In this highly globalized era, more people are working remotely—many in foreign countries—than ever before. Working abroad can provide many advantages including allowing your enterprise to expand into new markets and allowing you to experience a new culture. However, as most people working abroad will quickly discover, working in a foreign country can provide some tax and legal complications.

One of the primary concerns of people working overseas is whether they will be subject to double taxation. According to today’s leading tax experts, the answer, to put it simply, is it depends. Below, we will discuss the most important things to know about being taxed while working abroad.

Does the United States Tax Income Earned in Foreign Countries?

To understand how you will be taxed while working abroad, you will first need to determine whether you qualify for the foreign earned income exclusion. According to the IRS, in addition to earning foreign income and having a “tax home” that is in a foreign country (meaning you are subject to this country’s tax codes), you must either be a resident of the country “for an uninterrupted period that includes an entire tax year”, live in a country that has an income tax treaty with the United States (of which, there are many), or be a US citizen that lives in a foreign country for 330 full days within a year.

The IRS further explains that “If you are a US Citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020). In addition, you can exclude or deduct certain foreign housing amounts.”

In other words, while foreign earnings will be subject to US tax law, the deductions (if you qualify) are rather generous. If you are unsure whether you qualify or whether you are subject to double taxation, consider speaking directly with your tax accountant. Furthermore, if you believe your earnings will be above the stated amount, you may want to consider speaking with both an American accountant, along with an accountant in the country you’ll be living in.

What Other Income Tax Rules Apply to Americans Living Abroad?

Generally speaking, money that is earned in foreign countries can be considered “foreign income.” The IRS defines foreign income as “wages, salaries, professional fees, or other amounts paid to you for personal services rendered by you.” But, as you might expect, there are many variables that can complicate this situation.

There are many types of income that, even if you are living abroad when the income is received, do not qualify as foreign income. This includes income earned by all military personal or civilian employees of the US Government, incomes earned in international waters and airspace, income received during the tax year after services were rendered, compensation that could be excluded from income taxes at home, and compensation that comes from social security and other annuities. Each of these cash flows will all be treated as if they were accrued in the United States.

Conclusion

Generally speaking, income earned abroad by American citizens will be subject to American tax law. But be sure to see if you qualify for the foreign earned income exclusion, along with the many deductibles and other exceptions currently available. While these situations can sometimes be rather complicated, it is still quite possible for many people to earn an income abroad without being subject to double taxation.

Interested in learning more about how income earned abroad is taxed? Be sure to contact us, here.

Nobody wants an IRS audit, whether on an individual basis or as a business owner. However, there are some things that can trigger an audit more easily, ranging from overestimating the value of your charitable contributions to simply forgetting to sign paperwork.

To help you steer clear of an IRS audit, our experienced accountant here at AA Tax & Accounting Services has some tips for you to implement.

Form LLC If Self-Employed

For those who are self-employed, forming a corporation—particularly an LLC—can help protect you, as the IRS is more likely to audit the self-employed and small businesses. With an LLC or other form of a corporation, you reduce your tax liability and become eligible for business deductions.

Should you need assistance with incorporating, our accountant can guide you through the process and recommend which type of business structure best suits your business.

Check For Any And All Mathematical Errors On Your Taxes

Even as most tax filers have moved away from paper tax forms and electronic forms are less liable to allow math errors, these mistakes can still crop up. Whether the error is a forgotten deduction or a shifted decimal point, it can trigger an IRS audit.

To prevent mathematical errors from being submitted on your taxes, be sure to carefully review your taxes line-by-line before you file your return. Even if you opt for professional tax preparation, take the time to ensure everything looks right.

Have An Accountant Prepare And Submit Your Tax Return

Working with a tax consultant can help remove the majority of the common errors that people make while filing their own taxes. With an experienced tax consultant to input, review, and file your tax return, you can feel confident when your taxes are submitted to the IRS.

Also, here at AA Tax & Accounting Services, our accounting firm extends an audit promise. If your taxes are filed by our accountant, and an IRS audit comes up due to an error, we will provide free tax resolution services.

Avoid Overestimating Donation Value

If you opt for the new above-the-line cash charitable donation, it isn’t likely to set off an IRS deduction, as that kind of donation is clear-cut. However, if you choose to donate a noncash contribution and it is valued over $500, you can trigger an IRS audit.

For one thing, you will need to fill out Form 8283 for all noncash donations over $500 and may still have the IRS audit you. If your noncash donation is $5,000 or under, you will fill out Form 8283, Section A, and for noncash donations over $5,000, fill out Form 8283, Section B.

