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Pandemic Side Hustles – What Are Your Tax Responsibilities?

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When the COVID-19 pandemic hit in March 2020, many individuals were left without a job or had their hours slashed. As a result, you may have decided to take on a side hustle to help you weather the storm and stay financially afloat throughout the pandemic.

From delivering food and selling items on Facebook Marketplace to freelance copywriting and online tutoring, there are many ways to earn a bit of extra cash on the side.

While pay earned from a side hustle is exciting, there are tax responsibilities you need to be aware of. Unlike a traditional paycheck that has taxes automatically deducted, your side hustle paycheck will not. The Internal Revenue Service views you as a self-employed individual, and you need to be prepared to cover your income tax and self-employment tax come tax season.

Without taking the proper steps during the year, you may end up with an expensive tax bill come tax season. Instead, you should be setting aside tax payments from every paycheck so that you can meet your side hustle tax responsibilities. Taxes are already complicated enough, and with a side hustle, they can be downright confusing.

To make prepping for your taxes as a self-employed individual a bit easier, AA Tax & Accounting Services, LLC has put together a quick guide on freelance tax responsibilities.

How to calculate self-employment taxes

Whether you found yourself offering handyman services, delivering groceries, or selling on Facebook Marketplace, you have tax responsibilities to account for.

As a self-employed individual, the Internal Revenue Service requires you to pay both income tax and self-employment tax. As both the employee and employer for your side hustle, you are responsible for all tax payments based on the generated income.

Self-employment tax is 15.3% of the first $142,800 of income you receive, plus 2.9% of anything you earn over this threshold.

As you bring in income from your side hustle, you should be setting aside a minimum of 25% of your income to cover these tax costs. The Internal Revenue Service allows you to make estimated quarterly payments on the taxes that you owe, helping you avoid having a hefty bill come tax season.

For more information on how much you should withhold from your freelance earnings, we recommend using IRS Form 1040-ES to calculate your estimated tax payments.

When to make estimated tax payments

Throughout the year, the Internal Revenue Service expects all self-employed individuals to pay estimated quarterly tax payments. Although you won’t know exactly how much you’ll owe when filing your taxes, if you plan to owe more than $1,000 in taxes due to your side hustle, you should be submitting a quarterly payment by:

  • April 15th
  • June 15th
  • September 15th
  • January 15th

By budgeting approximately 25% of your income towards the estimated tax payments, you can be stress-free when filing your taxes, knowing you won’t have a large tax bill.

Are you eligible for the advanced child tax credit?

When taking on a side hustle throughout the pandemic, you’re increasing your annual income. Keep in mind that there are income restrictions for tax credits, such as the Advanced Child Tax Credit.

With the Advanced Child Tax Credit, taxpayers with children under 18 can receive a tax credit if they earn less than $75,000 annually or $150,000 for a married couple filing jointly. Earners above this threshold will earn a smaller credit, ceasing for individual taxpayers earning $95,000 and married couples making $170,000 filing jointly.

If your standard income and side hustle income put you over this threshold, you may not be eligible to receive the tax credit. If you aren’t sure how your side hustle impacts your eligibility, we recommend consulting certified public accountants to better understand all the tax deductions available to you.

Tax consulting services in Cedar City, Utah

If you’ve taken on a side hustle throughout the pandemic, we recommend consulting certified public accountants like AA Tax & Accounting Services to better understand what you will owe come tax season and how much you should be paying to the IRS quarterly.

The AA Tax & Accounting Services team can help you execute the right self-employment tax strategies for peace of mind. Contact us to schedule an appointment.

Bank Reconciliations

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How often do you review your monthly bank statements in-depth?

Have you ever reviewed your statements and felt as though your bank balances were wrong?

To have a complete picture of your finances, it’s important to reconcile your accounts regularly.

With only so many hours in the day, reconciling your accounts often falls to the wayside. Instead, you should consider having a certified bookkeeper manage your bank reconciliation so you can have a clear understanding of your finances.

At AA Tax & Accounting Services, LLC, we understand the importance of bank reconciliation, which is why it’s a core part of our bookkeeping services. By helping our clients have a better idea of their balances and cash flow, they’re able to make more confident financial decisions.

