Accounting for Payments for Individuals

 

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Accounting: Payments to Individuals


 


Proper documentation is required for all employees. Failure to provide this documentation can result in fines, fees and additional taxes being assessed. The basics are provided here on how to properly protect your business.  The following describes employees:

 

 


W2 Employees

W2 employees are persons who you control, work on your site, follow a schedule, use your tools or equipment, get paid by the hour/salary/commission and are told what and when to do something. These people should fill out a W2 and an I9 BEFORE you allow them to work.

 

1099 Employees 

1099 employees are persons who do a single job and then are gone, work off site with their own tools or equipment, make up their own schedule, get paid by the job or commission and are not W2 employees.  These people should have their own WC.  These people should fill out a W9 form BEFORE they are paid their first check.

 

Reimbursements

The IRS does not like checks for CASH. CASH should only be used for replenishing petty cash. If anyone gets reimbursed, they should provide receipts, and the check should be issued for the exact amount of the receipts. There will be no check unless there are receipts. Otherwise, the person becomes a 1099 employee. 


The receipts should go in an envelope with the check number on the outside of the envelope. This routine protects you and the person being paid in the event of an audit.


  

Here is our basic  Business Form

 

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Akron Income Tax Co.

2215 E. Waterloo Rd. Suite 113

Akron, Ohio 44312

(330) 733-1040

Email :This email address is being protected from spambots. You need JavaScript enabled to view it.This email address is being protected from spambots. You need JavaScript enabled to view it.  

 

 

 

 

Stress-Free Income Tax Preparation Service

 

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There could be two things that everyone finds stressful:  finances and income tax preparation.  We cannot deny that more and more people are rolling their eyes in terms of preparing their taxes.  Aside from filing, an additional cause of headache for us is computing them.  Many of us would just give up computing and just leave it behind until it’s already time to settle the income taxes.

 

The truth of the matter is that you need not to be stressed out in computing taxes. In early January, our clients start getting various documents in the mail. We tell them... just gather the doc's up and bring them in to us... we try to make it as pain free as we can.

 

Turn to the professionals to complete your income taxes. Trust us to complete your taxes in the most effective manner to allow you to get the best refund (or lowest amount that you may owe) allowed by law. It's our job to know the laws and to process your return based on all of the information that you have. 

 

 

Accurate, Reliable and Secure. 

 

 

Akron Income Tax Co.

2215 E. Waterloo Rd. Suite 113

Akron, Ohio 44312

(330) 733-1040

Email :This email address is being protected from spambots. You need JavaScript enabled to view it. 

Proper Accounting is a necessary business function

 

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The start-up process of any new business can be really threatening. Your worries spread every aspect of the business such as marketing, product development, sales, and customer support, profit generating strategies, etc. You have a lot already to take care of that you are thinking already of delegating some job to others to give yourself some rest.

 

To update all invoices, payroll, insurance, taxes, accounts receivable and payable, debts, etc. would definitely be too exhausting for you working on it alone. We can definitely help you save a lot of time.

 

Sooner or later you will have to complete a tax return and it is a lot easier to stay on top of the Accounting Services function on a monthly basis. And it is cheaper in the long run. Since you would have a person to do all the bookkeeping, you can definitely focus more on making money than to worry about how to account for it as well to allot on other aspects of the business that needs support since you are in constant tract of the updated budget list.

 

We can also keep you well organized in terms of the management of all your paperwork. They won’t let you get things just piled up on your desk. With our help, your business life can be definitely be easier and more productive focusing on what you do best.... making your business work for you! 

 

 

 

Accurate, Reliable and Secure. 

 

 

Akron Income Tax Co.

2215 E. Waterloo Rd. Suite 113

Akron, Ohio 44312

(330) 733-1040

Email :This email address is being protected from spambots. You need JavaScript enabled to view it. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Family Loans and the Gift Tax

 

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Process Involved in Giving Loan in 2017

 

Above all it is very much important for you to document or take note of the loan.  The most common problem that individuals encounter is that they do not take note of the loan especially if they are not going to ask interest for it.  The truth is that even if you are not going to ask for an interest, you still have to note it down.  And if you are going to ask for an interest, you have to take note of everything such as terms of payment and the collaterals involved in the loan just to have everything in black and white.  If you will not do this properly, you may find yourself paying for gift taxes.  The good thing about documenting these loans is that you need not have the formalities of getting a lawyer for it.  You just need to write it on your own using any document processing program.

