The importance of a CPA

Life is often viewed as a series of stages – childhood, graduation, parenthood, and retirement, to name a few. Like the points on a clock, time moves us from one stage to the next. No matter what “time” it is in your life cycle, you probably share a common worry: money. Managing money for today is one thing; making decisions to ensure adequate funds for the next stage is quite another.

The CPA commitment. As trusted advisors, CPAs across the country have made a commitment to increase financial literacy. How? By volunteering to educate the public about financial issues and the decisions that must be made at every stage of life. Americans are faced with significant financial concerns, but often have insufficient financial literacy. Bright and even highly educated people sometimes have trouble speaking the language of money, often to their economic detriment.

To combat this trend, the CPA profession has united around a cause to educate Americans, rich and poor, young and old, on how to better handle their finances. With the life cycle “clock” as a model, CPAs have taken a full, 360-degree view of the challenges Americans face. For each milestone, the profession has solid, practical advice to share. You might say CPAs are once again emphasizing the term “public” in their title.

Call on us. Which brings us to our firm, Loeffler Financial Group. We, too, have accepted the call to educate our community. Our team of experts would be pleased to speak to your organization about life’s financial challenges. We can also speak to students or provide classrooms with timely, interesting material on money and financial issues.

If you would like to find out more about the accounting profession’s drive to improve financial literacy, give us a call. Life’s financial clock is ticking. Let us help you before the alarm goes off. Call Loeffler Financial Group today at 717-393-7366!

If you’re a sole proprietor, you have probably wondered at some point whether you’d be better off if you incorporated your business. Here are some facts for you to consider.

  • The single biggest benefit of incorporating a business is limiting an owner’s liability. In theory, a stockholder in a corporation risks only his or her investment in the corporation stock. A lawsuit against the company generally cannot be satisfied by attaching the stockholder’s personal assets. In practice, most small corporation stockholders must personally guarantee bank loans for their corporations. Thus, if the corporation fails, the stockholder’s personal assets are at risk. In addition, where personal services are involved, the individual performing the services may be personally liable for his or her actions even though the business is incorporated.
  • The second advantage of operating as a corporation is that it may be easier to raise capital because the business can do so by issuing stock and selling bonds.
  • A third advantage is that ownership interest in a corporation is easier to transfer than in a sole proprietorship.
  • A corporation files its own tax return and pays its own income tax. Therein lies the major drawback to the corporate form: business profits may be taxed twice – once at the corporate level and again at the shareholder level when paid out as dividends or liquidating distributions. Double taxation can generally be avoided by electing S corporation or LLC status.
  • The corporate form does allow for more fringe benefits that are deductible by the corporation and tax-free to employees, including an owner-employee.

No business owner should incorporate without carefully considering the pros and cons of doing so. Loeffler Financial can help you review the pros and cons, and guide you the direction that best suits you and your business needs,  Contact us today at 717-393-7366.

 

The Roth IRA has been widely discussed and analyzed. One of the most challenging questions this retirement vehicle brings up is whether or not you should convert your existing IRA to a Roth IRA.

How the Roth IRA works:

You’re allowed to contribute up to $5,500 to a Roth IRA in 2018 ($6,000 in 2019) plus an additional $1,000 if you are 50 or older, the same as any other IRA, but your contributions aren’t tax-deductible. However, there’s an important, offsetting benefit: Principal and earnings in a Roth IRA may never again be subject to federal income tax, and a Roth IRA isn’t subject to mandatory distribution requirements.

Example: Barbara contributes $5,500 to a Roth IRA. Although Barbara receives no tax deduction, this IRA can grow to any amount and it could never again be subject to tax. And for the rest of Barbara’s life, withdrawals may be as large or small as desired, provided Barbara is at least 59 1/2 years old and she’s had the IRA for at least five years.

What about a conversion?

The law also allows you to convert an existing IRA to a Roth IRA. If you convert to a Roth IRA, you’ll have to pay regular income tax on your existing IRA. But once you pay the tax, your rollover Roth IRA will offer the benefits of a Roth IRA.

Fortunately, the conversion lends itself to a checklist approach. The checklist below is designed to give you a start in dealing with the conversion question, but it’s not intended to be the last word.

