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    2018 Taxes: What Do You Do with The Paperwork?

    Don’t fret about an audit, because, for most of us, an audit isn’t an overly scary thing. If you payed your taxes and had the professionals at Practical Taxes help to get your paperwork in order and helped you file that paperwork correctly, by the correct date, you’re probably fine. But still an audit can happen. And it can happen even a year or two after the tax year for which the IRS wishes to audit (Sometimes an audit can come seemingly out of nowhere, a complete surprise). And if you are going to be audited, you will want to be prepared; you will want to be able to show the IRS everything for that particular tax year.

    Keep all your receipts from the tax year with your tax paperwork. Oftentimes proof of a particular expense is all the IRS needs to happily close your case and move on. You want every receipt, every scrap of paper that was official evidence that you had an expense pertaining to your tax liability. If you wrote off gas mileage and the like, then make sure to keep that evidence handy as well. Gas logs are invaluable at times like these.

    How Long Should I Keep the Records?

    The statute of limitations (Admittedly that term sounds too officially criminal, but it just refers to the limit on the span of time for which the law can investigate and then try a person) is different in every state. For most of us it’s important to keep our tax records for five years—longer if you kept tax records for employees.

    If you have any questions about dealing with an IRS audit, or if you need accounting help in the coming year—Practical Taxes can help with payroll services, and full service, year-round accounting services—then make sure to call the tax experts at Practical Taxes. Remember, most times an IRS audit is nothing to be worried about, but you can have even more confidence when Practical Taxes guides you through.

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    Three Ways to Run a Better Business

    If you are a business owner then you are always on the lookout for how to run a better business. You want to have a clean and fluid business that can operate without you. You want to be able to take a vacation and know that when you return, there won’t be a pile of work for you to get done. But you wonder how can that can even happen? You’re scraping by now and can only dream of those days.

    It all starts with taking small steps. Let your accountant in Billings, MT explain the three steps it takes to run a better business.

    Invest in Your Presence

    There are two different types of marketing out there: branding and marketing. Branding is letting people know who you are; marketing is letting people know what you sell. Many businesses skip the first step, and jump right into the second step.

    Before you can sell a product to your customer, your customer needs to be familiar with your face. Let’s look at it this way. You need life insurance and the only two companies that you can find are MET Life and XYZ Financial. You have seen the Snoopy commercials, you know “Get MET, it Pays”, and you’re familiar with the brand. XYZ Financial says they offer a premium product for 20% less than MET Life offers. Who do you choose? Most people will go with MET because they trust the brand (although they know nothing about the brand other than they have heard the name often).

    As a business owner, you want your name to become a household name (Coca-Cola, Kleenex, Apple, Toyota, etc.). When people already know your name, then they will be more likely to buy your product.

    Sell to Your Customer; Not to You

    A good sales person knows this rule of sales: make it all about the customer. Don’t tell them what you have to offer, tell them how you can solve their problem.

    accountant and payroll services expert in Billingsaccountant and payroll services expert in Billings

    Often we hear sales pitches that go like this: “We have the best product on the market. Through years of research and development, we have developed a product that blows away the competition. Our product is ranked better than 98% of all others out there, and our sales show that we are the best!”

    Nobody cares. The customer wants to hear a pitch like this: “Are you tired of [xyz]? 98% of our customers report that [product name] has helped them. Don’t suffer any more, try us today. If it doesn’t work out, we have a money back guarantee.”

    See the difference? The first pitch is all about how great the product is. The second is all about how the product helps the customer.

    Meet the customer’s needs, and the sale will make itself.

    Get Organized

    One of the biggest business killers is lack of organization. If you want to run a better business, you have to invest time (every single day) into staying organized. Doing so will help ensure that you will remember to reply to all of those emails, return phone calls, and get everything done.

    Look at it like this. Suppose you remain unorganized. Every morning, before you get any work done, you have to spend an hour remembering where you left off the day before, figuring out what project you are working on, and de-cluttering your desk. Now let’s suppose you spend 15 minutes at the end of every day organizing for the following day. Now you have that entire hour at the beginning of the day (when you are fresh and thinking clearly), to get as much accomplished as possible. You can run a better business with ease because you gave yourself a boost.

