Tax Myths That Simply Aren’t True

 Let’s admit when it comes to taxes it’s a complicated subject. There are myths concerning tax laws that are commonly accepted. Busting a few of these myths can help better understand how the tax system works and how it affects you as a taxpayer. Knowing more about taxes can make the system work in your favor. Having a tax plan and working with a tax professional like SWVA Tax & Accounting can help you. Here are a few tax myths that aren’t true.

Myth #1 Taxes Are Not Due Until the Due Date

Some business owners believe you have to pay taxes in full at the due date. What is more efficient is to have a year-round tax payment strategy. By paying taxes throughout the year you can set up a payment plan that makes things easier. A year-round tax payment strategy will help you with budgeting and influence decision making how money is spent. Having a year-round tax strategy will help you focus and keep your business in better financial health.

Myth #2 If You Have a Side Hustle You Don’t Need to Pay Taxes

You already have a main business that brings in income. Why not start something on the side for additional income? This is a great idea and showcases your entrepreneurial abilities. However, your money-making side hustle may not go unnoticed by the IRS. If your side hustle earns more than $12,000 a year, you’ll have to pay income taxes. Be careful of the amount of income your side hustle brings in.

Myth #3 The IRS Will Email You if You Are Owed a Refund

This myth is so untrue it’s almost funny. Almost. The IRS will never email you saying you will be owed a refund due to an error. This is likely a phishing scam targeted at getting you to send personal information like your bank account number or social security number. If you get a suspicious email concerning the IRS do not open any attachments or click any links. What is recommended is to forward the email to phishing@irs.gov and delete the email. Always safeguard your personal information so you won’t be a victim of identity theft.

Myth #4 You Don’t Need a Receipt

If you are a small business owner, always keep your receipts of anything you bought. The main reason for keeping physical or digital receipts is, it makes preparing your taxes easier at the end of the year. Another smart reason to keep all your receipts is if you get audited, you can prove what you bought. Better to have a receipt than no receipt at all.

Myth #5 Buying Bookkeeping Software Later When You Start A Business

You started a business and things in the bookkeeping department are a bit slow. Managing your taxes is not a simple task and the last thing you need to do is fall behind in bookkeeping. QuickBooks is a great tool to help you with all tasks related to bookkeeping. Staying organized from the very start will help you hit the ground running successfully.

Myth #6 A Home Office Can Be Written Off an Expense

If you are a small business owner you may have a “home office” you work out of. Use caution when trying to write it off as an expense. You can write off your home office as an expense if it’s a dedicated workspace. Sorry, your dining room table does not count as a home office. It has to be an actual workspace, where everything related to the business is done. This means 100% of the work is done related to the business.

Busting a few myths about taxes helps you be better informed. To get the latest tax information make an appointment with SWVA Tax & Accounting. Call 540-250-3198 to make an appointment or book online at www.swvatax.com/Contact to get a tax consultation today. Don’t delay call SWVA Tax & Accounting today. We’ll run the numbers, while you run the business.

Payroll Tax | What it means for your small business

Payroll-Tax

Effective Sept 1st through December 31st, President Trump in a presidential executive order deferred the payroll tax. The order allows for employers to defer withholding on affected employees’ compensation during the last months of 2020 and then, in turn, begin a collection of those deferred tax amounts from January 1st to April 30th of 2021.

Eligible employees include any employee whose pretax wages and compensation during any biweekly pay period are generally less than $4,000. The order defines the wages as follows:

Wages as defined in [Sec.] 3121(a) or compensation as defined in [Sec.] 3231(e) paid to an employee on a pay date during the period that begins Sept. 1st and ends on December 31st, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.

Of course, any wages that fall outside of the classification of wages and compensation for Sections 3121 (a) or 3231 (e) aren’t included in the determination of wages that are applicable.

A key thing to consider is that this is pay period dependent. Meaning that only pay periods in which the compensation is under the threshold may be excluded from withholding.

For example,

John Smith Employee | Pay periods

Sept 18th Gross $3,892.00 excluded

Oct 2nd Gross $4,010.00 not excluded

Oct 16th Gross $3,989.00 excluded

The key is the number of earnings in the bi-weekly pay period, meaning each pay-period must be treated independently.

There is some concern for some employees that the repayment period in January through April of 2021 could cause financial hardship if they are living “paycheck to paycheck”. The key to remember is that it OPTIONAL, you are not required as a business to participate.

A key date in the program is also May 1st, 2021 at which point any unpaid deferred payroll taxes are open to interest, penalties, and additions, as accrued.

If you have any further questions on this, as always, reach out to SWVA Tax & Accounting for advice. We are glad to help our business owners understand these situations and answer any questions you may have.