Do you currently have an IRA? Yes______ No______
Use this checklist to help you decide if you should convert to a Roth:
Do you expect to be in a higher tax bracket when you retire? Yes______ No______
If you expect to be in the same or lower tax bracket when you retire, it may not make sense to pay the conversion tax today.
Will you be able to pay the resulting income tax with cash from outside your IRA? Yes______ No______
If you must tap into your IRA to pay the tax, conversion to a Roth IRA is unlikely to pencil out. But remember: you can reduce the potential tax bill by making a partial conversion.
Will you be able to leave the money in the rollover Roth IRA for at least five years? Yes______ No______
You could incur tax and a penalty if you tap your Roth IRA in less than five years.

If you checked “Yes” to all questions, you might be a good candidate for a rollover Roth IRA. However, even if the checklist indicates that you should convert to a Roth IRA, your personal situation may still point in the opposite direction.

Before you make a final decision – yes or no – be sure to contact an expert for investment and tax advise. Should you wish additional information please call Loeffler Financial Group at 717-393-7366.

 

Tax season is about to begin across the country. If you’re like us, you probably never want to think about 2020 again, however you do need to file your 2020 taxes. 

Thanks to the coronavirus, a lot has changed for the 2021 tax season. That’s why you need to start thinking about your tax situation 

Loeffler Financial Group recommends scheduling an appointment with a tax professional to ensure taxes are accurate, especially with some people having major income changes due to unemployment, and pandemic relief programs and tax credits, including additional allowances for charitable donations and the Recovery Rebate Credit.

First, here are the main things you need to know right off the bat for the 2021 tax season:

  • Tax Day is Thursday, April 15, 2021. You must file your 2020 tax returns by this date! 
  • The standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly.  
  • Income tax brackets increased in 2020 to account for inflation. 

Tax Deductions and Credits to Consider for Tax Season 2021

When it comes to filing taxes there are 2 things to pay attention to: deductions and credits. Both help you keep more money in your pocket in different ways!

Tax deductions help lower how much of your income is subject to federal income taxes while tax credits lower your actual tax bill dollar for dollar.

Here are some deductions and credits you might be able to claim on your 2020 tax return:

Charitable Deductions

NEW this tax filing year, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations.

Medical Deductions 

If you spent a lot of time in the hospital or have large medical bills, you might be able to find at least some tax relief.

You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. 

Business Deductions

If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.

TAKE NOTE: If you’re one of the millions of workers who were sent home to work remotely through the pandemic, you won’t be able to claim the home office deduction since it’s reserved for self-employed individuals only. 

Earned Income Tax Credit

The EITC is a refundable credit designed to help out lower-income workers. Depending on your income, your filing status and how many children you have, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. 

Child Tax Credit

Families can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). 

 

You should work with a tax advisor who can make sure you’re not leaving any deductions or credits on the table. Depending on your situation there are other tax deductions and tax credits to take!

The Coronavirus and Your Taxes

Here are some things to keep in mind when you file your 2020 taxes:

Stimulus Checks

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent out a stimulus check to millions of Americans.

This stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2020. In layman’s terms, the stimulus check is like an advance on money you would have received as part of your tax refund in 2021.

Paycheck Protection Program (PPP) Loans

The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”

Unemployment Benefits

Many Americans found themselves out of work after the pandemic shut down turning to unemployment for assistance. Those who received unemployment benefits will need to pay income taxes on that money.

Retirement Plans: 401(k)s, IRAs and More

There were a lot of changes to retirement plans in 2020—and some of those changes could impact your tax bill this year. Let’s tackle each of those major changes:

  • The CARES Act allows folks under age 59 and 1/2 to take up to $100,000 out of their 401(k)s and IRAs up until the end of 2020 without having to pay an early withdrawal penalty.
    • Taking money out of your retirement accounts before retirement is a terrible idea—penalty or not. 
    • The money you take out of tax-deferred retirement accounts like a traditional 401(k) or IRA will be taxed as ordinary income.
  • If you own a traditional IRA, you have to take money out of your account once you reach a certain age. Those withdrawals are called required minimum distributions (RMDs). 
    • The SECURE Act pushed back the age for RMDs from traditional IRAs from 70 and 1/2 to 72 (if your 70th birthday was July 1, 2019 or later).
    • The CARES Act allows seniors to skip RMDs altogether in 2020 without penalty. This could lead to significant tax savings for retirees with those accounts since the money that’s taken out of a traditional IRA counts as taxable income.
  • The SECURE Act also allows owners of traditional IRAs to keep putting money in their accounts past age 70 and 1/2 starting in 2020. Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year.