AA Tax & Accounting Services, LLC offers the following bank reconciliation services to all of our clients both locally and nationally:

  • Entrepreneur and Small Business Bank Reconciliation
  • Bank Reconciliation for Businesses and Corporations
  • Personal Bank Reconciliation for Individuals
  • Bank Reconciliation for Not-for-Profits (Non-Profits)
  • Bank Reconciliation for Start-Ups

If you need any of these bank reconciliation services, give our team a call. Keep reading to learn more about what our team can do for you.

What is bank reconciliation?

Bank reconciliation is the process performed by a company or individual to balance and match bank statements to the accounting records. This is done by comparing the amounts recorded by the company to the amounts on the bank statement to ensure that everything aligns and adds up accordingly.

When payments match up currently to the corresponding invoices, the transaction has been balanced. This process allows you to uncover any discrepancies and resolve any differences so that they become reconciled.

Without proper bank reconciliation, it’s difficult for an individual or company to have clarity over their finances.

How to perform bank reconciliation

At the end of each month, you receive a bank statement that details all of the transactions, deposits, and withdrawals that occurred over the previous month. Once you have the bank statement in hand, you can begin the bank reconciliation process at the place you left off last time.

Review deposits and withdrawals

Review your business records and match them up with the corresponding line item on the bank statement. If the amount of each deposit or withdrawal matches up, make a note.

If there is an item missing in your records, you will have to add it.

Account for income and expenses in your records

Compare your books against the bank statement to ensure that each transaction is properly accounted for. Any unexplained differences will need to be investigated, so you understand why the income and expenses aren’t aligning.

Adjust the bank statement

In certain instances, your bank statement may not accurately reflect your transactions for the same time period due to pending deposits, outstanding checks, or even bank errors.

If something is not accurately reflected on the bank statement, make the necessary changes.

Adjust the cash balance

Similar to adjusting the bank statement, you will also need to adjust your books to correctly reflect any transactions made in the cash account.

Review the end balances

Now that all necessary adjustments have been made to the bank statement and cash balance, you’ll need to review the end balances to verify that they are now the same.

If they align, you’ve completed the bank reconciliation process.

If the end balances are still not equaling one another, you’ll need to repeat the bank reconciliation process to resolve any remaining discrepancies.

Call AA Tax & Accounting services for bank reconciliation

There are only so many available hours in the day, and as a business owner, you have a long to-list that needs to get completed. To help you win back some time, AA Tax & Accounting Services, LLC offers various bookkeeping services, including bank reconciliation.

You can trust our team to deliver a level of service that the average bookkeeper cannot. AA Tax & Accounting Services is available to help you with all your bookkeeping needs. Contact us today to schedule a consultation.

What to look for in a retirement planning app

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Retirement may seem far away, but in reality, it’s right around the corner — and it’s never too early to start planning!

Although the thought of retirement may seem daunting, it’s important for you to take the necessary steps now, so you’re set up for success later in life. To do that, you need to have a good understanding of your financial investments and have the tools to track and predict their growth over time. Luckily, countless retirement planning apps make it a bit easier to manage.

With so many retirement planning apps at your disposal, how are you supposed to know which is the best to use?

To ensure you feel confident in your retirement planning choices, AA Tax & Accounting Services has done the heavy lifting to put together a list of what to look for in a retirement planning app, along with a few app recommendations from our team.

What is a retirement tracking app?

In preparation for retirement, you’ve likely opened up a few investment and savings accounts. Whether you have a single retirement savings account or multiple 401(k), or Roth IRA accounts, a retirement tracking app allows you to organize, manage, and analyze your investment in a single place.

This saves you from having to memorize multiple logins for different websites, and checking on each of your accounts individually. Instead, you can get a high-level (and in-depth) look at all your retirement investments at the click of a button.

Most retirement planning apps will even predict your estimated balance at the time of retirement based on your current account balances and asset allocation.

What to look for in retirement tracking apps

Although retirement tracking apps can be convenient for those tracking multiple accounts, not all apps are created equally, and you need to do your research to find one that meets your particular needs.