These types of donations are prone to abuse and simple overestimation, so you may want to prepare yourself for an audit if you deduct larger, noncash donations from your taxable income.

Review Tax Deductions And Credits Eligibility

Speaking of deductions and tax credits, having incorrect tax deductions and credits can cause the IRS to come and investigate. All tax credits and deductions have clear eligibility guidelines, and some of these deductions and credits can conflict with each other.

Our accountant can help guide you through what tax deductions and credits you are eligible for and appropriately apply them to your tax burden.

Be Sure To Sign Your Tax Return

Lastly, but importantly, you should make sure you sign your tax return. Most electronic filing options will not let you submit your tax return if it isn’t signed, but if you file by paper, you need to be sure that you have signed all the appropriate areas. Otherwise, you may have an IRS audit on your hands.

When you are ready to get your taxes in order with professional assistance, you can contact us to arrange a consultation with your local Cedar City accountant.

The pandemic-extended tax deadline may have come and gone, but that doesn’t mean you should stop planning for your financial future. As your local Cedar City tax advisor, we’re here to tell you that it’s never too early to prepare for your future financial security or the next tax season.

One way you can address both future financial prosperity and reduce your tax burden is by taking advantage of the new, higher limits on contributions to health savings accounts (HSAs).

IRS Raises Health Savings Account Contribution Limits

To clarify, a health savings account is a specialized savings account where you can save for future medical costs pre-tax. These medical costs can be as simple as paying for your prescription and over-the-counter medication or to help fund a future surgery.

Also, if you use your HSA to pay for approved medical needs, you will not be taxed on the money that is pulled from your HSA. However, if you withdraw the money first, then pay, you will be taxed the same as if you pulled money from a 401(k). So, not only do you get to contribute to an HSA tax-free, but you can spend money from your HSA tax-free, all while reducing your taxable income.

If that sounds attractive to you, then you should be excited for the new 2021 contribution changes to HSAs. Recently, the Internal Revenue Service (IRS) has announced higher contribution caps on health savings accounts. For someone contributing under individual coverage, you can contribute $3,600, and families can contribute up to $7,200. This increase was made to help adjust for inflation. Also, if you are over 55 years old or older, you can make an additional $1,000 contribution to your HSA. For families, the catch-up limit is $7,000, with $1,000 allotted per HSA family contributor.

Why Contribute More To An HSA

When possible, we like to advise our clients to take advantage of health savings accounts, as they offer triple tax benefits. Other reasons to contribute to an HSA are:

• Business owners can save – An HSA can be offered as an employee benefit, which business owners can deduct from their taxes as a business expense.
• Available to all types of employees – Self-employed individuals can also utilize some HSAs, though not all are available to those who are contractors, gig workers, or otherwise self-employed, so check carefully.
• Can be used with Medicare – Once over 65, you can use an HSA to cover your Medicare insurance premiums.
• Refund yourself – With a receipt, you can reimburse yourself from your HSA for medical expenses.
• No time limit – You can spend your HSA funds when you need them, there is no time limit like flex savings accounts.

Determine Your Personal Saving Strategies With AA Tax & Accounting Services

To see if an HSA is right for your financial needs, you can always take advantage of our accounting services to meet with our accountant for tailored advice.

If you would like personalized advice on your finances, whether as an individual or business owner, please feel free to contact us today to set up a consultation with our experienced accountant.

Becoming a parent can be an incredibly rewarding adventure. But, as you might expect, the joys of parenting also come with quite a few challenges. In addition to budgeting for a new child, many new parents often wonder if—and how—they will be able to claim their child as a dependent.

Your status as a parent will have many financial implications, some of them will be frustrating or stressful, while others—such as the credits and deductions available—will be beneficial. Working with a tax expert will make it much easier to navigate these uncharted waters. If there is a child that depends on you for financial support, they will likely qualify as a dependent. However, there are some variables that can complicate this situation, such as age, your legal relationship to the child, and whether the child is responsible for covering any of their expenses. Before claiming the Child Tax Credit, be sure to check that they qualify.

Understanding the Child Tax Credit

In the United States, the most recent update to the Child Tax Credit (CTC) occurred in 2017. Following the passage of the Tax Cuts and Jobs Act (TCJA), parents could claim a $2,000 tax credit for each “qualifying” child. The tax credit is available to individuals earning up to $200,000 per year and joint filers earning up to $400,000 per year. Because the CTC is a tax credit, rather than a tax deduction, the CTC is applied to the total tax owed. If it is your first time taking advantage of the CTC, you may want to consider getting some outside help. Hiring a specialist to help you prepare your taxes is particularly recommended for anyone who has recently experienced a “status change”, such as marriage, divorce, a new job, and—of course—having children.

