Woods & Woods Associates, Certified Public Accountants

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03/05/2022

Maintaining Your Financial Records: The Importance of Being Organized

An important part of managing your personal finances is keeping your financial records organized. Whether it's a utility bill to show proof of residency or a Social Security card for wage reporting purposes, there may be times when you need to locate a financial record or document--and you'll need to locate it relatively quickly.

By taking the time to clear out and organize your financial records, you'll be able to find what you need exactly when you need it.

What should you keep?
If you tend to keep stuff because you "might need it someday," your desk or home office is probably overflowing with nonessential documents. One of the first steps in determining what records to keep is to ask yourself, "Why do I need to keep this?"

Documents you should keep are likely to be those that are difficult to obtain, such as:
• Tax returns
• Legal contracts
• Insurance claims
• Proof of identity

On the other hand, if you have documents and records that are easily duplicated elsewhere, such as online banking and credit-card statements, you probably do not need to keep paper copies of the same information.

How long should you keep your records?
Generally, a good rule of thumb is to keep financial records and documents only as long as necessary. For example, you may want to keep ATM and credit-card receipts only temporarily, until you've reconciled them with your bank and/or credit-card statement. On the other hand, if a document is legal in nature and/or difficult to replace, you'll want to keep it for a longer period or even indefinitely.

Some financial records may have more specific timetables. For example, the Internal Revenue Service generally recommends that taxpayers keep federal tax returns and supporting documents for a minimum of three years up to seven years after the date of filing. Certain circumstances may even warrant keeping your tax records indefinitely.

Listed below are some recommendations on how long to keep specific documents:

Records to keep for one year or less:
• Bank or credit union statements
• Credit-card statements
• Utility bills
• Auto and homeowners Insurance policies

Records to keep for more than a year:
• Tax returns and supporting documentation
• Mortgage contracts
• Property appraisals
• Annual retirement and investment statements
• Receipts for major purchases and home improvements

Records to keep indefinitely:
• Birth, death, and marriage certificates
• Adoption records
• Citizenship and military discharge papers
• Social Security card

Keep in mind that the above recommendations are general guidelines, and your personal circumstances may warrant keeping these documents for shorter or longer periods of time.

11/03/2020

Taking Early Withdrawals From Retirement Accounts

While taking money out of a retirement fund before age 59 1/2 is usually not recommended, in certain cases, it may be unavoidable, especially during times of economic crisis. If you need cash and have a retirement fund you can tap, here's what you need to know.

Background
When retirement plans such as the 401(k) were introduced, company pensions were still the norm. Today, however, very few companies offer pensions anymore and most people rely entirely on social security and whatever savings they've accumulated in their retirement account to get them through their golden years.
For many people, retirement accounts are their most significant source of cash, but because they were created to help you save money for your retirement years, withdrawals before retirement age (59 1/2) are discouraged. In fact, early withdrawals from traditional and Roth IRAs are subject to an additional 10 percent tax, unless an exception applies. Exceptions to the additional 10 percent tax apply for early distributions include the following:
• Beneficiary or estate on account of the IRA owner's death
• Totally and permanently disabled
• Distributions made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
• Qualified first-time homebuyer
• Qualified expenses for higher education
• Medical insurance premiums paid while unemployed
• Unreimbursed medical expenses that are not more than a certain percentage of your adjusted gross income
• Distributions due to an IRS levy of the IRA under section 6331 of the Code
• A qualified reservist distribution, or
• A qualified disaster distribution (certain rules apply)

Relief Under the CARES Act of 2020
Due to the coronavirus pandemic, there is additional relief for taxpayers experiencing economic hardships. The Coronavirus Aid, Relief, and Economic Security (CARES) Act helps eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRAs and allowing certain retirement plans to offer expanded loan options.
Coronavirus-related withdrawals or loans can only be made to an individual (or the individual's spouse) if they are diagnosed with the virus SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention or a test authorized under the Federal Food, Drug, and Cosmetics Act.
The individual must also experience adverse financial consequences as a result of the following conditions:
Quarantine. The individual, individual's spouse or a member of the individual's household (someone who shares the principal residence) is quarantined, furloughed, laid off, has work hours reduced, is unable to work due to lack of childcare, has a reduction in pay (or self-employment income), or has a job offer rescinded or start date for a job delayed, due to COVID-19.
Business closures or reduced hours. Closing or reducing hours of a business owned or operated by the individual, the individual's spouse, or a member of the individual's household, due to COVID-19.