Consider the following qualities when choosing your retirement tracking app:

Mobile functionality – To effectively track and analyze your investments, you need to be able to access all of the retirement app’s tools no matter where you are. With this in mind, it’s important to find an app that offers full mobile functionality that doesn’t cut back on some of the tools or features available via the web or desktop platform.

For instance, if you need to buy or trade stocks from your phone, make sure the retirement planning app you pick allows you to do that.

Additional financial goals – Do you have savings goals other than retirement? If so, if you’re saving for big-ticket items like a down payment, higher education, or a vehicle, you may want to invest in a retirement tracking app that also allows you to track other goals as well. This will allow you complete visibility into your savings and investment balances without having to track them separately in another app.

Two-factor authentication – You’ve worked hard to earn money in your retirement accounts. The last thing you want is for the money to become compromised in a hack or phishing scheme. To protect yourself and your assets, look for a retirement tracking app that features two-factor authentication to ensure that only you will be able to access the data.

No hidden fees – No one likes hidden fees, especially when you are mindful of how you’re spending your money to maximize your retirement savings! While not all retirement tracking apps will be free, you should avoid those with hidden fees. Look for apps that are upfront with what you will be charged for, and look for an app that is all-in. You don’t want to set everything up and find out that the features that you need most require additional purchases.

The AA Tax & Accounting Services team can help you execute the right tax strategies to maximize your nest egg for retirement. Contact us to schedule an appointment.

Buying a Business in 2021? 5 Things New Business Owners Need to Know

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You don’t always need a new idea to make a vision come to life. If you’ve decided to buy an existing business in 2021, you get to skip over the startup steps and jump right into owning a fully functioning company.

While purchasing a company lets you skip ahead and bypass much of the heavy lifting, there are still many important factors and decisions that go into the actual purchasing of an existing business.

AA Tax & Accounting Services has compiled a list of 5 things that new business owners need to know when buying a business. Following these tips will help streamline the process and minimize pain points along the way.

1. Determine why the business is on the market

Purchasing a business is one of the largest investments you can make. You don’t want to put your hard-earned money into a company that has significant operational issues or is doomed to go under in the next few months.

That’s why you need to find out why the business was put up for sale. It could be something as simple as the current owner wanting to retire. But if it’s something about the health of the business, you want to be aware of potential issues before getting into the business. Red flags can range from debt and inventory issues to outdated equipment and a bad reputation in the community.

To fully grasp the health of the business and uncover if there are any shady reasons why the business was put on the market, you need to engage with the current business owner. Ask them questions about how the business is performing, how the team operates, what challenges they’ve faced up to this point, and where they see the future of the business going.

Getting a comprehensive look at the business from the current owner’s perspective will allow you to grasp why they’re selling, what has worked for the business historically, what improvements need to be made, and what you can expect moving forward. Your conversation may uncover obstacles that are a dealbreaker for you that you wouldn’t have otherwise known about.

Keep in mind that the current owner may show some bias towards their business. To truly get a well-rounded idea of the health of the business, you should engage with employees, competitors, customers, and the local community to make sure that the business is well-respected and one that you want to have a stake in.

2. Research the industry and market history

Purchasing a company is a considerable investment. You don’t want to put all your eggs in one basket, only to have the bottom of the basket fall out from underneath. To ensure you’re making the right type of investment for yourself financially, you need to analyze the industry and the market history.

If the market has been stagnant for the past few years, it might not be the right opportunity for you. However, if you see that the market is growing rapidly, it might be the right time to buy. Understanding the industry and marketing will help you determine the future profit potential of the business.

3. Understand how much time will be required

When you purchase a business, you aren’t only investing your money. You are investing yourself and your time as well. You need to determine if the investment is worth the time and effort that you’ll need to put into it as you get it off the ground. Is there somewhere else you can reap more rewards by spending your time differently?

If you are buying a business similar to another you own, you’ll be able to pick it right up. However, if you are buying a company outside of your comfort zone in an industry you haven’t dabbled in before, it’s going to take more time to learn the nuances of the business and the market. Depending on your goals as an entrepreneur, you need to know how much time will be required of you so you can determine if that is the time best spent.