    Let Practical Taxes help you Run a Better Business

    As a business owner, you have a lot on your plate. You have work to do, prospects to follow up with, and phone calls to return. The last thing that you want to do is worry about your taxes and payroll. Don’t muddle through doing your own taxes, leave them to us!

    We offer affordable tax preparation services here in Billings, MT. We spend our time on your taxes, so you can spend your time learning how to run a better business.

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    Estate Taxes vs. Inheritance Taxes

    castle-780982_1920-300x225Estate taxes are often referred to as death taxes. It seems that no matter what is going on, the government wants to get a piece of the pie. So when you pass away, if you have a large enough estate, there may be taxes that are owed. On top of that, there are inheritance taxes to be worried about. So how do you know the difference, how much you will owe, and what to plan for? Keep reading as Practical Taxes, your accountant in Billings, explains the difference between estate taxes, inheritance taxes, and who needs to worry about them.

     

    Federal Estate Taxes

    A few years ago, understanding estate taxes was a pain. There was a set amount that would be excluded, and that number stayed the same for a decade. After 10 years it needed to be adjusted for inflation, but congress was trying to decide what to do. There was a fear that it would reset, and anyone that died during the reset period would be subject to massive taxes.

    Fortunately that has been figured out, and the estate tax exclusion now adjusts annually. For tax year 2015, your assets can total $5.43 million before you owe taxes. That means if your assets total $5.45 million, you only owe federal estate taxes on $20,000. Current estate tax rates are between 35% and 45% depending on your situation.

    If you are fortunate to have an estate larger than the exclusion, and thus you will have to worry about the taxes, pay attention to the name of the tax. Estate taxes are paid by the estate before money is distributed to the heirs. The government doesn’t care if those assets are tied up in real estate either. The estate will have to raise the money any way possible to pay the tax.

    State Inheritance Taxes

    Fortunately there are only 15 states (and D.C.) that have an inheritance tax. Montana is not one of them. But in case you have two residences, pay attention.

    State inheritance tax varies by state. There are different exclusions, different tax rates, and different provisions. Since Montana isn’t included, we won’t go into any details; but we can discuss it with you if your situation calls for it.

    Just as estate taxes are paid by the estate, inheritance taxes are paid by the heir.

    How to Avoid Estate Taxes

    There are a couple of ways to avoid estate taxes. One involves reducing the size of your estate, the other actually involves increasing the size.

    Reducing the size of your estate – The only true way to completely avoid estate taxes is to have an estate smaller than the exclusion of $5.43 million. However, rapidly reducing your estate is tough since you can only give away a certain amount every year. You can give $14,000 each year to anyone and avoid gift taxes. So if you have 10 grandkids, you can move $140,000 out to UGMA or UTMA accounts. You can move money out by donating to charity, or setting up an ILIT.

    Increasing the size of your estate – Moving money into an ILIT will actually increase the size of your estate. Let’s suppose your estate is worth $6 million. You start an ILIT (the trust owns the insurance, the estate is the beneficiary) and give the trust $14,000 per year to pay the premiums. Suppose the death benefit is $4 million, your estate (at the time of your death) will be worth $10 million. The benefit here is that even though you owe taxes on the additional value; it is all paid with liquid money that comes from the life insurance.

    Let Practical Taxes Help with Your Estate Planning

    If you have estate planning needs, Practical Taxes can help. We can work closely with your attorney, your financial advisor, and you to draw up these plans. We will help you plan for your estate taxes, or help you avoid them if we can legally make it happen.

    If you don’t have estate tax issues, we offer affordable tax preparation services in Billings. Give us a call at 406-894-2050 to learn more and to schedule your appointment.

     

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    Small Business Smarts

    It’s becoming a popular thing to do: start up a small business, even a “micro” small business (consider the tiny online stores on the Etsy and Ebay websites). And the talk in Government is all about the encouragement of more small business; encourage the working man or woman to set out on their own, get a tax break in the process… And it’s true that owning a small business has considerable benefit to those willing to take on the responsibility: there can be great pride in building a business, pride in ownership, in being your own boss. But there are many overlooked costs and responsibilities that people may not consider when starting out on their own. Here’s a few.