Coronavirus-related Withdrawals from Retirement Accounts
Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans, and others.

Coronavirus-related Loans from Retirement Accounts
Loans are not available from an IRA. Individuals who were eligible to take coronavirus-related withdrawals until September 22, 2020, were able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan if their plan allows.
For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period. Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

Tax Treatment of Coronavirus-related Withdrawals
The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $12,000 coronavirus-related distribution in 2020, you would report $4,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.
In summary, coronavirus-related distributions:
• May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual's option.
• Are not subject to the 10 percent additional tax on early distributions that would otherwise apply to most withdrawals before age 59 1/2,
• Are not subject to mandatory tax withholding, and
• May be repaid to an IRA or workplace retirement plan within three years.

Questions?
Before withdrawing funds from a retirement account please call the office and speak to a tax professional. While you may be able to minimize or avoid the 10 percent penalty tax using one of the exceptions listed above including those under the Cares Act, remember that you are still liable for any regular income tax that's owed on the funds that you've withdrawn and you may be liable for more tax than you anticipated when filing future tax returns.

10/19/2020

Six Tips for Starting Your Own Business

Starting your own business can be an exciting prospect, but there is more to it than simply writing a business plan. Also, if you expect to have employees, there are a variety of federal and state forms and applications that you need to complete to get your business up and running. That's where a tax professional can help. With this in mind, let's take a look at what you need to know before you start a new business.

1. Business Entity
The first decision you need to make is determining which business entity you will use because the type of business structure you choose determines what taxes you need to pay and how to pay them, as well as which income tax return you file. The most common types of business entities are:

Sole proprietorship - An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
Partnership - An unincorporated business with ownership shared between two or more people.
Corporation - Also known as a C corporation. It's a separate entity owned by shareholders.
S Corporation - A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
Limited Liability Company - A business structure allowed by state statute.

2. Employer Identification Number (EIN)
Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing you must do since many other forms require it. The IRS issues EINs to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes.

An EIN is used to identify a business. Most businesses need one of these numbers. A business with an EIN needs to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.

Even if you already have an EIN as a sole proprietor, for example, if you start a new business with a different business entity, you will need to apply for a new EIN.

The fastest way to apply for an EIN is online through the IRS website or by telephone. Applying by fax and mail generally takes one to two weeks, and you can apply for one EIN per day. There is no cost to apply.

3. Choosing a Tax Year
A tax year is defined as an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either calendar year or fiscal year defined as follows:

Calendar year. 12 consecutive months beginning January 1 and ending December 31.
Fiscal year. 12 consecutive months ending on the last day of any month except December.

4. State Withholding, Unemployment, Sales, and other Business Taxes
Once you have your EIN, you need to fill out forms to establish an account with the state for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable). Business taxes include income tax, self-employment tax, employment tax, and excise tax. Generally, the type of tax your business pays depends on the type of business structure. Keep in mind that you may also need to make estimated tax payments.

5. Payroll Record Keeping
Payroll reporting and recordkeeping can be very time-consuming and costly. Also, keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee's employment application as well as the following:

Form W-4, Employee's Withholding Allowance Certificate. Completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as the employee's address and Social Security number.
Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services . This form verifies that an employee is legally permitted to work in the U.S.

6. Employee Healthcare
As an employer with employees, you may have certain healthcare requirements you need to comply with as well. If so, you should know about the Small Business Health Care Tax Credit, which helps small businesses (fewer than 25 employees who work full-time, or a combination of full-time and part-time) pay for health care coverage they offer their employees. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. It is available to eligible employers for two consecutive taxable years.
Questions?

If you have any questions or need help setting up a payroll and accounting system for your new business, help is just a phone call away.

10/19/2020

E-Signatures Temporarily Allowed for Certain Forms

The use of digital signatures on certain forms that cannot be filed electronically will now be temporarily allowed. Expanding the use of digital signatures will help to protect the health of taxpayers and tax professionals during the coronavirus pandemic by reducing in-person contact between taxpayers and tax professionals.

Form 1040, U.S. Individual Income Tax Return, already uses an electronic signature when it is filed electronically, either by using a taxpayer self-selected PIN, if self-prepared or a tax-preparer selected PIN, if using a tax professional. While more than 90 percent of Form 1040s are filed electronically, if you haven't filed your 2019 tax return this year, it is important to consider e-filing forms whenever possible, due to COVID-19.