Who Qualifies for the Child Tax Credit?

When applying for the child tax credit, the first thing the IRS will consider is your relationship to the claimed dependent. According to the IRS, “To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepsister or a descendent of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child.”

Furthermore, the dependent will also need to be a US citizen, US national, or US resident alien. They will need to live with you for more than half of the taxable year, you will need to provide the majority of their financial support, and the child will need to be younger than 17 at the end of the taxable year (the most recent December 31st). While there are a few exceptions to these rules (see IRS Publication 972), these six tests (age, relationship, support, dependency, residence, and citizenship) will usually all need to be passed in order for someone to be considered a legal dependent.

Claiming Dependents in the Age of COVID-19

In response to the COVID-19 outbreak, Congress passed the “CARES Act”, which has been one of the most notable pieces of legislation of 2020. The comprehensive Act provides $1,200 to many individuals, along with $500 per each qualifying child. To claim this stimulus, an individual must have an adjusted gross income less than $75,000 for an individual, less than $112,500 for a head of household, and less than $150,000 for couples filing together. Following these limits, the benefit is phased down from $500 per child.

Due to the prolonged effects of the virus outbreak, there may be an additional stimulus package issued by the end of the year. While it is not clear whether this package will include direct stimulus (such as the CARES Act did), it is almost certain that the same dependent qualifications will be applied. However, as any experienced bookkeeper will tell you, all future unknowns come with some degree of risk. To help you prepare for future uncertainty, our tax and accounting services can help you develop a secure financial position, regardless of what the future has in store.

If you have not yet claimed or received the first round of stimulus, the IRS is still accepting new claims. For questions about claiming a child as a dependent or questions about financially adjusting to parenthood, in general, you can contact us here.

While your 2019 tax filing may not be changed by the CARES Act—though that depends on if certain circumstances apply—your 2020 tax filing can be significantly impacted. From changes in charitable giving to new tax breaks for struggling small businesses due to coronavirus impact, your local Cedar City tax firm is here to help you navigate these difficult new tax circumstances.

Expanded Above-The-Line Charitable Giving

When you take the standard deduction on your taxes, there is no option to claim your charitable contributions, as that is only allowed with itemized taxes. However, due to changes with the CARES Act, you can now claim a new charitable giving.

Called an above-the-line deduction, if you choose the standard deduction, you can still claim up to $300 of charitable donation. This donation needs to be in cash to qualify.

Change To 2020 AGI Limit On Deductions

For business owners who are filing taxes for 2019 and 2020, there has been an adjustment to business interest deductions. Specifically, the limit on the adjusted taxable income has been raised from 30% up to 50%.

This change does not include partnerships, and will only apply for 2019 and 2020. There are other stipulations you should review with our experienced accountant to ensure you qualify to claim the extra deduction.

Business Owners Can Carryback Net Operating Losses

With the CARES Act, business owners can now utilize their net operating losses that were created in the tax year 2018, 2019, and 2020. They can utilize their net operating losses by carrying them back by for five years.

By allowing these net operating losses to be carried back, business owners can receive a tax refund if they had taxable income during that five-year range. Our accountant can help with the adjustment of these previous tax years to ensure your net operating losses are carried back correctly.

Federal Student Loan Forbearance May Change Deduction

Currently, federal student loan payments are in forbearance, and there is a zero-interest rate on loans until after September 30, 2020. This forbearance and 0% interest only applies to Direct Loans, FFEL Program Loans, Federal Perkins Loans, HEAL Loans, but only if they are federally provided loans. Student loans through private lenders and those that have been consolidated will not be in forbearance automatically.

With these loans in forbearance and not gathering interest, the amount that you can deduct from your taxes may change. Also, you may want to take advantage of the ability to pay down your student loans while they are tax-free.

Paycheck Protection Program May Have Unexpected Tax Consequences

Many small—and large—businesses are used to deducting common business expenses like payroll, utilities, rent, and mortgage payments. However, if your company has received a Paycheck Protection Program loan that is eventually forgiven, these common deductions are not available to you.

This loss of a common business deduction can be tough to deal with as a small business owner, so any consideration of applying for a PPP loan should be carefully reviewed with our accountant.