One last thing—It’s probably a good idea to reach out to a tax advisor who can assist you and review all the new tax laws and changes for the upcoming tax season.

With the coronavirus still spiking, Loeffler Financial Group will continue their virtual tax appointments and consultations, along with their easy and stream-lined drop off tax services. Book your virtual appointment today, or call us to learn more about our drop off program.

 

As 2020 comes to an end, companies across the country are working diligently to close out their books so that tax returns can be filed on time and you can review insight into the year’s performance. As work stacks up, it is easy to miss a step in this process, which could cost you time and money. Loeffler Financial Group has created a comprehensive checklist to help you adapt to your end of year closing process.

LFG - Year End Planning

RECORD AND RECONCILE

This is the first step to ensure all transactions are up-to-date, and complete for the end-of-year close. This includes all current bills and invoices, even if they still need to be paid. Review all past documentation to make sure everything has been recorded and nothing is missing. 

It’s vital to ensure all transactions you’ve recorded in your bookkeeping software match what’s on your bank and credit card statements. To do this, you will need to perform a bank reconciliation. Our QuickBooks staff member can help make completing this task less strenuous.

COLLECT W-9S

If you pay a vendor $600 or more for services, you may need to issue Form 1099-MISC. The information on this form is used to create the 1099s you will use to report the total amount paid to the IRS. Best practices state when hiring a contractor, freelancer, or vendor, it is always best to have them fill out a W-9S before beginning any work or issuing their first payment.

CHECK YOUR ACCOUNTS RECEIVABLE AND INVOICES

Reviewing your receivables regularly to make sure you’re getting paid is a good idea. Review your outstanding invoices and note whether the invoices are marked paid or not. Look into any missing invoices. Reviewing these invoices  will provide you with a better understanding of where you stand, and let you know if some customers are behind in paying their invoices. Don’t be afraid to call them, and let them know their status – as you need to mark their invoices as paid to close the books. 

PAYROLL ESSENTIALS

Verify all employee information before issuing Form W-2. A missing or incorrect name or Social Security number can lead to penalties. Make sure all paychecks from the year have been recorded. Be sure to include all payments for commissions and bonus pay.

Planning is essential when it comes to bonus payments. Lead time will ensure timely delivery and the opportunity to review the accuracy of the checks before the check date. Remember, a bonus will often push an employee’s pay into a higher tax bracket for that pay period. Consider the tax implications for the employee on a local, state, and federal level before running the bonus payroll.

CHECK WHAT’S IN HOUSE

Year-end inventory counts can be a significant undertaking. However, it can make things clear if there are problems, such as bad inventory management or errors in stock. If there’s a considerable discrepancy between the inventory count and your bookkeeping, it should be corrected promptly.

Once you’ve completed your inventory counts, and have reconciled your point-of-sale system, ask yourself, Is there any room for improvement? Can you make your counts more efficient? Record your thoughts, review them with your accountant, and apply them in the new year.

YEAR-END ACCRUALS

Accruals are adjustments for revenue that have been earned but not posted to the general ledger accounts, and expenses that have been incurred but are not posted to the general ledger accounts. Year-end accruals are adjusting entries to make sure revenue and costs are recorded in the correct fiscal year.

Record year-end accruals, if you are not already recording monthly depreciation, payroll, and payments made for services not yet received.

REVIEW YOUR FINANCIAL STATEMENTS

Once your bookkeeping is complete, it’s a good idea to look through your income statement and balance sheet – make sure everything appears correct. Look for dollar amounts that don’t seem to match. Catching these mistakes now can save you time and trouble later. 

Remember to look for things like:

  • Negative account balances
  • Balances that differ (seem too high or too low)
  • Substantial differences in last year’s account balances

LOCK THE PERIOD

It’s so easy to type in a wrong date, especially when January hits, and you have to type 2021 and not 2020. Remember, numbers are the single source of truth for every business, providing your results and how your company is performing.  If you are continuing to change things after the fact, you won’t have a good handle on how your business is performing.

NEXT STEPS

Don’t be overwhelmed if you are not ticking all of these boxes. Take it one step at a time, and work through these tasks. If you’re still confused on where to start, reach out to our team of accounting experts at Loeffler Financial Group to help you make sense of your accounting and year-end. We’re here for you!

 

717.393.7366 | info@loefflerfinancial.com