The following forms can be submitted with digital signatures if mailed by or on December 31, 2020:

Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
Form 3115, Application for Change in Accounting Method;
Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts;
Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner;
Form 8832, Entity Classification Election;
Form 8802, Application for U.S. Residency Certification;
Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;
Form 1120-L, U.S. Life Insurance Company Income Tax Return;
Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

This temporary option for e-signatures is subject to change at any time. Please contact the office with questions about this or any tax-related information.

10/08/2020

What To Do If You Get a Letter From the IRS

The IRS mails millions of notices and letters to taxpayers every year for a variety of reasons. If you receive correspondence from the IRS don't panic. You can usually deal with a notice by simply responding to it; most IRS notices are about federal tax returns or tax accounts. Each notice has specific instructions, so read your notice carefully because it will tell you what you need to do. In most cases, your notice will be about changes to your account, taxes you owe or a payment request; however, your notice may also ask you for more information about a specific issue.

Unless you are specifically instructed to do so, there is usually no need for a taxpayer to reply to a notice. For example, if your notice says that the IRS changed or corrected your tax return, review the information, and compare it with your original return. If you agree with the notice, you usually don't need to reply unless the notice gives you other instructions or you need to make a payment.

If you don't agree with the notice, you will need to write a letter that explains why you disagree and include information and documents you want the IRS to consider. Mail your response with the contact stub at the bottom of the notice to the address on the contact stub. Allow at least 30 days for a response.

For most notices, there is no need to call or visit the IRS. If you have questions, call the phone number in the upper right-hand corner of the notice. Be sure to have a copy of your tax return and the notice with you when you call. As always, keep copies of any notices you receive with your tax records.
Be alert for tax scams as well. As a reminder, the IRS sends letters and notices by mail and does NOT contact people by email or social media to ask for personal or financial information.

If you need assistance understanding an IRS Notice or letter, believe it is in error, or discover you owe additional tax, please call the office.

10/08/2020

Recordkeeping Tips for Individuals and Businesses

The key to avoiding headaches at tax time is keeping track of your receipts and other records throughout the year. Whether you use an excel spreadsheet, an app, an online system or keep your receipts organized in a folding file organized by month, good record-keeping will help you remember the various transactions you made during the year.

Taxpayers should add tax records to their files throughout the year as soon they receive them. This includes Notice 1444, Your Economic Impact Payment, and unemployment compensation documentation. Reviewing your recordkeeping systems now - or setting one up if you don't already have one in place - will pay off when it comes time to file your 2020 tax return next spring. Keeping good records also helps document any deductions you've claimed on your return and you will need this documentation should the IRS select your return for audit.

Normally, tax records should be kept for three years, but some documents - such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property - should be kept longer. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return such as:

• Unemployment compensation
• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged, or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

Taxpayers should also keep records relating to property they dispose of or sell. These types of records are used to figure their basis for figuring gains or losses.

As a reminder, taxpayers should keep records for three years from the date they filed the return. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later. Good record-keeping throughout the year saves you time and effort at tax time.

For more information on what kinds of records you should keep or assistance on setting up a recordkeeping system that works for you, please call the office

09/25/2020

The Home Office Deduction

With more people working from home than ever before, taxpayers may be wondering if they can claim a home office deduction when they file their 2020 tax return next year. The short answer is that self-employed taxpayers who use their home for business may be able to deduct expenses for the business use of it whether they rent or own their home. If you are an employee, however, you are not eligible to take the home office deduction - even if you are working remotely in your home office.

Here is what taxpayers should keep in mind when it comes to understanding the home office deduction and whether they can claim it:

1. Regular and Exclusive Use. Generally, taxpayers must use a part of their home regularly and exclusively for business purposes. The part of a home used for business must also be:
• A principal place of business, or
• A place where taxpayers meet clients or customers in the normal course of business, or
• A separate structure not attached to the home. Examples could include a garage, barn, greenhouse, or studio.
For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
The term "home" for purposes of this deduction is defined as a house, apartment, condominium, mobile home, boat, or similar property. It does not include any part of the taxpayer’s property used exclusively as a hotel, motel, inn, or similar business.
A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.

2. Expenses that can be deducted. Taxpayers can deduct certain expenses such as mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent. They must meet specific requirements to claim home expenses as a deduction, and the deductible amount of these types of expenses may be limited.

3. Simplified Option. To use the simplified option, multiply the allowable square footage of the office by a rate of $5. The maximum footage allowed is 300 square feet. As such, the maximum deduction under this method is $1,500. This option saves time because it simplifies how to figure and claim the deduction and makes it easier to keep records. The rules for claiming a home office deduction remain the same.

