Ensuring that the individuals who are involved in a partnership pay the required amount of taxes can be a challenge. In fact, partnership tax law is the most complicated part of the tax code. As a leading Fort Collins business accountant, we encourage people to be fully informed about how participating in a partnership affects their tax position.
How Partnerships are Taxed
Typically, partnerships and LLCs with two or more members are not taxed themselves. Instead, the IRS considers them “pass-through” entities, meaning that the profits or losses of the business pass through to the partners individually. They are then taxed based on what is called their “distributive share” of the profits or losses as outlined in a written agreement. Pass-through entity owners are allowed to deduct a certain percentage of their business income.
Key Considerations for Partnerships
If you are involved in a partnership or LLC with two or more members, below are some important points about how you are taxed.
- You are taxed on your distributive share whether you receive it or not. Whether your distributive share in a partnership or LLC is defined by an agreement or by state law, the IRS taxes you based on that percentage even if you choose to leave some or all of your income in the business.
- You pay self-employment taxes. Unless you are a limited partner or a non-managing member of an LLC, you are required to pay taxes that support the Social Security and Medicare programs based on your share of the partnership’s profits. In fact, you pay twice as much as an employee than your company pays, because you must make your contribution and the matching contribution that an employer would pay. However, you can deduct half of the total amount from your taxable income.
- You can claim a number of deductions. As a participant in a partnership, you can deduct a number of legitimate business expenses from your taxable income. This includes things like the cost of operations, travel, advertising, and business-related meals and entertainment.
Helping Your Partnership Interpret the Tax Code
While you can certainly study the extensive information regarding partnerships and taxation available online, a more efficient and cost-effective approach is to leverage the insights of a Fort Collins business accountant like Shaw & Associates. We can very quickly explain what will be required of you when it’s time to file your return, so you go into the process well-informed and well-prepared. Contact us at your convenience.
People who have owned the same home for many years may not know that the rules regarding taxation of gains and the personal residence exclusion changed in the late 1990s. Prior to that time, there were strict regulations regarding proceeds from the sale of a home. This included having to reinvest the money in the purchase of another, more expensive home within two years.
With changes to the rules implemented in 1997, homeowners now have much greater freedom. What is called “Topic Number 701 – Sale of Your Home” from the IRS says:
If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home, provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.
Under the heading “Qualifying for the Exclusion,” it goes on to explain:
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You’re eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you’re not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
Crystal Clarity on Taxation and Your Personal Residence
What does all of this mean to you specifically? As your trusted Fort Collins tax accountant, Shaw & Associates can help you be clear on how any gains you receive from the sale of a personal residence will affect your tax position. Contact us at your convenience.
The arrival of tax season can be stressful. This is especially true if you have put off thinking about taxes since you filed last year’s return. As a trusted tax accountant in Fort Collins, we frequently remind our clients that the best way to reduce your stress and ensure that no important details are overlooked in a last minute scramble to gather information is to plan ahead.
Great Ways to Stay on Top of Your Taxes
Here are four proven tips for saving yourself a great deal of time and effort next year by putting in the work this year:
- Stay organized. It’s easy to let paid invoices, receipts and other paperwork pile up with the idea that you’ll “deal with that later.” But, taking a few minutes to do filing and organizing today can save you headaches down the road.
- Track expenses daily. Not only does recording expenses as they occur keep your records current, it can help you spot cash flow issues that are best addressed promptly.
- Plan your deductions for the year. People often make a number of charitable contributions or tax-deductible purchases just ahead of tax season in an effort to maximize their deductions. A more effective approach is to take a “big picture” look at your finances at regular intervals and make donations or purchases as appropriate.
- Meet with your tax accountant periodically. By connecting with your tax accountant a few times during the year, you will have a better sense of what your tax situation will look like when it comes time to file. That way you can make “course corrections” along the way if needed.
As a leading tax accountant in Fort Collins, Shaw & Associates can provide helpful tax planning guidance all year long. Contact us today!
When it comes to things you look forward to doing, filing your taxes generally does not make the list. We understand! However, putting off filing until the last minute tends not to be a good strategy for most people. In fact, there are a number of reasons why you should work with Shaw & Associates, your Fort Collins tax accountant, to get your forms sent off as early as possible.
Get Ahead of the Game
As any experienced Fort Collins tax accountant will tell you, it’s wise to get your taxes taken care of as soon as you have all the information you need. Here are the top five advantages of being an early bird:
- Avoid identity theft and the filing of fraudulent tax returns on your behalf. If someone gets a hold of your Social Security number, they can file a tax return in your name and have your refund sent to them. For obvious reasons they file early in the season, but they can’t if you’ve already submitted your returns.