Access Retirement Plan Funds

As many individuals and families have been hard-hit by COVID-19, the CARES Act has allowed eligible taxpayers to make withdrawals from their qualifying retirement plans, up to $100,000. This essentially interest-free loan to yourself will not be counted as income as long as you repay it to your retirement plan within three years after your withdrawal.

Also, if you already have loans pulled from your retirement plans, up to $100,000 of those loans can be deferred.

Consult With AA Tax And Accounting Services On Your Taxes

As you can see, there are many changes that have been wrapped up in the passing of the CARES Act, not all of which we have covered in this post.

Should you need personalized tax advice and assistance when it comes to navigating your tax circumstance, you can always contact us to start working with our experienced tax accountant.

During these troubling times, both individual taxpayers and businesses are facing a lot of economic uncertainty. This turmoil makes it even more important to ensure that your next tax return is maximized, and with the help of a tax preparation accountant, you can trust that every write-off, tax credits, and tax deductions will be applied.

If you aren’t sure you can afford to invest in working with an accountant to prepare your taxes, here are some of the top ways a tax preparation accountant can help with your 2019 tax filing.

Identify New Laws That Help You Save

Tax law is constantly changing, and new tax credits and deductions are created while older ones expire. It can be incredibly difficult for a busy taxpayer to keep up with these changes. So, instead of constantly trying to once a year navigate tax law on your own, you can rely on a tax accountant to prepare your taxes and help you save.

For instance, with the new Coronavirus Aid, Relief, And Economic Security (CARES) Act, there is a new charitable donation you can make while still claiming the standard deduction. Up to a $300 cash donation can be made while still taking the standard deduction, rather than trying to itemize. This new law was only very recently enacted and is a great example of the kind of up-to-date knowledge that you can expect from professional accountants.

In-Depth Understand Of Local, State, And Federal Tax Laws

There are different tax laws that apply at the federal, state, and local levels. Taxpayers without many assets may not need to worry about much beyond basic federal taxes and state income tax, though not all states have that tax. However, for business owners, navigating the different layers of tax law can be tricky.

Instead of wading through different state tax laws, local business taxation considerations, and the rest on your own, you can rely on our accountant to manage your business tax filings.

Experienced Assistance Writing Off Business Losses

Unfortunately, many companies of all sizes have been heavily impacted by COVID-19, resulting in a significant loss of profit. Some business owners have been able to take advantage of government loans and other options to stay afloat. But since last year’s tax filings don’t take current circumstances into account, that can still leave company owners in difficult positions.

With the help of a skilled tax consultant, you can have expert assistance in determining what losses can be written off, how your current tax burden can be reduced, and ensure that you stay on the right side of the IRS.

Protection In Case Of IRS Audit

Speaking of the IRS, most people feel anxiety when filing taxes as there is always the threat of an IRS audit, even with perfect taxes. While an audit isn’t as intimidating as it sounds, it can be difficult to manage on your own.

If you work with our accountant, you can enjoy peace of mind knowing an experienced tax professional is handling your tax return. Also, you will have guaranteed IRS representation if an audit is required.

Should you still need to file your 2019 taxes, you have until July 15 to get your taxes filed, thanks to an automatic extension from the IRS due to the impact of COVID-19. So, when you are ready to tackle your taxes and maximize your tax return, contact us to work with our experienced, Cedar City tax preparation accountant.

Whether you are preparing to do your own taxes or working with tax professionals, it is essential that you document all your income streams carefully. For many people, their income stream is simple, and a W2 form from their employer is all they need.

But in this more gig-based economy, it is not unusual for some individuals to cobble together income from several sources, from ride-share driving to selling online. Facebook Marketplace is one such popular venue for local sellers, and raises the question, do you need to pay taxes on your earnings there?

Well, the answer is—it depends, though in most cases, you probably don’t need to pay any taxes on your Facebook Marketplace selling.

Paying Facebook Marketplace Taxes Will Depend On Use

There are four basic instances that may apply to selling on online platforms like Craigslist, Facebook Marketplace, LetGo, and others. Check the ones we have listed below to see what applies to your situation to determine if you need to pay taxes.

Selling Personal Items At A Loss

For most sellers who casually use online platforms, they are selling personal items that they have used for a loss. Generally, the rule is if you have used the item and then sell it for less than you paid for it, then you don’t owe any taxes. However, you also can’t claim the loss on your tax return. It is simply written off.

To help clarify this point, say you bought a mountain bike for $400. After a few years of use, you end up upgrading your bike and sell your old bike for $150 on Facebook Marketplace. Since you sold your bike at a loss after using it, you don’t owe any taxes on your earnings.

