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​Hoods Tax &
Accounting Blog


​​​THE INFORMATION IN THIS BLOG IS INTENDED TO PROVIDE GENERALIZED INFORMATION DESIGNED FOR A BROAD SEGMENT OF THE PUBLIC; IT IS NOT PERSONALIZED TAX, INVESTMENT, LEGAL OR OTHER BUSINESS AND PROFESSIONAL ADVICE. YOU SHOULD ALWAYS SEEK THE ASSISTANCE OF A PROFESSIONAL WHO KNOWS YOUR PARTICULAR SITUATION FOR ADVICE ON YOUR TAXES, YOUR INVESTMENTS, THE LAW OR ANY OTHER BUSINESS AND PROFESSIONAL MATTERS THAT AFFECT YOU AND/OR YOUR BUSINESS. ​

How To Start A Side Hustle

6/15/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Although tax season is over, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that we are offering tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties or other estates, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

Today, we’ll be discussing everything you need to know about starting a side hustle! A side hustle is essentially a side job that brings in extra income beyond one’s regular job or occupation and main source of income. According to a 2021 study, 73% of Americans rank finances as their number one stress in life. Additionally, younger generations tend to be more stressed about finances than older generations. With that in mind, it is no surprise that so many people have started a side hustle to supplement their income. If the majority of your income seems to be going towards bills, starting a side job can be a great way to have some extra income for entertainment or to save in case of an emergency. Even if money isn’t tight for you at the moment, a side hustle can be a great way to earn extra income– Who doesn’t enjoy some extra money? If you’re interested in learning more about how to start a side hustle, you’re in the right place. Let’s get started!

It has been found that 45% of working Americans report having a side hustle– And for good reason. Besides the opportunity to earn supplemental income, starting a side hustle is a great opportunity to tap into your creativity, try new things, and cultivate new business relationships, all while keeping your day job. But how do you get started?

Identify Your Interests And Skills

One of the first things you’ll want to do is identify your interests. What do you enjoy? What are you good at? It might be helpful for you to create a list of your interests and skills. Your interests might even include a hobby that can easily be turned into a business, such as art or music. For example, you can create and sell art or give piano or guitar lessons. Whatever it may be, you want to make sure you are equipped with the relevant skills needed to launch a successful business. If there is a particular area of interest to you that you do not have the skills for, you may consider learning how to do that first. If you can’t think of a particular hobby, try thinking of something you simply excel at. For example, if you are really great at math or writing, you may consider tutoring. There are so many possibilities for a side hustle! But keep in mind that this should be something you truly enjoy. Your day job likely takes up a lot of your energy, so your side hustle should be something that you will be excited about in the long run. Another thing to consider is how much time you will have to dedicate to your side hustle. Don’t overexert yourself! 

Create A Business Plan

A business plan is the key to any successful business! Once you’ve identified what your side hustle will be, it may be tempting to immediately jump into it. However, without a plan in place, things can fall apart quickly. This plan will allow you to stay organized and set goals, and it will save you a lot of time down the road! Let’s take a look at the specifics of a business plan. 

  • Summary: Write down exactly what your business will be. What products or services are you selling? What specific industry is your business in? Why do you want to start this business? These are just a few of the questions that should be answered in your summary. This can also be the place where you can think of and write down a mission statement for your business.
  • Market research: Identify your target audience. Who are they? Dig deep and get specific. What kinds of people will buy from you? Think about demographics like gender, age, and location. What social media platforms are they using, and how are they getting information about new products? You’ll want to find out and write down any information that will help you reach this specific audience. Do some research on other businesses selling similar products or services– These are your competitors. How will your business stand out from the crowd? Doing research on your specific industry will help you determine how you can make a better offer to consumers.  
  • Sales and Marketing: Once you’ve figured out your product and target audience, it’s time to get down to the center of it all: Sales. How are you going to market your product and sell it to customers? Think about what social media platforms you will use to market your product. Will you run ads? Will you use email marketing? This is also the part of your plan where you determine how you will sell your products. Will you use an online marketplace, or will you sell face-to-face? Think about how much your product or service might cost, and compare it to your competitors. If you’ll be selling online, make sure you factor in shipping costs. 
  • Finances: This is arguably one of the parts of starting a business that many people forget to factor in. How will you finance your side hustle? While you are likely starting a side hustle to make extra money, you are likely going to need to put some money into your business as well. Consider startup costs: How much money will you need to get started? Where will this money come from? These are two extremely important questions you’ll need to answer before you can move on with your business. This part of your plan is also where you can set some goals. How much money do you expect to make? Make sure you are setting realistic, measurable, and attainable goals. It can be easy to say that you want to make an extra $300 per month, but is that realistic? You’ll also want to think about how you are going to track your expenses. (You may find our blog about expense tracking helpful!)
  • Products and Services: Now it’s time to actually set a price for your products. What are you offering, and how much is it? If you plan to offer different products, make sure you write each of them down in an organized manner. How will you deliver your products to your customers? If you will be shipping products, be sure to factor in the shipping costs, including the costs of supplies.
  • Operations: This part of your business plan details how your business will run. Will you be working alone, or will a friend or family member be helping you with packaging orders? Will you be operating your business out of your home, or will you invest in an office space? You should also create a budget and timeline for product development. How are the products being produced, and how long will it take to produce one product? Add anything that will help you organize your business in this section.