    Wait time and Cost of Licensure, Insurance, Registration…

    Most folks consider the process of licensure when they start up the business, but not everyone considers the cost and scope of insurance; the cost and scope of insuring employees, or the liability of using contractors, operating on their own specialized license, in relation to the liability of the business.

    Paperwork

    Sometimes people get into business without any real foundation of the required paperwork—everywhere in business there seems to be paperwork—and to be bogged down and unprepared for the banal methods of paperwork can be costly for your business. You may want to consider hiring an accountant to help with payroll and other accounting jobs; Practical Taxes will ensure your annual tax liability gets handled smoothly. Did you know, for instance, that when you work for yourself there is a self-employment tax? Have you ever considered how much of your precious time will be taken away by employee background checks and payroll?

    Unfortunately, even businesses built with the best of intentions don’t last long without proper financial planning. If you are planning to go into business on your own soon, or if you are still on the fence, considering it, remember that a quality accountant can help your business run smarter and more efficient. If you have any other questions as to how Practical Taxes can help your business, call today.

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    Tax Implications of Selling Your House

    Tax Implications of Selling Your House

     

    A great way to build wealth is to own a house. Now keep in mind that buying a house ajust because you think it’s the perfect investment is actually not the way to go. A house is a good investment, but there are better ways to invest that will earn a bigger return.

    But what happens when you want to sell your house? Suppose you want something bigger, or maybe smaller. Perhaps you’re sick of maintaining your home and you want to move into a rental. Or you have been transferred out of state for your job. No matter what the reason for selling, there are tax implications of selling your house that you need to be aware of (don’t worry, your accountant in Billings, Montana will know the specifics; you just need to be aware).

    Avoiding Taxes when Selling Your House

    In 1997 the Taxpayer Relief Act was passed. This law provided a big relief to those who were selling their home and making a bit of a profit on it. Before the law was passed you had to reinvest those profits into another home (a bigger home) within a certain time period. Now you get a big break.

    2 of the last 5 – The law states that if you have lived in the house, as your primary residence, for at least two of the last five years, then you can claim the capital gains exclusion when selling your house.

    $250,000 to $500,000 – If you file your taxes as single, then you can profit $250,000 on the sale of your house and not have to pay taxes on the gains. If you are married, then you can profit up to $500,000 on the sale of your house.

    Age is Just a Number – You can claim the capital gains exclusion no matter how old you are. You don’t have to be over 55 to get this.

    Before 1997 it was pretty hard to sell a house, make a profit, and get away without paying the taxes. Now it is pretty easy to sell a house, make a profit, and not have to worry about paying taxes on the gains. But there are times when you still might owe.

    When do You Pay Taxes when Selling Your House?

    Not everyone can get away without paying taxes on the sale of their house. But you almost have to try hard to pay those taxes.

    If you profit more than the exclusion allows, then you will owe taxes when selling your house. But the good news is that you don’t owe taxes on the full amount. For instance, if you are married, and you sold your house and made a profit of $500,100, you would only have to pay taxes on the $100 over the exclusion amount. There is more though. If you make over $200,000 per year, there is a Medicare tax imposed on the gains over and above the exclusion.

    Keep in mind that you can only claim the exclusion for one house at a time. So if you sell your primary residence, you can claim the exclusion. But then if you sell your vacation home, you cannot claim the exclusion (because you weren’t living there for 2 of the last 5 years).

    Taxes when Selling Your House

    Still have questions about the tax implications when selling your house? Contact Practical Taxes today!