4. Gather company information

When purchasing a company, you’re going to go through a lot of paperwork. You need to read through all of the gathered materials so you have a complete understanding of the history of the business and go into the sale with open eyes. Make sure you receive and read through the following materials:

Business licenses and permits – Do your research to understand what licenses and permits are required to operate this type of business. Does the company currently have all the necessary licenses required of it? If not, this is a major red flag.

Organizational paperwork – At the company’s inception, it would have been registered with the state in which it resides. Review this organizational paperwork to evaluate if the business has a certificate of good standing with the state.

Business financials – You’re likely investing in the business because you see it as an excellent financial investment moving forward. Review all the financial records, including tax returns, balance sheets, accounts payable, and debt disclosures, so you know exactly what you’re walking into.

As the new person in the business, there is no way for you to know everything, but you can do your due diligence to better understand everything going on behind the scenes.

How to secure the necessary funding

Once you’ve decided that the business is an investment you’d like to make, you need to know how to secure the necessary funding to purchase the business.

Depending on your current financial state, there are a few different options that may appeal to you:

  • Seller financing – Depending on the nature of the sale, the seller might provide you with the option to make monthly payments directly to them over a specified period.
  • Business loan – The most common way to purchase a business is with a business loan. To do this, you will go through an approval process and need to qualify.
  • Venture capital – If you don’t have the capital to purchase the business, you may rely on an investor to purchase the financial backer. Although they would own the business, you would be the one managing day-to-day operations.

Weighing the pros and cons of each financing option will allow you to make the best choice for you.

Tax consulting services in Cedar City, Utah

The AA Tax & Accounting Services team is committed to helping you feel confident with all your financial decisions. Contact us to schedule an appointment.

What You Need to Know About the Inheritance Tax

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Although estate planning isn’t necessarily a fun task, it’s something that needs to be done to ensure you protect your assets and prepare your families. Whether you’re drafting your estate plan for the first time or making changes to an existing estate plan, you’re probably questioning whether an inheritance tax will impact your heirs.

Utah does not have an inheritance tax. However, Utah does require heirs to pay a federal estate tax for larger estates.

To ensure Utah residents feel confident about the estate planning process, AA Tax & Accounting Services’ team of tax consultants has put together a quick guide on inheritance tax. Keep reading to learn everything you need to know to protect your assets and prep your estate for your heirs.

What is inheritance tax?

When a person passes away, their possessions are given to the established heirs in their estate planning documents. An inheritance is anything that a person receives as a result of someone passing away. This can include anything ranging from money and stocks to real estate and jewelry.

When the property is transferred to the new owner after a loved one’s death, the heirs of the estate pay an inheritance tax on the property. Inheritance taxes are determined on a state-by-state basis, and not all states require heirs to pay an inheritance tax.

How does an inheritance tax work?

If a state requires the beneficiaries to pay an estate tax, the individual will be required to pay a tax on some or all of the inheritance. Each state can determine if they will charge an inheritance tax, and if so, what the level of taxation will be.

Instead of having a singular tax rate, some states will specify different levels of taxation depending on the individual’s relationship to the deceased. While spouses may be exempt from inheritance tax, other family members such as siblings may be required to pay it.

Typically, the closer the beneficiary is to the deceased, the less likely they will pay an inheritance tax on the inherited property.

Are inheritance tax and estate tax the same?

A common misconception is that inheritance tax and estate tax are the same — but they’re not!

The estate tax is a federal tax held against the estate itself, not the beneficiary of the estate. This means that the inheritance will be distributed once the estate tax has been paid.

Not all estates are subject to estate tax, only large estates that have reached a specific threshold.

Does Utah have an inheritance tax?

Until you inherit property from a deceased loved one, you may not think twice about inheritance taxes, which is why it can cause many Utah residents stress. When named the beneficiary, they often turn to the experts to ask if they must pay taxes on inheritances in Utah. Have peace of mind knowing that Utah does not require its residents to pay inheritance tax. This means that after you pay any other necessary taxes, the inherited asset is all yours.

There are currently only a few states that require an inheritance tax. These states include Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

Tax consulting services in Cedar City, Utah

Whether you’re getting your estate squared away or you’ve inherited property from a deceased loved one, you may have questions about tax inheritance laws in Utah. If you still have questions after reading through our quick guide, AA Tax & Accounting Services can help you navigate the estate planning process and walk you through everything you need to know.