Your business plan will probably change over time, and that’s okay! Starting any type of business is a learning process, especially if you have little to no marketing experience. 

Don’t Give Up!

Remember, your side hustle needs to be something that you truly enjoy doing. You won’t get very far if you lack determination and genuine interest in your business. Be prepared to spend the free time you have outside of your day job working on your new side hustle. Success won’t happen overnight, so make sure you power through any obstacles in your way! This is also where setting realistic and measurable goals comes in. Everyone is hungry for success, but you’ll be extremely disappointed if you set unattainable goals with no measurable results. 

These are just a few of the steps you can take to start a side hustle! We hope you found this article helpful, and if you feel that you want your side hustle to turn into something bigger, we encourage you to reach out to us for business consulting! Here at Hoods Tax & Accounting, our tax professionals are always eager to give our clients as much help as possible when it comes to their finances. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Third-Party Reporting

5/27/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Although tax season is over, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that this month, we have begun to offer tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties or other estates, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

Today, we’ll be talking about third-party reporting. In this context, a third party is an app or payment network that allows users to send and receive money. One good example of this is Venmo, a mobile payment service that was originally aimed at friends and family for splitting bills like rent or dinner costs. It can also be an online marketplace where users buy and sell goods, such as eBay, Etsy, or Mercari. Services like this have become increasingly popular, especially recently, as our world relies on technology more than ever. However, a new law in place may have implications for taxpayers. If you regularly use payment networks and are interested in learning more, you’re in the right place. Let’s get started!

Besides Venmo, other payment networks available include Cash App and PayPal. These networks are sometimes referred to as P2P, or peer-to-peer, payment services. They allow users to use their bank account, credit, or debit card to pay friends or family via cellphone. These services also allow users to designate transactions as “goods and services” if they are purchasing from a business. This includes small businesses or someone who is creating hand-made items and selling them from their home. In other words, goods and services consist of tangible items sold to customers and tasks or services performed. Many people, including independent contractors, use these payment services for these types of transactions, but everyone using these services should be aware of a recent change in the tax code. 

Beginning on January 1, 2022, a change in the tax code was signed into law as part of the American Rescue Plan Act, which was a stimulus bill passed in response to the COVID-19 pandemic. This change declared that mobile payment apps were required to report commercial transactions totaling more than $600 per year to the Internal Revenue Service (IRS). Previously, these apps were only required to report when a user had over 200 commercial transactions per year that exceeded $20,000 in total value. Now, with the amount being much less, it could pose a problem for small business owners or those with side hustles, which bring in extra money beyond one’s regular job. Let’s take a closer look at what this means for those who regularly use payment networks or online marketplaces.

It is important to note that this amendment to the tax code only applies to transactions marked as “goods and services”. Most payment apps like PayPal allow users to mark a transaction as either “friends and family” or “goods and services”. This means that if you are sending money to a friend for splitting a dinner bill, you should make this transaction as “friends and family”. If you are paying someone for a tangible item or a service, you should use “goods and services”. In other words, this change to the tax code only applies to commercial goods and services, not personal charges to friends and family. 

If you receive more than $600 annually in commercial payments on mobile payment apps like Venmo or through an online marketplace like eBay, the third-party app or website must file a Form 1099-K. This form is also known as Payment Card and Third-Party Network Transactions and is used to report certain payment transactions to improve voluntary tax compliance, according to the IRS. These third-party apps are now required to send users a Form 1099-K by mail or electronically if they accrue more than $600 annually, with no minimum transaction. This means, for example, if you sell only 10 items this year, but the total payment you received is more than $600, you will receive a Form 1099-K. 

