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    Dependents 101: Who Qualifies? Who Can Be Claimed?

    If you are wondering who the IRS qualifies as a dependent, then hopefully this article will clear up any ambiguity. To claim a dependent when you have one is very important, because you get an exemption for that dependent that will reduce your taxable income. And according to the IRS the two types of dependents are qualifying relatives and qualifying children.

    A Qualifying Child

    For you to claim a child as a dependent then he or she must be either: your child, stepchild, foster child, or half sibling (or the descendant of one of those). The child should have the same residence as the taxpayer; and he or she should have lived with the qualifying tax payer in his or her residence for six months or more. There are exceptions to these rules however, and the exceptions are for children whose parents have divorced, and also include kidnapped children, children who have taken temporary absences, and children who were born or who had died in that year. The child needs to be under the age of nineteen at the end of the taxable year, or, in the case that the child is a student, under the age of twenty-four.

    For a taxpayer to claim a qualifying relative, the relative in question must not also be able to be claimed by another taxpayer (cannot be anyone else’s qualifying child). The relative must be related directly to you, and you must provide fifty percent or more of the financial support for that person in that year.

    And if you have any questions whether the children or relatives who live with you, or for whom you provide significant financial support either in your residence or at theirs, qualify as dependents, then make an appointment with your accountant at Practical Taxes today. You don’t want any financial surprises come tax season, which, by the way, is only a few short months away. And having the knowledge and experience of a professional tax expert at Practical taxes guiding you, could make all the difference.

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    Becoming More Efficient in Your Business

    Drucker-portrait-bkt_1014Running a business is all about efficiency. Without certain systems in place, you will never be able to accomplish all that you need to get done. For example, if you simply have too much work to get done, then you will need to hire employees. Of course with those employees comes a whole host of other problems that need to be resolved such as payroll, bookkeeping, and many more. You can do all of those yourself, or you can put a system in place to accomplish those tasks for you. Your payroll services specialist in Billings, Montana explains how.

     

    Becoming More Efficient

    Peter Drucker, the late business consultant and educator, once said, “Nothing is less productive than to make more efficient what should not be done at all.” These words have never been truer, especially in today’s world where often business owners try to take on everything rather than delegating and simplifying.

    Eliminate – There are many things that business owners simply don’t have to do. But for some reason, perhaps it’s because they want to make sure that everything gets done properly, they do them anyway. For instance, there are a lot of business owners out there that feel they need to incorporate every form of marketing available.

    So they stress and worry about their radio ads, billboards, TV ads, internet marketing, and social media marketing. In today’s world, they could easily eliminate three or more of those forms of marketing, and still make just as much of an impression on the community.

    Delegate – If you have employees, then you are already delegating. Whenever there is a task that can be done by someone else, you can help alleviate some of the stress by delegating that task to someone else.

    Most of us delegate already. We ask our connections on Facebook for advice, we have employees help us, and we have our accountant run our payroll and our bookkeeping. Any time that you can have someone else do the work, it is usually better to have them do the work.

    Simplify – Sometimes you just need to simplify your work. Instead of having an elaborately designed 10 page color catalog that nobody ever reads, have a 1 page flyer instead. But as we referred to above, if the work doesn’t need to be done, then simplifying isn’t going to make you more efficient.

    That is why we always ask first, “can this be eliminated?” and then, “can this be delegated?” and finally, “can this be simplified?”

    Practical Taxes Can Help

    In your quest for maximum efficiency, Practical Taxes can help alleviate the burden that you feel. If you have employees, and you are still writing paychecks every two weeks, delegate that to us. If you are slogging your way through bookkeeping every months, delegate that to us.

    If you are trying to file your taxes quarterly and are frustrated beyond belief, delegate that to us. As a full service accounting firm in Billings, Montana, we can take a lot of the pressure off of you so that you can better run your business.

