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Testimonials

“Bolz CPA is an excellent source of advice and information that is critical to running my business.”

– Curt

“It is a pleasure having a reliable team with which to entrust such critical matters.”

– Gene

“Bolz CPA is responsive and professional. I highly recommend their services.”

– Tim

“Your team is always there to help me out.”

– Chris

“You create stability in my business, even when the numbers aren’t stable.”

– Kelly

“You’re the only person who can give me the type of bad news you give me, and I’m still excited to talk with you.”

– Jess

“Bolz CPA takes the time to explain the ‘why’ in terms that make sense.”

– Debbi

“I recommend you because you’re amazing and have helped me so much.”

– Lauren

FAQs

Do I need to file a tax return?

To determine whether you need to file a tax return, you need to know (1) your filing status, (2) your gross income and (3) the types of income in your return. A single individual can earn up to $12,200 (in 2019) of wages from W-2 employment in a calendar year before needing to file. However, income from self-employment exceeding only $400 or unearned income (interest, etc) exceeding $1,100 will also trigger a filing requirement. Many lesser known reasons can also trigger filing requirements, such as (1) any amount of HSA distributions or (2) failure to withdraw Required Minimum Distributions (RMDs) from an IRA or (3) you owe taxes on tips not reported to your employer. Bottom Line: it’s not always that easy to determine! Be sure to consider your unique situation, and don’t forget to consider filing requirements for your state tax return(s).

Should I pay my taxes via third party withholding or quarterly estimates?

It doesn’t matter! So long as you pay “enough tax” in during the year, in a timely prescribed manner, you will avoid penalty. You can choose whichever situation works best for you. Either (1) third party withholding, or (2) remitting lump sum payments (“estimated tax payments”) each quarter, or (3) any combination of the above. If payment amounts and dates meet IRS standards, you are “in the clear” (until the April 15 “day of reckoning”, that is). Note that “enough tax” is different for every taxpayer, and also is a different amount for each taxpayer every single tax year. If your tax situation is changing, reconsider your payment schedule.

What is the least amount of taxes I can remit during the year without being penalized?

Fortunately, the IRS has allowed for a “Safe Harbor” amount in order to help you easily avoid penalty. To find your individual “Safe Harbor” amount, always look to your prior year tax return. The line labeled “Total Tax” (2019 Form line 16, a line which is slightly elusive, and reported before wage withholding and other payments are applied) is your guide. If you earned less than $150,000 AGI last year, all you need to do is match this amount during the current year and on a timely schedule, and the IRS will forego any penalty assessment. If you earned more than $150,000 last year, you need to match 110% of the prior year “Total Tax” to avoid penalty. The “Safe Harbor” method is often practical when income is similar to, or higher than, the prior year. In these years the taxpayer typically has proper cash flow to pay accordingly. This method is often not practical when income is lower than last year, as the taxpayer typically does not have ample cash flow to pay such large amounts. Note: applying the “Safe Harbor” does not mean your tax return will balance out to zero! It only means you will avoid underpayment penalty. If your goal is to achieve close to a zero balance tax return, strategic tax planning is required.

Should my business be an LLC or an S-Corp?

Multiple entity types are available for a very good reason – one is not best in all scenarios. Both the LLC (Limited Liability Company) and the S-Corporation are “pass-through entities” meaning the income “passes through” to the owner for tax assessment. Both the S-Corporation and the LLC (those with more than one member) file tax returns separate from their owner, and this must occur before the owner can complete preparation of the Individual Income Tax Form 1040. While neither is typically assessed federal tax at the entity level, large differences do apply. Owners (“Shareholders”) of S-Corporations who provide “employment-like” services to the corporation must draw “reasonable compensation” reported on a W-2. Owners (“Members”) of an LLC, on the other hand, do not receive a W-2. As such, there can be dramatic differences in payroll tax liabilities and also Section 199A income exclusions between the two entity types. Another difference is flexibility; LLC Members can specially allocate items of income and deduction amongst themselves, while S-Corporation Shareholders must divide strictly based on ownership percentage. S-Corporations also maintain much tighter restrictions on the type and number of owners, and admittance of an invalid Shareholder can negate an S-Corporation Pass-Through election. Finally note, the IRS allows an entity to elect to be taxed as the other. However, this election must be adhered to for 5 years without reversion, and while it is fairly easy for an LLC to elect to be taxed as an S-Corporation, going the other way can have dramatic unintended tax consequences.

Where can I find a list with everything that is tax deductible?