The third-party app may request additional information for you in order for them to properly report your transactions. Recently, Mercari, an e-commerce company, sent users notifications asking them to complete a W-9 form. This form gives Mercari the information they need to file a Form 1099-K if a user should sell more than $600 annually. Mercari warned users that if they do not submit their W-9 form, their selling experience will be restricted in the fact that they will not be able to sell beyond $600. 

It is important to note that when a third-party app is reporting your accrued income on Form 1099-K, they are required to report the total gross income. This means that they do not consider any adjustments, discounts, or refunds. For example, if someone purchases an item for you but it was damaged in transit and you refunded the buyer, the initial payment you received is still reported– Even if you gave it back. If someone purchased an item from you and then canceled, getting their money back, this transaction is still required to be reported, even if you didn’t keep the money. It is also important to realize that this change to the tax code does not affect buyers. There is no limit to how much money you can send or how many goods you can purchase. Third-party reporting only applies to people accruing income. 

Another increasingly popular payment app is Zelle, a payment network that allows users to send and receive money directly through their bank accounts. Zelle facilitates messaging between financial institutions, and does not handle settlement of funds, therefore they are exempt from this change in tax code. There are no taxes imposed on transactions made via Zelle, and the network does not report transactions to the IRS. The company has stated that if Zelle users are receiving taxable income, it is their own responsibility to report it to the IRS. 

With that being said, it is extremely important that you keep track of all of your income– Even from selling on an online marketplace or receiving payment via “goods and services” on a mobile payment app. Typically on mobile payment apps or online marketplaces, a user can view a summary of their transactions. However, you may want to take this a step further and manually record all of your income in a notebook. 

As you can see, this recent change to the tax code is likely to affect many small business owners, independent contractors, or people who simply have a craft business to generate extra income. We hope you found this article helpful, and we encourage you to reach out to us if you have any questions about your tax obligations. Here at Hoods Tax & Accounting, our tax professionals are always eager to give our clients as much help as possible when it comes to their finances. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Expense Tracking: How To Do It Effectively

5/16/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Although tax season is over, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that this month, we have begun to offer tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties or other estates, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

Today, we’ll be discussing expense tracking and how to do so effectively. Expense tracking is a great way to monitor your expenses across the board, especially if you have multiple bank accounts and credit cards. Not only can this help you see where your money is going, but it can also allow you to pick up on your spending habits and alter them if needed. Although your bank account and credit card show you a summary of your purchases, it is easy to turn a blind eye to how much you are actually spending. That’s where expense tracking comes in. If you are interested in learning some tips and tricks on how to track your expenses, you’re in the right place! Let’s get started.

You might be thinking: Isn’t expense tracking the same as budgeting? People often use these terms interchangeably, but the truth is they are actually not the same. Budgeting refers to a financial plan, or a plan on how to spend your money. Expense tracking is going back and looking at the purchases you’ve made. Budgeting is done ahead of time, while expense tracking is done after the fact– Therefore, budgeting is proactive while expense tracking is reactive. Tracking your expenses will allow you to alter, or even create, a more realistic budget. You can see how you’re spending your money and determine how you’d like to spend it instead. Here are some tips and tricks on expense tracking!

Write Down Expenses

The first, and possibly the most obvious, thing you’ll want to do is to actually keep track of your expenses. This can be done by writing them down, typing them into a document on your computer or phone, or by using an expense tracking app. However you choose to do it, make sure you are being honest and recording everything. This should include the $2 tip you left for a barista, and the $25 you spent on that candle that you didn’t really need. Even if you know you spent more than you should, hold yourself accountable for all of your purchases. Additionally, it is important to keep in mind that writing down and tracking your expenses is a long-term activity. You cannot see an accurate picture of your spending habits with only one month of tracking. Stick with it!

Keep Track of Income

Another thing you want to make sure you are recording is your income. How much do you get paid, and when do you get paid? If your income is irregular, it is important to write down the amount you receive each time you get paid, as soon as you get paid. Don’t estimate or guess what your paycheck will be– You want to accurately account for each and every dollar you have. If you anticipate a specific amount of money but end up receiving less, it can throw your whole expense tracking plan off. Have a side hustle? Make sure you’re keeping track of that income, too. Did you receive money as a gift for a holiday? That should be written down as well. 