4. Regular Method. This method includes certain costs paid for a home. For example, part of the rent for rented homes may qualify. Deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.

5. Deduction Limit. If the gross income from the business use of a home is less than expenses, the deduction for some expenses may be limited.

Taxpayers who are self-employed and choose the regular method should use Form 8829, Expenses for Business Use of Your Home, to figure the amount to deduct. Claim the deduction using either method on Schedule C, Profit or Loss from Business.

Please call if you would like more information about the home office deduction and how it applies to your tax situation.

09/18/2020

Tax Considerations When Hiring Household Help

If you employ someone to work for you around your house, it is important to consider the tax implications of this type of arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road.

Household Employee Defined
If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.
If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.
Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

You pay Kate an hourly wage to babysit your child and do light housework four days a week in your home. Kate follows your specific instructions about household and childcare duties. You provide the household equipment and supplies that she needs to do her work. Kate is your household employee.
You pay Nick to care for your lawn. Nick also offers lawn care services to other homeowners in your neighborhood and provides his own tools and supplies, He hires and pays any helpers he needs. Neither Nick nor his helpers are your household employees.

USCIS Form I-9: Employment Eligibility Verification
When you hire a household employee to work for you on a regular basis, they must complete USCIS Form I-9, Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work. Once this is determined, you then complete the employer part of the form.

It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States. Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).

Employment Taxes
If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. If you pay cash wages of $2,200 or more in 2020 to any one household employee, then you will need to withhold and pay Social Security and Medicare taxes. Also, if you pay total cash wages of $1,000 or more in any calendar quarter of 2019 or 2020 to household employees, you are also required to pay federal unemployment tax.
If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes; however, you may still need to pay state unemployment taxes. Please contact the office if you're not sure whether you need to pay state unemployment tax for your household employee. A tax professional will help you figure out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance.

Social Security and Medicare Taxes
Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee's Social Security and Medicare wages. Your employee's share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.
You are responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds.
Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:
1. Your spouse.
2. Your child who is under age 21.
3. Your parent.
Exception. You should count wages to your parent if they are caring for your child and your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult and you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child.
4. An employee who is under age 18 at any time during the year.
However, you should count these wages to an employee under 18 if providing household services is the employee's principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Maximum Taxable Earnings. If your employee's Social Security and Medicare wages reach $137,700 in 2020, then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee's cash wages as Medicare wages to figure Medicare tax. Meals provided at your home for your convenience and lodging provided at your home for your convenience and as a condition of employment are not counted as wages

Help is Just a Phone Call Away
As you can see, tax rules for hiring household employees are complex; therefore, professional tax guidance is highly recommended. This is definitely an area where it's better to be safe than sorry. If you have any questions at all, please contact the office to set up a consultation.

09/18/2020

Chicken Pesto Pasta Salad
Ingredients
• 8 oz pasta
• 2 cups cooked chicken shredded
• 8.5 ounces sundried tomatoes in oil
• 8 ounces Mozzarella Ciliegine "cherry sized" fresh mozzarella balls
• 3 cups baby arugula
• 3/4 cup pesto
• 2 tbsp Red wine vinegar
• ½ cup grated parmesan cheese
• Salt to taste
• Pepper to taste

Instructions
1. Bring salted pot of water to boil, cook pasta to al dente according to package instructions. Prepare an ice bath (a large bowl of cold water and ice). After draining the pasta, plunge the strainer into the bowl of ice water to immediately cool it, then drain and set aside.
2. Stir together pesto and red wine vinegar, set aside.
3. Add cooled pasta, sun dried tomatoes including oil from jar, arugula, chicken, mozzarella, parmesan cheese, pesto mixture to bowl. Gently toss until fully mixed. Taste and add salt and pepper to taste.
4. Can be served right away but the flavors will develop and be better if the pasta salad is allowed to chill for a few hours. Chill in the fridge for 4 hours or up to overnight.

Notes
If you can't find the Mozzarella Ciliegine another size of fresh mozzarella balls can be used. Cut into bite sized pieces if necessary.

Address

206 N Dixie Drive
Vandalia, OH
45377

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Monday 8:30am - 5pm
Tuesday 8:30am - 5pm
Wednesday 8:30am - 5pm
Thursday 8:30am - 5pm
Friday 8:30am - 5pm

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