The AA Tax & Accounting Services team is committed to helping you feel confident with inheritance tax laws. Contact us to schedule an appointment.

Planning to Freelance in 2021? How Much Will You Pay in Taxes?

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Whether you want to make some extra money on the side or like the idea of being your own boss, freelancing can be a great option.

Once you get started freelancing, the excitement you feel when that first paycheck hits your bank account is contagious! Unlike a standard paycheck from an employer that calculates out the taxes you owe, though, your freelance check does not. This can make filing your taxes a bit more complicated.

As a freelancer, the Internal Revenue Service views you as a self-employed individual. This means that you are responsible for covering both your income tax, as well as self-employment tax. Without proper preparation throughout the year, you may find yourself with a hefty tax bill and no funds to cover it — which is why it’s imperative you set aside enough money throughout the year to cover your payments.

If you’re new to freelancing, this can seem very overwhelming. How much should you be setting aside to cover your taxes?

Do you pay it all when filing your taxes, or should you pay it throughout the year?

AA Tax & Accounting Services, LLC has compiled a guide for freelancing taxes to make the process less daunting.

How to calculate tax payments for freelancers

As a freelancer, you are required to pay income tax and self-employment tax. Self-employment tax refers to the taxes that a typical employer would withhold from your paycheck on your behalf, covering Medicare and Social Security taxes. In this scenario, your employer would pay half, and the other would be withheld from your paycheck — but that isn’t the case when you’re self-employed.

Since freelancers are considered the employee and the employer, you are responsible for covering all tax payments based on your income. Self-employment tax is 15.3% of the first $142,800 of income you receive, plus 2.9% of anything you earn over this threshold.

If you don’t have a budget for the taxes you’ll owe when filing your tax return, you may find yourself with a high tax bill. Instead, you should set aside 25% to 30% of your income to cover these costs. The easiest way to do this is to estimate how much you should deduct from your income each month and make estimated quarterly tax payments.

To get an estimate on how much you will owe to the IRS, you can use IRS Form 1040-ES to calculate your estimated tax payments.

Factor business expenses into taxable income

Although you will likely owe 25% to 30% of your income to the Internal Revenue Service for taxes, you may be able to deduct costs associated with running your freelance business. Using a Schedule C form, you will be able to subtract qualifying business expenses from your freelance income, calculating your taxable income for the year.

To ensure you get the most out of your business expense deductions, keep records of the following expenses:

  • Office supplies
  • Travel expenses
  • Mileage driven for business purposes
  • Maintaining a home office

Once you’ve calculated your taxable income from freelancing, you can determine how much you should be set aside for quarterly tax payments, so you don’t have a significant tax bill.

Do I need to make estimated tax payments?

When freelancing, the IRS expects you to pay your taxes at regular intervals throughout the year. Although you won’t know the exact amount you will owe, you can use the form mentioned above to calculate your estimated quarterly payments. If you expect to owe more than $1,000 in taxes come tax season, you are required to submit estimated payments quarterly by the following deadlines:

  • April 15 of the current year
  • June 15 of the current year
  • September 15 of the current year
  • January 15 of the following year

Not paying estimated quarterly taxes may result in tax penalties, causing you to owe the IRS more than you accounted for. Budgeting for income tax and self-employment tax will provide you with peace of mind knowing that you’re prepared for tax season and won’t be hit with an expensive tax bill — you may even get a refund!

Tax consulting services in Cedar City, Utah

If you’re self-employed, we recommend consulting certified public accountants like AA Tax & Accounting Services to better understand what you will owe come tax season and how much you should be paying to the IRS quarterly.

The AA Tax & Accounting Services team can help you execute the right self-employment tax strategies for peace of mind. Contact us to schedule an appointment.

What Parents Need to Know About Advanced Child Tax Credits in 2021

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If you have a child and earn less than $75,000 annually, or $150,000 for a married couple filing jointly, you may be interested in the recent expansion of the child tax credit signed into law by President Joe Biden in March.

When a family has a child between the ages of six and 17, they’ll be eligible to receive $3,000 annually. If their child is under the age of six, they can receive up to $3,600 annually if they meet the income parameters.