Categorize

After you’ve written all of your expenses down for the month, you’ll want to categorize your expenses. In other words, group your expenses into different areas such as entertainment, food, and necessities. However, you don’t want to go overboard with making categories– Don’t make them too broad or too specific, and don’t make too many. (Pro tip: Avoid using a “miscellaneous” category!) This will just cause confusion and be too hard to keep up with. Your expenses will consist of fixed and variable expenses. Fixed expenses are things that tend to stay the same every month, like the cost of rent. Variable expenses are things that tend to fluctuate, like food or clothing. 

In order to make expense tracking easier, our recommendation is to use the 50/30/20 rule: 50% of your income should go towards needs, 30% towards wants, and 20% towards savings. When you write down every purchase you make, you can easily see if that purchase fits into your “needs” or “wants” categories. And, at the end of the month, you can see just how much money you have leftover for “savings.” If you feel that you need to move around some money into these different areas at times, that’s okay! For example, if there is a “just for fun” purchase that you really want to make this month, see if you can afford to move a few dollars out of your “savings” and into your “wants” category. Just remember that no matter how much money you move around, you don’t want to exceed your income.

Projected Costs and Actual Costs

You’ll want to check your bank and credit card statements across all of your accounts to see exactly where your money is going. From there, you can estimate your projected costs for each month. When you get paid each month, how much of that paycheck goes towards bills? What types of purchases do you make on a regular basis? For example, do you do a large weekly grocery shopping trip? You should take all of these things into consideration when estimating your projected costs. Keep in mind that your projected costs should never exceed your total monthly income. If they do, you’ll need to go back and adjust some things. For example, if it looks like eating out is leaving your bank account teetering on the edge, you may want to plan on cutting back next month. 

After you’ve estimated your projected costs, you’ll want to check all of your actual costs at the end of the month. This means tallying up every dollar that you spent throughout the month. Every purchase, no matter how big or how small, should be included. Don’t forget cash purchases, even small ones, that may not have a receipt. When you have your actual costs all laid out in front of you, you can identify the differences between those and your projected costs. Did you fall above or below your projected costs? If you fell below your projected costs, take a look at where you fell short. This will help you identify spending areas that you need to work on for next month.

As you can see, expense tracking is an extremely helpful way to keep track of how much money you have and where it is going. This allows you to feel more in control of your finances, rather than blindly spending and wondering where all your money went! We hope you found this article helpful, and we encourage you to try practicing expense tracking! Here at Hoods Tax & Accounting, our tax professionals are always eager to give our clients as much help as possible when it comes to their finances. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Preventing Identity Theft: How To Keep Your Information Safe

4/30/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

As we close out the month of April, we’d like to congratulate you on making it through another tax season! As always, we are still available to help with any questions or concerns you may have. Before we get into today’s topic, we would like to make you aware that starting in May, we will offer tax planning appointments to assist with questions about withholding, small business tax, retirement and investment accounts, sale or purchase of rental properties or other estate, and more! Reach out to us to set up an appointment with one of our knowledgeable tax professionals. 

Today, we’ll be discussing how to keep your information safe and protect yourself from identity theft and tax refund fraud. Tax season may be over, but thieves and scammers are always lurking, so it’s important to keep your personal information safe year-round. If you’re interested in learning more about how you can prevent identity theft and fraud, you’re in the right place! Let’s get started.

Tax-related identity theft occurs when someone steals your personal information to commit tax fraud. This typically occurs by the thief filing a tax return with your information, including your Social Security number, and claiming a fraudulent refund. People are often unaware that their personal information has been stolen and used to commit tax fraud until they file their tax return. While this type of identity theft is generally less common than others, it can still happen, so you should always do your best to keep your personal information safe. Luckily, there are multiple things you can do to prevent tax-related identity theft.

Protect Your Online Data and Identity

These days, most people are always on a mobile device or computer. We do a lot of things via technology now– Including filing our taxes or filling out forms containing our personal information. With that being said, it is extremely important to have security software downloaded on your computer. You’ll want to at least have a basic security software installed, and make sure that it updates automatically. Essential software to download includes virus and malware protection, as well as a firewall. A firewall is a network security system that monitors incoming and outgoing network traffic. It provides protection from cyber-attacks by shielding your computer. Not only can these softwares protect your computer from viruses, but they can also prevent people from accessing files containing personal information.

Another way you can protect your digital identity is through encryption programs. Encryption is an encoding process that converts information into scrambled text that only authorized users can understand. It is essentially a building block of cybersecurity– It protects sensitive information by keeping it confidential.