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    Business Expenses | Accountant Billings MT

    Taxes and Small Business: A Few Things You May Not Know…

    A small business is rewarding—especially on day one—but also it can be extremely challenging. And if you are planning to open soon a small business, then you first might want to know your particular business entity. What does this mean? This means that the Government will assess your taxes based on how your particular business chooses to operate. The most common entities recognized by the government are: Sole Proprietorship, Partnership, Corporation, and S Corporation. To break these down further, you should know that Sole Proprietorship means that you and your business are subject to an income tax that is calculated at the individual level; you alone run the business (Many small businesses are recognized by the Government as Sole Proprietorships) and you are also subject to the self-employment tax. Partnership is viewed by the Government as being similar to the Sole-Proprietorship in that the business owners are subject to the tax rate at the individual level, including the self-employment tax. Tax liability for a corporation is more difficult to calculate in that the business (corporation) is taxed at a corporate level, and also shareholders of the corporation are treated as employees, all of whom are subject to payroll tax, similar to how an employee would be taxed on their wages. The S Corporation entity is a corporation that is allowed to be taxed at an individual level, and the shareholders of that corporation are treated as employees to be subject to payroll-type taxes.

    There are obvious drawbacks and liabilities to each entity, and if you are considering the structure for a small business idea, then you may first want to assess how you view your business goals and the potential your business has for potential growth. Your tax professional at Practical Taxes is experienced in small business tax and even payroll options for when your business is ready to launch. And if you have any questions as to how Practical Taxes can help your business succeed, then call today.

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    5 Time Saving Tricks You Aren’t Using

    It happens to the best of us. There are simply not enough hours in the day to maximize our productivity. In the end we have to move a good portion of our to-do list from one week to the next; a seemingly endless battle to have everything cleared from our schedule. If you can relate, then this post is for you. You need to incorporate some of these time saving tips into your work life, and for once go home at the end of the day feeling like you have accomplished all that needs to be accomplished. Keep reading as your accountant and payroll services expert in Billings, Montana explains what you need to know.

    Make a Schedule

    Schedule-150x150

    You might be saying that you already have a schedule, but I can assure you that not many have a schedule like the one needed to be highly productive. This schedule includes EVERYTHING. Monday to Friday your schedule dictates when you wake up, when you eat, how long you get for your shower, all the way down to bathroom breaks. A highly structured person is a highly efficient person.

    The caveat here is that it is going to take you several weeks to perfect your schedule. Things will change and need tweaking, but if you have everything on your schedule, including not only when but also what you eat for breakfast, you will see productivity soar.

    Learn to Say “No”

    We hear this often, but we continue to ignore this advice. There comes a point in our lives, whether work or personal, that we just need to say “No.” It can be extra work, lunch with a friend or co-worker, dinner out, that ski vacation that you really don’t want to go on but you feel bad because your friend from college wants to keep in touch but you couldn’t even stand him when you were roommates so why would you want to go skiing with him and his family… you get the idea.

    Practice this one. The next time another project comes across your desk, politely decline and say you already have a full plate. If your services are valuable the person will either wait, or offer to pay more.

     

    Turn Off the Internet

    Most of us think that the internet is required for our job. In some cases it is, but in most cases we can get by without it for an hour or two. Want to increase your productivity? Just reach over and unplug the router. This also means no checking your Facebook on your phone either. Disconnected is always disconnected.

    Delegate

    Passing work off to someone else is one of the greatest joys in life. You have a ton on your plate, and having someone else take part of the workload will make you feel almost guilty, as though you aren’t working hard enough. Don’t be fooled; you are.

    Even if you don’t have employees you can still delegate. There are plenty of companies out there that will do one-time odd jobs for you (such as running errands that consume a ton of your time), and there are virtual assistants that will work for $8 per hour on those tasks that just eat up your time.

    Take More Breaks

    It may seem counter-intuitive, but taking breaks will actually increase your productivity and save time. Think of it like this: you get your mind working on a project and keep the train of thought until that task is done. Switching over to a new train of thought takes time, and if you don’t do something to take your mind off the previous task, you have trouble getting started on the next one. These breaks should be scheduled into your day, and they should be 5-10 minutes to get a cup of coffee and stare out the window. Maybe click “LIKE” on the funny picture your cousin just posted.

    Practical Taxes Can Help

    About those tasks that you just need to delegate out; that is where we come in. You can do your taxes on your own, or do your own payroll, and do all your own bookkeeping. But why would you? Instead let a full service accounting firm in Billings, Montana do the hard stuff for you. This time saving tip alone will clear you up to focus on what you do best: run your business.

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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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