But will anyone that falls within the income restrictions receive the advanced Child Tax Credit?

Can households earning above the threshold receive the tax credit?

Does the tax credit need to be paid back?

AA Tax & Accounting Services, LLC has the answers to all your questions and more.

What is the advanced child tax credit?

Taxpayers with children under 18 are eligible to receive a tax credit if they earn less than $75,000 annually or $150,000 for a married couple filing jointly. Households that earn above this threshold are still eligible to receive a portion of the tax credit, ceasing for individual taxpayers earning $95,000 and married couples earning $170,000 filing jointly.

If receiving the advanced Child Tax Credit, you don’t have to wait until you fire your 2021 taxes to receive it. The advance payment will be distributed to qualifying households every month starting in July through December 2021 on the 15th of each month. The remainder of the tax credit will be claimed by the taxpayer when they file their 2021 taxes in 2022.

Eligible taxpayers will receive the credit for any qualifying children — there is no cap on the number of children in a family that can receive the credit.

How to qualify for the child tax credit

As a parent, you may be wondering how to qualify for advanced Child Tax Credit payments. To receive the tax credit, you and your spouse, if filing jointly, must:

  • File a 2019 or 2020 tax return and claim the Child Tax Credit on the tax return
  • Fall within the income limits of $75,000 for individual filers and $150,000 for joint filers
  • Have a primary residence in the United States where you reside for more than half the year
  • Have a qualifying child with a social security number under the age of 18 years old at the end of 2021

If you and your spouse meet these requirements, you can qualify to receive the advanced Child Tax Credit.

Should I opt-in to receive the child tax credit?

Unlike stimulus payments, taxpayers will be required to pay back the Child Tax Credit if their circumstances change that knock them out of the qualifying. For instance, if your child will be aging out of the age bracket or you or your spouse will have a substantial change in income, you may opt out of the advance payments.

Tax consulting services in Cedar City, Utah

If you have children, you may be wondering if the advanced Child Tax Credit is something you should opt into.

We recommend consulting certified public accountants like AA Tax & Accounting Services to better understand all the tax deductions available to you. We have the experience to guide individuals on the best strategies for maximizing their deductions and tax credits with our tax consulting services.

The AA Tax & Accounting Services team can help you execute the right tax strategies as a parent of a child under the age of 18 years old. Contact us to schedule an appointment.

What Utah Businesses Should Know About Employee Retention Tax Credits

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The past year has caused a significant strain on the local economy, especially impacting local businesses. As a result of the pandemic, businesses have been eligible for many tax breaks to help them stay afloat during these trying times.

If your Utah business was hit hard over the last year, you might want to consider taking advantage of the employee retention tax credit. Established in March 2020 in the CARES Act, the employee retention tax credit has been expanded upon since the December relief package, and the American Rescue Plan Act signed in March 2021.

Why should your business take advantage of the employee retention tax credit? AA Tax & Accounting Services, LLC is ready to walk you through how your Utah-based business can gain substantial benefits by claiming this tax credit.

How the Employee Retention Tax Credit Works

When the employee retention credit was initially created as part of the CARES Act, it provided eligible businesses with refundable credits of 50% of up to $10,000 in qualified wages paid per employee in 2020. In summary, eligible businesses would receive a tax credit of up to $5,000 per employee last year.

Since then, some changes have been made to the employee retention tax credits to expand them even further — providing Utah businesses with even more tax breaks. In March 2021, the American Rescue Plan Act was signed into law, increasing the eligibility of businesses and adjusting the date that the credit needed to be claimed. The biggest adjustment to the employee retention credits is that eligible businesses cannot deduct up to 70% of up to $10,000 in qualified wages paid per employee per quarter in 2021. This means that eligible businesses would receive a potential annual tax credit of $28,000 per employee this year.

For businesses struggling to make ends meet, the employee retention tax credits provide a significant bonus.

Is My Utah Business Eligible?

Not all businesses are eligible to receive the employee retention tax credit — its purpose is to focus on businesses that were hit hardest by the COVID-19 pandemic.

Eligibility for the 2020 employee retention credit is determined by if your business experiences a full or partial shutdown due to a government order limiting commerce, travel, or meetings, or if your business saw more than a 50% quarterly decline in gross receipts.