- You get your refund faster. If you will be getting money back from the government, the sooner you file, the sooner you’ll have that check in your hand.
- You know what you owe sooner. If you will have to make a payment to the government, knowing what that amount is in January or February gives you more time to gather the funds before the mid-April payment deadline.
- It takes the stress out of tax season. Nobody likes having a deadline hanging over their head. Filing early means you can relax and move on to other things.
- You get information you may need for other reasons. If you will soon be doing things like applying for a mortgage or taking out student loans, you may need verified financial information from your recent tax returns.
The phrase “Good things come to those who wait” applies in many areas of life, but not taxes! Contact Shaw & Associates, your trusted Fort Collins tax accountant, today and let’s get started on your returns!
Tax season is here, and if you’re like most people, you’re not looking forward to preparing your return. Not only is it a labor-intensive project, you are often left wondering if there are ways to save more of your hard-earned income that you didn’t know about. Or worse, you may worry that you’ve made an error that will attract the attention of the IRS. Take it from your trusted Fort Collins accountant, Shaw & Associates: the benefits of having your taxes prepared by a professional greatly outweigh the costs!
4 Reasons to Go with a Pro
If you are considering having your taxes professionally prepared, here are a number of reasons why that’s a smart move:
- It saves time and hassle. Everyone’s financial situation is different, but it’s no stretch to say that preparing your own taxes can take 5-10 hours or more, depending on how complicated they are.
- You may save money. If when preparing your taxes your Fort Collins accountant can find even one or two deductions that you were unaware of, you can retrieve money owed to you that you would otherwise have given away.
- It can prevent errors. Your tax preparer is someone who knows all the ins and outs of the tax code and every last field on every tax form. Consequently, they can ensure that your return is complete and accurate.
- You have someone at your side if you get audited. A tax audit can be a very intimidating process. Having your accountant walk through it with you can be a tremendous relief.
There’s No Reason to Do It Alone
Shaw & Associates, your Fort Collins accountant, can not only provide you with an accurate return this tax season, but also the welcome peace of mind that comes with it. Contact us today to learn more about our services.
You’ve worked hard and your employer rewards you with a holiday bonus. While you greatly appreciate it, it leaves you asking yourself, “What are the tax implications of this gift?” Shaw & Associates, your tax accountant in Fort Collins has the answer!
Here are the questions we are most frequently asked about holiday bonuses:
- Are holiday bonuses taxed? Yes, they are considered a “supplemental wage” and are taxed. Be aware that if a bonus isn’t processed by your employer in the same way that your regular paycheck is (and therefore reported to the IRS), you must report the bonus when you file your taxes.
- Are bonuses taxed at a different rate? No, they are not. The amount withheld from your check is at a rate the IRS requires and may be different than the withholding rate on your regular paychecks. The bonus will be taxed on your tax return at whatever your marginal tax rate is. Shaw & Associates, your tax accountant in Fort Collins, can explain in more detail.
- Is money received in the form of a gift card subject to tax? Yes, you must report the amount of the card when you file your taxes.
- Can I avoid paying taxes on my bonus? Just as with your standard income, your bonus can provide a tax advantage if you do things with it like put it into a retirement account, donate it to a registered charity, make a mortgage prepayment, make “green” home improvements, etc.
- Do employers pay taxes on holiday bonuses? Yes, they pay payroll taxes on the amount given.
It’s important to note that due to the current discussions in Congress around changing the tax laws, it may be to your advantage to delay a bonus until next year when rates are expected to be lower.
Making the Most of Your Much-Deserved Reward
If you’ve got specific questions about what to do with a holiday bonus, your trusted tax accountant in Fort Collins can help. Contact Shaw & Associates today to ensure you’re able to keep as much of that gift as possible.
For many people, Social Security will play an important role in their retirement financial plan. However, with fairly regular tweaks to the program, it’s important to stay current on the latest updates, especially as you begin to approach retirement age. Here are a few things to be aware of from Shaw & Associates, your Fort Collins CPA:
- The age for full retirement benefits increased slightly in 2017. The full retirement age, which had been 66, was bumped to 66 and two months for those born between January 2, 1955, and January 1, 1956, to include people eligible to apply for early retirement this year. The age will increase by two months every year for the next five years, until it reaches 67 years old.