No such list exists! Why? Because not everything that is tax deductible for one taxpayer is deductible for everyone. Does this sound unfair? It is not, because deductibility often depends on the purpose an expenditure occurred. Are office supplies on your craft table deducible? No, they are not. Are office supplies in a business office drawer deductible? Yes, they are. You see, the IRS applies a standard of “Ordinary and Necessary” to many tax deductions. Within the confines of a business, only expenses that are both “Ordinary” for such a type of business and also “Necessary” to pay in the course of producing income, will be tax deductible. Cosmetic makeup is not deductible for an accountant, but it may be for an entertainer. Continuing education that propels one into a new career are not tax deductible, but continuing education that enhances one’s effectiveness in their current career are. When in doubt, keep a list of expenditures and ask your tax advisor which can be used in your situation.

I have a new job. What do I claim on my W-4?

NEW FOR 2020: We have a newly designed Form W-4! Please read below as the revisions are dramatic.

How is the new form different?
The new form walks you through a 5-step process. The form does a better job considering your entire household’s tax situation. If there is only one income source for your household, only steps #1 and #5
are required, and the form is still quite simple. However, multi-income households may require inputs into an online calculator (or paper worksheet in the form’s instructions) to generate amounts needed to complete this W-4 Form. Not all taxpayers will be comfortable providing household income information
to their employers, and though the form doesn’t state this, you are not required to do so. You can still
request additional taxes withheld in line 4c without providing the other personal details. Or, you can pay additional taxes outside of your employment, and we can help you do so.

Am I required to complete a new form?
Yes, for any new hire job after January 1, 2020. However, even if not required, we recommend you revisit your withholding periodically, particularly if your tax situation changed. Consider recalculating if
(1) you hold more than one job, (2) you changed jobs, (3) one job lasts only a partial year, (4) you have variable income sources with no withholding, (5) you are newly eligible for tax credits or deductions due to tax law revisions or life changes (such as birth of a child, or a new home or business purchase), or (6) your old withholding was not producing the desired result.

The new Form W-4 can be viewed here: https://www.irs.gov/pub/irs-pdf/fw4.pdf

If there is more than one job in your household, first complete the withholding tax estimator located here: https://www.irs.gov/individuals/tax-withholding-estimator

Confused? Click here to read the IRS FAQs: https://www.irs.gov/newsroom/faqs-on-the-2020-form-w-4

Still confused? Please contact our office.

How do I deduct car expenses with both business and personal mixed use?

This is one of our most commonly asked questions, and it is also one of the highest risk deductions. Why? Because it can be difficult to determine, taxpayer recordkeeping tends to be poor, and there is a tremendous amount of deductibility abuse. Mixed-use expenses must be closely examined, and impeccably documented. How you handle autos depends first on whether the auto is leased or owned, and where the auto is titled (business or personal) (we like owned autos to be titled where they are used over 50%). We ask our clients to pay for 100% of the expenses wherever the car is titled, and we will adjust for the car’s other use accordingly. Under any circumstance, maintenance of a mileage log is of utmost importance (hint: there are some great phone apps out there!). Deductions are sometimes calculated based on the IRS-published cents-per-mile method, and sometimes calculated based on a percentage of actual expenses paid. Sometimes value and age of the car are considered, and sometimes personal use must be added back into a business owner’s W-2 as compensation. Start your mileage log today, and remember, commuting to an office outside the home is considered personal-use mileage.

How do I value my donations of noncash items such as clothing and household goods?

The general standard for deductibility for household items donated to a re-sale charity is “Thrift Shop Value”. This is an amount similar to the value a thrift store places on the goods when held for sale within their shop. The IRS actually suggests you shop thrift stores or classified ads to generate a reasonable estimate. For an easier method, note that large charities such as the Salvation Army and Goodwill have gone so far as to publish valuation guides on their websites (see HERE). Document your “good used-condition or better” items on a list, and do the math based on a reputable valuation guide. You can further demonstrate due diligence by snapping photos of your donation pile and keeping them with your valuation estimate list. Note: limitations and additional procedures apply to any single item worth more than $500 or any annual combination worth more than $5,000.

How long should I keep copies of my prior tax returns?

Assuming you reported a complete and honest tax return, the standard retention period is for 3 years after you filed, or 3 years after the related tax was completely paid (whichever is later). This standard exists as it matches the statute of limitations for IRS Audits. However, if you under-reported your income by at least 25% the IRS is allowed 6 years to adjust your return. Longer scenarios can apply in cases of tax evasion or tax fraud. Regardless, if your return includes any items which affect other tax years, you might consider your tax return a permanent document. Examples of common multi-year items include business activity reporting (such as Schedule C sole proprietorships or Schedule E rental activities), tax elections remaining in effect in subsequent years, depreciation schedules, losses or credits held for later use, repayment of tax incentives such as the first-time home buyer credit of 2008, and use of limited-use incentives such as certain higher education credits and residential energy credits. Under any scenario for the tax forms, most indicators suggest you can discard underlying supporting documents after 7 years.

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