Because of the expanded parameters of the employee retention tax credit in 2021, business eligibility was also adjusted slightly. Eligibility was expanded to include businesses that underwent a full or partial shutdown or experienced more than a 20% quarterly decline in gross receipts.

Tax Consulting Services in Cedar City, Utah

Navigating business taxes is already an overwhelming process, and with the adjustments to the employee retention tax credits between 2020 and 2021, it’s even more confusing. Because of the complexity of the tax credits, we recommend consulting certified public accountants like AA Tax & Accounting Services for help making any decisions related to your business taxes.

From one-time tax consulting services to ongoing consulting services, our tax consultants work with many clients as their tax advisor and tax preparer — ensuring that your tax team understands your taxes backward and forwards. Our team has the experience to provide you with the most effective strategies for maximizing deductions and tax credits with our tax consulting services.

The AA Tax & Accounting Services team can help you execute the right tax strategies and determine if your Utah business is eligible for the employee retention tax credits. Contact us to schedule an appointment.

Farm Owner? Here’s What You Should Know About Doing Taxes for Farmers

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Not many people enjoy tax season, especially when you own and operate a farm. As a farmer, you deal with many different income sources, expenses, deductions, and credits, all of which can make filing your tax return even more complicated. If you’re a farm owner and are struggling to understand how taxes work for farmers, you’re not a lot. To help make filing your taxes a bit less daunting, the team at AA Tax & Accounting Services, LLC has put together a guide to filing taxes as a farmer.

Determine If You’re Considered a Farmer

To make the most of the credits and deductions associated with farming, you need to be classified as a farmer in the eyes of the Internal Revenue Service (IRS). Do you own property that produces fruits and vegetables that are purchased on-site by the local community? Do you grow produce in your backyard and sell it at a roadside stand?

According to the IRS, a farmer is someone who “cultivates, operates, or manages a farm for profit, either as an owner or a tenant.” This can range from operations on a ranch and range to orchards and groves, and it can involve raising livestock and poultry or growing produce.

In most cases, you will not qualify as a farmer if you are a low-end operation growing fruits and vegetables in your backyard to sell as a side hustle. This income would be considered hobby income because your primary occupation isn’t farming-related, which means you would not have access to the same tax breaks as a qualified farmer.

Report on Your Farming Income

Come tax season, you need to be able to report all streams of income for the past year. While your primary source of income may be from sales of crops, there are a variety of types of farming income that need to be reported. A few of these include:

  • Selling livestock
  • Selling produce, grain, and other products
  • Distributions from a cooperative
  • Prizes from livestock competitions
  • Agricultural program payments
  • Crop insurance proceeds
  • Federal crop disaster payments

There are quite a few types of farming income that need to be reported on come tax season. Because of this, you must keep a record of all income throughout the year so you can easily and effectively report income on your tax return.

Understand Which Expenses Can Be Deducted

As a farmer, there are quite a few deductions you can take advantage of. These include:

  • Seeds and plants
  • Chemicals
  • Feed
  • Fertilizers and lime
  • Insurance
  • Veterinary costs for livestock

While farmers can make a lot of deductions on their tax return, there are a few expenses that can not be deducted:

  • Living expenses not related to farm income
  • Value of deceased animals
  • Inventory losses
  • Personal losses
  • Expenses from raising livestock or growing produce for personal use

Take Advantage of Tax Breaks

While there are plenty of opportunities for you to receive tax breaks from expensing qualified deductions, there are additional tax breaks and credits that farmers can take advantage of.

  • Home Office – Is your personal residence also the home of your farm? If a portion of your home is used exclusively for your farming operation, you may be able to make the most of the home office deduction.
  • Net Operating Loss – Because farming income can be extremely unpredictable and is dependent on the success of a crop, you can deduct losses when they exceed your other income from the year. When applicable, this loss can be deducted from income in the previous two years, allowing you to receive a refund. You can also opt to carry this net operating loss forward for up to 20 years.
  • Fuel Credits – When operating your farm with gasoline or fuel, you may be eligible to claim a credit on the excise taxes you paid. Certain requirements and limitations include not receiving a credit or refund for taxes on dyed diesel fuel and dyed kerosene.