- Retirees receive a small cost of living adjustment. Following two years in which low inflation meant no cost of living adjustment, Social Security beneficiaries are being promised a 0.3 percent increase this year.
- High earners and the self-employed will pay more. These workers will experience a tax hike in 2017 as Social Security raises its maximum taxable earnings level.
- Earnings limits are up for those who work after retirement. People who opt for early retirement but keep working can earn a little more without having their benefits reduced.
Staying Current on Social Security
These are just a few of the recent changes to Social Security. If you have questions about how the program’s benefits will impact your financial future, don’t hesitate to contact Shaw & Associates, your Fort Collins CPA.
Demystifying Retirement Plans from Your Fort Collins Accountant
Vanilla, chocolate, or strawberry? Shaken or stirred? Americans love to have options. But, when it comes to funding retirement, the number of choices available can lead to confusion and frustration. Furthermore, it can result in a total lack of action to get one or more retirement funds started, which hurts your chances of retiring with the lifestyle you are envisioning. So, as a trusted Fort Collins accountant, we are sharing a quick overview on the major types of retirement funds that you can use as a foundation for making informed decisions.
The Many Ways to Set Money Aside
To encourage people to save for their retirement years, the government has created several different retirement fund categories that meet different needs. Below is a general summary of some of the most common options. However, before you choose one or more of them, we encourage you to talk with a Fort Collins accountant like Shaw & Associates. We can help you get clarity on your financial objectives and ways to achieve them, which includes explaining the contribution and withdrawal restrictions with each type of account.
- 401(k) plan. Named for the part of the tax code that governs them, this is a company-sponsored retirement plan into which employees can make tax-deductible contributions. Often companies will “match” that contribution in order to receive a tax deduction for themselves. The amount that you can contribute each year is set by the government based on factors including your age. There are penalties for removing money from a 401(k) plan before you reach retirement age.
- Traditional IRA (individual retirement account). This type of account was created in 1975 and is the first government-sponsored retirement savings tool to provide tax advantages as an incentive for putting money aside. The amount paid into a traditional IRA, up to government-set limits, can be deducted from your annual income. As with a 401(k), there are penalties if you remove money from a traditional IRA before retirement age.
- Roth IRA. This type of IRA is different from a traditional IRA in two primary ways. First, you cannot deduct contributions from your taxes. Second, contributions grow tax-free rather than just tax-deferred, meaning your withdrawals are not taxed. People or married couples above certain income levels cannot contribute to Roth IRAs.
- 403(b) and 457 plans. These retirement funds are similar to 401(k) plans but are only available to employees of educational and nonprofit organizations. So, the annual contribution limits are the same as for 401(k) plans.
- Simple IRAs and Simplified Employee Pension Plans (SEPs). These plans are primarily for people who are self-employed or who work for small businesses. Again, there are limits to contributions and penalties for early withdrawal.
The Right Plan for Your Retirement Goals
Everyone has unique needs and goals relating to retirement. Working with a Fort Collins accountant like Shaw & Associates can help you clearly define your objectives and select the retirement plan or plans that will help you have the lifestyle you want after you stop working. Contact us today to find out how we can help you get on track for enjoying your golden years.
At Shaw & Associates, we believe in our community and that is why we are proud to serve as a Fort Collins Accounting firm that you can be proud of. Our founder has been a Fort Collins CPA since 1997 and Mr. Shaw has been a Certified Public Accountant since May of 1983 as well.
We know that most people only think about accounting when bills are due or during tax season. But our team thinks about this every single day and we are focused on making sure that the services we offer provide you the peace of mind and expertise you need to navigate any financial situation you find yourself in at the moment. We know that tax season can be stressful and that is why we want to make it as easy as possible for you to navigate. You can’t put a price tag on peace of mind and that is what we try to provide for you.
As a Fort Collins Accounting firm, we have supported multiple groups in the community that give back to the citizens of Fort Collins. We love being supportive of the Boys & Girls Club of Larimer County, The Food Bank of Larimer County and the OpenStage Theatre & Company to name a few. We believe that what we offer is more than just being a Fort Collins CPA. We believe that civic engagement is as important as the quality of service you offer and that is why we love living and working in Fort Collins. We consider ourselves a part of this city and that is why we believe in doing the best work possible for those who choose to work with us.
So this tax season, be sure to pick up your phone and call us at 970.223.0792 if you have any questions. You can also reach us online at https://kevinshawcpa.com or visit our office at 1044 West Drake Road, Suite 201, Fort Collins, CO 80526.