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    April 15th Is Tax Day: Information For Anyone Needing An Extension

    It’s that time of year again; April 15th marks the end date to pay 2017 income tax. If you miss this date, you will be subject to a tax penalty—fee. But you do have a chance to file for tax extension, and a tax extension will allow a person a six-month-long period (Given an extension, October 15th will be the new date at which 2017 income tax filing will be due) in which they can file and avoid the tax penalty. You can get the extension on the IRS website here: www.irs.gov. And the deadline to request an extension from the IRS is April 17th, which allows people a few extra days, post Tax Day, to get their income tax affairs in order. There are special rules, however, for individuals who serve abroad in a combat zone or, what the IRS calls, a hazardous duty area. People who live outside the United States are also given certain consideration.

    The form to receive an extension is rather short and simple to complete, and, usually, tax extensions are provided automatically. Also, if you cannot afford to immediately pay your income tax, it’s best to either file on or before Tax Day and then sort out the particulars of the required income tax payment with the IRS—the IRS does offer several payment plans—or file for an extension by the 17th of April. To not have filed your taxes will end up costing you considerably more in the long run than an IRS interest rate or the percentage penalty for a delinquent payment (remember there is no penalty for an extension, as long as the income tax is filed on or before the 15th of October).

    If you have any questions as to how to communicate with the IRS about your financial situation, how to handle an extension, or would like advice on how to get your 2017 income tax filed, and then paid, then call the experts at Practical Taxes today.

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    The Curse of the Lottery Winner

    The Curse of the Lottery Winner

    People dream of winning the lottery. They make big plans on what they would do if they were to win millions of dollars, and they talk about how many people they would help. Of course they complain that the government would take approximately half of their winnings in the form of taxes, but overall they would still be happy with the huge surplus of money that they are left with. So how is it that about 70% of those who win the lottery will go bankrupt?

    The Curse of the Lottery Winner

    Unfortunately a sudden influx of money does nothing to help improve financial sense. So when people suddenly win millions upon millions of dollars, they simply stick with their same foolish spending habits. Only now those habits are at a much larger scale.

    Winning the lottery could help someone out tremendously. And the economic impacts of the lottery can’t be argued with. After all, those who win the lottery spend a considerable amount of it right away. They buy new houses, new cars, give to charities and family members, they pick up the tab at a restaurant… for every customer there. Lottery winners seldom have a problem finding ways to spend their money.

    However, without a set plan on how to spend the money, most will make foolish money mistakes that ultimately reduce them right back to where they were before they won their millions of dollars. If you don’t believe me that winning the lottery brings some unnecessary hardship, check out these 10 people that couldn’t handle their winnings.

    Make a Plan before You Win

    There is really no financially sound reason that you should even try to win the lottery in the first place. In fact, the odds of winning are astronomically high. But you can take this advice and apply it to other financial windfalls like receiving an inheritance, getting a large tax refund, or maybe even an unexpected bonus at work.

    Before any money actually comes in, make a sound plan to use it appropriately. For instance, you might want to pay off all of your debt, buy a new car, give a little to your family members, and take a vacation. Depending on your situation, that should only take up a few hundred thousand of your winnings. After that, invest the rest in a trust, preferably an irrevocable trust that has detailed information about who can take money out and how much they can access.

    Without a plan, we as humans are likely to overspend. Whether it is on ourselves, giving to charities, or all around just wasteful use of money, the lottery winnings will disappear quickly.

    If You’re Lucky

    If you have been lucky enough to win the lottery, you will want to enlist the help of an accountant in Billings, Montana. With the help of Practical Taxes, you can be sure that your money will be put to the best use, and your taxes will be minimized. Have you seen a sudden influx of money? Did that money disappear a lot faster than you care to admit?

    Practical Taxes is a full service accounting firm in Billings, Montana. While tax preparation is a huge part of our business, we also love to help with payroll services. One specialty is online payroll services; no matter what part of the country you live in, we can get your payroll done.

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    IRS

    Have you heard of the phone scam where someone calls and pretends to represent the IRS? The scammers inevitably ask for personal information, and, too often, people willingly give out their personal information, such as their social security number to these scammers. The scammers also ask for money. And, unfortunately, people pay it; or they provide their banking account numbers. It’s estimated that over ten thousand people—more everyday—have been affected by these phone scams; estimated that over fifty-four million dollars has been paid to these scammers. But you should know that there should never be a day where an IRS agent simply calls you up, unannounced, and asks personal questions.