Call for Tax Consulting Services for Farm Owners

From one-time tax consulting services to ongoing consulting services, our tax consultants work with many clients, including farm owners, as their tax advisor and tax preparer. With our team, you can have peace of mind knowing that your tax team understands your farming taxes backward and forwards. We have first-hand experience working with farm owners to provide you with the most effective strategies for maximizing deductions and tax credits with our tax consulting services.

The AA Tax & Accounting Services team can help you execute the right tax strategies for your farming operation. Contact us to schedule an appointment.

What Medical Expenses Can I Deduct From My Taxes?

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Medical expenses add up quickly, especially if the costs aren’t covered and reimbursed through your health insurance. If you or your dependents have racked up medical expenses, you might have the opportunity to claim them as a deduction on your next tax return.

To ensure you’re making the most of the medical expense deduction, AA Tax & Accounting Services is here to breakdown how it works.

Are medical costs tax-deductible?

Suppose you or a dependent have a high volume of medical expenses. In that case, you’ll be pleased to know that the Internal Revenue Service allows you to deduct unreimbursed medical expenses from your tax return.

However, there are stipulations to the types of medical expenses that can be counted towards your tax deductions.

When filing your tax return, you can deduct qualified medical expenses if they equal more than 7.5% of the previous year’s adjusted gross income.

For instance, if your adjusted gross income is $75,000, any amount exceeding the first $5,625 of medical expenses can be deducted. This means that if your medical expenses totaled $15,000, you would be eligible to deduct $9,375.

Medical expenses eligible for tax deductions

To prepare you for the upcoming tax season, we’ve put together a list of qualified medical expenses that can be deducted from your tax return:

  • Acupuncture or other forms of alternative treatments
  • Addiction treatment, which includes food and lodging at a rehabilitation center
  • Adaptive equipment including wheelchairs, shower seats, and other disability accommodations
  • Birth control pills
  • Blood-testing kits and strips for diabetes
  • Breast pumps and pumping equipment
  • Chiropractic services for medical purposes
  • Diet food and supplements when prescribed by a doctor to alleviate a specific medical condition
  • Eye exams and, if applicable, contact lenses and prescription glasses
  • False teeth
  • Hearing aids or other hearing equipment
  • Home improvements to increase accessibility due to a medical disability
  • Household help for nursing care services
  • Lodging when traveling out-of-town for a medical treatment
  • Organ transplants
  • Prosthetic limbs
  • Psychiatric care
  • Reproduction costs covering abortions, vasectomies, and fertility treatments
  • Service animals meals, training, and veterinarian expenses
  • Sex-reassignment surgery and hormone therapy to treat gender identity disorder (GID)
  • Special education
  • Programs supporting physical or mental conditions such as dyslexia or ADHD
  • Public transportation costs to and from medical visits
  • Wigs for those with a medical condition such as cancer or alopecia

You must track all your medical costs throughout the year, so come tax season, you can easily determine if you need the requirements to deduct your medical expenses from your tax return. Hold onto all copies of receipts and make a note of which expenses haven’t been reimbursed so you can reduce your tax bill with little headaches.

Additional rules to be aware of

If you’re planning to deduct medical expenses from your tax bill, here are two additional rules to be aware of:

1. You are only allowed to include medical expenses that were paid during the tax year.

2. If you were reimbursed for any medical expense through your insurance, that bill cannot be included in your tax deduction.

How to claim the medical tax deduction

Now that you’re aware of what types of medical expenses can be deducted from your tax bill, you must set yourself up for success come tax season.

You will be required to itemize your deductions, which is why it’s helpful to hold onto and organize all receipts you receive throughout the year.

Tax consulting services in Cedar City, Utah

If you have a high amount of medical expenses, AA Tax & Accounting Services can help you better understand how to maximize your medical expense deduction to save you the most money on your upcoming tax bill.

No one should go into tax season with their questions unanswered. Our team of tax consultants has the experience navigating the most effective strategies for maximizing their deductions and tax credits with our tax consulting services.

The AA Tax & Accounting Services team can help you execute the right tax strategies to save you money on your medical expenses. Contact us to schedule an appointment.

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