Claim Appreciated Assets Sold Online

So, what happens if you sell an item online that isn’t at a personal loss? An item that has gained value, such as a collectible or antique that you sell for more than you purchased, is considered an appreciated asset.

Depending on what type of seller you are, this income may need to be reported as business income—if you are a regular seller—or as capital gains.

Online Hobby Sales

Now, if you sell items on Facebook Marketplace and other online platforms without the express purpose of making a profit, this income can be classified as hobby income. A simple test of whether something is hobby income is if you have not made any profit for two out of five consecutive years.

For example, say you crochet items and sell them for the cost of materials or less, also taking a loss on your labor. This income can qualify as hobby income, and you can deduct your hobby expenses, though not any losses.

Use Facebook Marketplace & Other Platforms For Business

If you use online selling platforms as a way to move items you have bought and want to resell for profit, you can be classified as a small business. From furniture flippers to thrift store hunters who look for quality pieces to resell, it is important that if you engage in this kind of online income earning that you recognize your tax liability.

Also, if you have turned your online selling into a business, working with our tax consultant can help you set up your own business entity to reduce your liability and prepare for your future taxes.

Work With AA Tax And Accounting Services This Tax Season

If you need assistance compiling and filing your taxes this year, you still have time. Thanks to the automatic deadline extension, tax return filing is now due July 15, 2020.

So, if you are ready to tackle your taxes with our accountant to ensure you are in the clear, contact us today to arrange an appointment.

While tax filing has been extended to July 15 due to COVID-19, it is better to take care of your tax preparation and filing sooner rather than later. But should you be using an online tax software service or working with your local Cedar City accountant?

If you have asked yourself this question, then you may want to learn exactly how your local Cedar City accountant can secure you the best tax refund.

Greater Understanding Of Local And State Tax Laws

There are taxes that apply at the federal, state, and local levels. Keeping up with all the tax changes can be difficult for public-use tax software. However, by working with a local accountant, you can be assured that they are on top of the local and state tax laws that will apply to you and your taxes.

For instance, there are tax credits that Utahns can receive, such as the At-Home Parent Tax Credit and the Historic Preservation Credit. Your average online tax software may not account for these credits, unlike if you work with a tax accountant who works in Cedar City, UT.

Major Life Events Can Be Properly Accounted For On Taxes

There are several major life changes that can significantly alter your taxes, such as the birth of a child, marriage, divorce, etc. Some of these broader life changes can be straightforward—i.e., you got married and can now choose married, filing jointly. However, other circumstances can be more difficult to account for on your taxes.

Say, for example, that you received an inheritance from your great-uncle. Depending on what you inherited, how much you inherited, and where you live, different tax laws may apply. Here in Utah, there are no inheritance taxes, but if you received the inheritance from an out-of-state relative, taxes may still apply.

These kinds of major life events are best handled with the help of an experienced local accountant who can walk you through what you need to do to protect yourself from excessive taxes.

Tax Deduction Itemization Is Best With In-Person Accountant

Should you want to itemize your taxes, there are many different expenses, tax deductions, and tax credits that can be included. But, as most Americans opt for the standard deduction, you may not be familiar with all the ways that you can save with itemization.

With the help of an experienced accountant—rather than relying on software to give you the correct prompt—you can better maximize your tax return.

Business Owners Get The Right Credits And Deductions Applied

There are specific deductions and credits available to business owners, such as an alternative energy credit if the owner has decided to opt for renewable energy for their fleet vehicles. In other cases, if you have losses to report, you can save on what your business made. But, without the help of an experienced tax consultant, it can be tough to know if you have covered all your bases.

Our accountant here in Cedar City has worked with many small business owners to help minimize their tax liability and ensure that all the appropriate tax credits and tax deductions are claimed.

Navigating Complicated Tax Situations Call For Real Accountant

While online tax filing software can work for those who have simple taxes—i.e., have only one or two W2 forms and no other assets—many Americans have more complicated taxes. Owning assets such as multiple properties, stocks, a business, and more can make your taxes far more complex than your average tax software can handle.

Rather than relying on software to try and account for your tax liability, our accountant can work in-person with you. Whether you have capital gains taxes due to your stocks dividends, have rental properties, navigating a divorce, or other complex tax circumstances, our accountant can help guide you through to successfully filing your taxes.

So, if you need help preparing and filing your tax return, feel free to contact us today to set up a consultation with our accountant.