    The IRS will make initial contact via the good old USPS. If they are requesting money, they will send to you in the mail a bill, requesting payment. The bill will look like any other bill you would receive in the mail; however, it will be from the IRS. There will be directions in the bill as to how to proceed to pay the bill or how to contact the IRS with any questions you may have; it will be simple and to the point. The IRS may notify you of a possible attempt to contact you via telephone—possibly even request a face-to-face meeting—but, when they do call, they won’t request that you tell them all your personal information. Remember, the IRS already has a lot of your personal information, and they won’t ask you for your social security number over the phone; they won’t ask you to tell them your bank routing codes, or your checking account number; they won’t ask you to pay your bill over the phone, and they won’t initially demand a payment—remember that you have rights, too, and one of those rights is to appeal. And they won’t threaten to have you arrested by the local police if you don’t pay.

    Call Practical Taxes for all your tax needs.

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    Tax Bill

    Unless you have been hiding under a rock, or you pay as little attention to the news as possible, you would have heard that our Government—in particular the Republican Party in the Senate—is attempting a massive tax reform. It’s interesting and a little unsettling—the bill passed in the Senate, late at night, just hours after the almost 500-page document—parts of which were edited in pen and scribbled on the margins (taxes are a hotly contested and divisive topic right now!)—was given out to members of the Senate But this is the politics of tax reform. And what does the tax bill, at least at it stands today, mean for the rest of us?

    Ok, let’s only scrape the surface of this, focusing only on how a possible tax reform could affect the average person’s taxes. Regardless of the politics behind tax legislation—these days politics are a very, very divisive topic—remember that these numbers will likely—most definitely—change, at least somewhat, and nothing here is completely definitive (nor is it a sure thing) as this bill has only been voted on, and passed, in the Senate; but, the statistics, at least so far, are interesting to dissect. First, earners from across the board, including people who make only ten-thousand dollars every year on up to people making over a million dollars a year could see a possible tax cut in the first year that this bill gets enacted—2019. A good percentage of the people who make over forty-thousand dollars annually on up to over a million will see a tax cut—not everyone, but a good percentage. But—and here is where the legislation gets tricky—by the year 2027, those tax cuts, especially for the people earning under one-hundred-thousand dollars every year, don’t exist, and these people will be required to pay in on their taxes.

    No, the current discussion of tax reform will not affect this year’s taxes, which are coming up fast. Make sure to make your appointment with Practical Taxes and forego the anxieties involved with the tax season.

     

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    Child Tax Credit

    Let’s discuss the Child Tax Credit. It’s a tax credit, taken annually, by people with children. The credit does not apply to everyone, however, and there are limitations and rules that govern when it can be used. Here are a few reasons why the Child Tax Credit might be a big advantage for your family.

    The amount of the Child Tax Credit is one-thousand dollars per qualifying child. That means if you have three children who qualify for the Child Tax Credit, then you will get one-thousand dollars for each of the qualifying children. The child needs to be under the age of seventeen to qualify (sixteen and under).

    To claim the child, you will need to have a legal parental relationship with the child. This relationship includes: son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, grandchild, niece or nephew. Brother, sister, etc., applies only in the case that the child meets the requirements for financial support. In order for the child to meet the financial criteria, the child cannot have provided more than half of their own support—the bulk of the financial responsibilities should fall on the parent.

    There are also citizen and resident requirement to meet when claiming this credit. The child must be a citizen of the United States, a U.S. National, or a legal resident alien. The child needs to have lived in your household, in your care, for half the year. There are some exceptions to this requirement, however they don’t apply to everyone, and should be discussed with your tax preparer.

    It’s for reasons such as these that hiring a tax preparer, come tax season, is important. Your relationship with your child may not be black and white. You might not know if your child qualifies for the credit or not. A qualified, professional tax preparer can help you through the process; they can make sure you get each and every dollar back on your taxes. Remember, if you make a mistake on your taxes, the IRS may audit you to get every last penny, but they won’t be banging on your door ready to hand you back money you’ve already paid. Don’t leave money behind.

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