 20 years. They also could apply NOLs against 100% of their taxable income.

The TCJA limits NOL deductions to 80% of taxable income for the year and eliminates the carryback of NOLs (except for certain farming losses). However, it does allow NOLs to be carried forward indefinitely.

If your NOL carryforward is more than your taxable income for the year you carry it to, you may have an NOL carryover. That's the excess of the NOL deduction over your modified taxable income for the carryforward year. If your NOL deduction includes multiple NOLs, you must apply them against your modified taxable income in the same order you incurred them, beginning with the earliest.

A Limit on Excess Business Losses

The TCJA also established an “excess business loss” limitation, effective beginning in 2021. For partnerships or S corporations, this limitation applies at the partner or shareholder level, after applying the outside basis, at-risk and passive activity loss limitations. Under the rule, noncorporate taxpayers' business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2023, that threshold is $289,000, or $578,000 if married filing jointly. For 2024, the thresholds are $305,000 and $610,000, respectively. Remaining losses are treated as an NOL carryforward to the next tax year. That is, you can't fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years beginning before January 1, 2029. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Planning Ahead

The tax rules regarding business losses are complex, especially the interaction between NOLs and other potential tax breaks. Contact the office for help charting the best course forward.

Choosing a reputable tax preparer is vital to tax security

 

As people get ready for tax filing season, they must select tax return preparers with the skills, education and expertise to prepare tax forms correctly. Taxpayers are ultimately responsible for all the information on their tax return, regardless of who prepares it.

Tax preparers include certified public accountants (CPAs), enrolled agents, attorneys, and others. Taxpayer should choose a tax preparer that works best for their needs.

Here are some tips to help people choose a preparer.

Check the IRS Directory of Preparers
Taxpayers can find an enrolled agent, CPA, attorney or participant in Annual Filing Season Program with the IRS Directory of Preparers

Checklist for choosing a tax pro
Before hiring a tax preparer:

• Check the preparer's history with the Better Business Bureau. Taxpayers can also verify an enrolled agent's status on IRS.gov.
  
• Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts. Taxpayers should be suspicious of preparers claiming they can get larger refunds than other tax preparers.
• Ask if the preparer plans to use e-file. The fastest way to get a tax refund is by e-filing and choosing direct deposit.
  
• Choose a firm or individual with a track record. Preparers may need to answer questions about the tax return months or even years later.
  
• Ensure the preparer signs the tax return and includes their Preparer Tax Identification Number. Paid tax return preparers must have a PTIN and include it on any tax return they prepare.
  
• Consider the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Watch out for tax preparer scams.
Tax return preparer fraud is a common tax scam. Here are tips on avoiding unscrupulous tax preparers.

The IRS is committed to investigating paid tax return preparers who act improperly. Taxpayers can file a complaint if they have been financially impacted by a tax return preparer's misconduct or improper tax preparation practices.

How Women Can Prepare For Retirement

 

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration (SSA) estimates that today's average 67-year-old woman will live to age 88. Given these projections, it appears that a retirement of 20 years or longer might be in your future.¹

Are You Prepared For a 20-Year Retirement?

How about a 30-year or even 40-year retirement? Don't laugh; it could happen. The Society of Actuaries predicts that an average healthy woman that reaches age 65 has a 48% chance of living past 90, and a 26% chance of living to be older than 95.²

Start with Good Questions

How can you draw retirement income from what you've saved? How might you create other income streams to complement Social Security? And what are some ways you can protect your retirement savings and other financial assets?

Enlist a Financial Professional

The right person can give you some good ideas, especially one who understands the challenges women face in saving for retirement. These may include income inequality or time out of the workforce due to childcare or eldercare. It could also mean helping you maintain financial equilibrium in the wake of divorce or the death of a spouse.

Invest Strategically

If you are in your fifties, you have less time to make back any big investment losses than you once did. Protecting what you have may be a priority. At the same time, the possibility of a retirement lasting up to 30 or 40 years will require a good understanding of your risk tolerance and overall goals.

Consider Extended Care Coverage

Women have longer average life expectancies than men and may require significant periods of eldercare. Medicare is no substitute for extended care insurance; it only covers a few weeks of nursing home care, and that may only apply under special circumstances. Extended care coverage can provide financial relief if the need arises.³

Claim Social Security Benefits Carefully

If your career and health permit, delaying Social Security can be a wise move. If you wait until full retirement age to claim your benefits, you could receive larger Social Security payments as a result. For every year you wait to claim Social Security past your full retirement age up until age 70, your monthly payments get about 8% larger.⁴

Retire With a Strategy

As you face retirement, a financial professional who understands your unique goals can help you design an approach that can serve you well for years to come.