 

Once you have the note, it is important for you to keep it with you especially if the money loaned from you is going to be for mortgage or purchasing a property.  Most of the time, these loans that are used for mortgages will usually undergo legalization through a lawyer.  The reason why it is important for this loan to be noted is to get the tax benefit to be given for mortgage interests.  Aside from this tax benefits, declaring the loan will save the borrower from criminal charges just because of the hidden loan.

 

This note will also make it very clear to you that the money obtained from you is a loan and not as a gift.  This is just a way of establishing solvency or financial obligation to the borrower.

 

Most of the time, people who are loaning money to their relatives would usually not ask for an interest.  However, the IRS may put on an interest on that loan and since there is going to be an interest, the IRS will do its best to charge you tax for it.  This is what you call imputed interest.  For the IRS, the definition of a loan is that it should have interest and that interest is taxable.  So if you think that not setting aninterest rate is better or will give fewer problems, then think again.

 

Aside from this, the IRS will still find a way to charge you with tax on the money that someone loaned to you.  Since the borrower got money from you, they assume that they do not have finances to settle the interest.  With this, they will be giving you gift taxes.  You have a limit of $14,000 free gift taxes, meaning the amount that you used will not be taxable without exceeding this limit.  With this, the IRS will deduct the "interest" of the loan on your gift taxes.  Once you have exceeded that limit, you will lose your lifetime tax exemption on gifts and tax exemption on estates.

 

Avoiding Imputed Taxes Interest in Two Ways

 

Rule 1: $10,000

If you want to avoid all the imputed interests, you have to understand when imputed interest applies.  This imputed interest or other tax problems are not applicable if the amount owed to you by the borrower is less than or equal to $10,000.  But, this $10,000 limit includes the outstanding amount owed plus the interest.

 

Rule 2: $100,000

Just in case the first rule is not going to work for you, you can use $100,000 rule.  This is when the whole total amount of outstanding loans, may it be with interest or not, is not more than $100,000.  There will be no imputed interest if the net income for investment within the year is not going to be greater than $1,000.  This net investment income is defined or will include the interests and some royalties that are used in knowing the amount of margin-account interest.  The imputed interest can be avoided especially by families who are borrowing money from each other since they are not included in the groups of people with large investments.  However, if the investment income is greater than $1,000 then the borrower should pay the same amount.

 

Here is an instance to give you a clearer picture.  A parent lends his son money to buy a house amounting to $100,000 without interest.  However, the IRS would demand an interest of 3%.  With this, the child should pay an amount of $3,000 of interest.  However, the child will not pay anything if the investment income is lower than $1,000 but if he is earning $1,200 then he would need to pay the amount limit of $1,000 instead of the actual interest price.

 

However, you have to secure a document that will show the borrower's investment income before you will be eligible for this rule.

 

Using Demand Loan to Your Benefit

 

No matter how beneficial it is, you will find that it may impact your gift tax.  If you want to prevent yourself from having this problem, you can try to have a demand loan.  This is the instance where you can demand for the amount to be paid in full whenever you want.  But you can just use this for formality with the IRS in terms of computing the imputed gift.  Both you and your borrower can still arrange the payment schedule and options informally.

 

Imputed gift will be determined on an annual basis on the demand loan.  Within a year, the interest needed to be paid in a year will be given a total amount of $14,000 aside for those larger loans.  With this, you can limit the total free gift tax that you consume to only $14,000 yearly.  Just imagine all the things that you can to consume if you will not have a demand loan like tax exemption on estates and lifetime gift tax benefits.

 

Conclusion

 

If you see that these rules may be confusing.  With this, it is important for you to research a lot of information about it like asking the IRS or other financial advisors.  However, it all boils down to the point that you have to apply interest rates on the money borrowed for you.  You would just need to be compliant with the federal rates set that can be found on the IRS' web page.  If you charge lesser than the appropriate amount of interest rate, then you will be taxed on the interest defrayal since it will be considered as income.

 

Accurate, Reliable and Secure. 

 

 

Akron Income Tax Co.

2215 E. Waterloo Rd. Suite 113

Akron, Ohio 44312

(330) 733-1040

Email :This email address is being protected from spambots. You need JavaScript enabled to view it.