One of the most important efforts you can make to protect digital information is by creating and utilizing strong passwords. Coming up with a password that is difficult to guess; Do not use your own name or a common number sequence such as “123”. You should also avoid using personal information within your passwords, like birthdays or the name of your street. Longer passwords tend to be stronger, so try to come up with a password that is at least 12 characters long. It is also important that every password you use is unique. In other words, do not reuse passwords, especially for websites containing private information, such as online banking. If you need to write your passwords down to keep track of them, do not leave them out in the open where they are easily accessible. Put them in a secret or secure place, or use a trusted password managing tool. 

Many websites and apps offer two-factor or multi-factor authentication. These methods require a user to provide multiple forms of identity verification before accessing an account. This might require your username and password, and then a one-time code sent via text or email. It is essentially an extra layer of security or protection to make sure it is actually you logging into your account. If multi-factor authentication is offered, take advantage of it to keep your personal information secure.

Be Aware of Phishing and Scams

Identity thieves use emails or texts to trick users into revealing passwords or other personal information. This process is known as phishing. The sender of the message will often pose as a reputable company or organization, such as the IRS, a bank, or a credit card company. They often attempt to trick the user into clicking on a link by saying they have noticed suspicious activity on the account, need the user to make a payment, or ask them to confirm personal information. Scammers are always updating their tactics and are often successful because their emails or messages look incredibly real– So how can you tell if it’s a scam? 

  • Check the originating email address domain: If an email is claiming to be from your bank, but the email address is being sent from another domain like Gmail.com, it is likely a scam. Also, check for misspellings within the domain name– Scammers often replace certain letters, such as using a “0” instead of “O”.
  • Look for generic greetings: If you have an account with a company, they should know your name. Scammers often send out generic greetings like “Dear sir or madam” instead of addressing the email to a specific person.
  • Spelling and grammar: If an email address has obvious spelling or grammatical errors, it could be a warning sign that it is a scam. Reputable and professional companies often have editorial staff to proofread content before it is sent out. 

It is also important to note that the IRS in particular does not use email, text messages, or social media to discuss tax debts or refunds with taxpayers. Additionally, the IRS will not demand immediate payment using a specific payment method, and will not threaten to involve local police or other law enforcement. The IRS initiates most contact through regular mail delivered by USPS. If you receive an email, text, call, or other message from someone claiming to be the IRS, do not reply to it or click on any links. You can report phishing scams directly to the IRS through their website.

Get An Identity Protection PIN

As long as you can verify your identity, you are eligible for an Identity Protection PIN through the IRS. This is a 6-digit pin that prevents someone else from filing a tax return using your Social Security number or Individual Taxpayer Identification Number. The pin is only known to you and to the IRS, so it helps verify your identity when filing a tax return, and it protects your account overall. The IP PIN is valid for one year, with a new one being generated for your account each year. This offers an extra layer of protection for your personal information. You can get an IP PIN on the IRS website. 

These are just a few of the steps you can take in order to keep your personal information safe and prevent tax-related identity theft. We hope you found this article helpful, and we encourage you to stay safe out there! Here at Hoods Tax & Accounting, our tax professionals protect your privacy and uphold the strictest confidentiality policy. If you have any questions regarding your taxes, or if you need help with tax planning, contact us! As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Tax Deductible Purchases

4/15/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

We are now in the month of April, and Tax Day is only a few days away! That’s right, Tax Day is April 18! Are you prepared? No worries if not– You still have some time. If you need help filing, don’t hesitate to reach out to us! Our knowledgeable tax professionals are eager to assist you and take some of that stress off your shoulders. We are also available to answer any questions you may have. Keep in mind that we offer a convenient and secure online portal to upload tax documents and review your return, which will save you a trip to our office! In the meantime, let’s get into today’s topic. 

As the time comes to file taxes, many people are eager to figure out what tax deductions they may be eligible for. A tax deduction is a reduction of income that is able to be taxed. This is a form of tax incentive, and it lowers the amount of taxes that you owe. There are a variety of different tax deductions out there, and what you are eligible for will largely depend on your lifestyle and income. It is always best to know about possible deductions ahead of filing your taxes so that you don’t miss out on possible savings. A tax professional can help you determine what deductions you are eligible for. If you are interested in learning about some of the tax-deductible purchases you may be eligible for, you’re in the right place! Let’s take a look. 

Classroom Expenses

If you are a teacher, it is likely that you have used your own savings from time to time to purchase supplies for your classroom. Luckily, the Educator Expense Deduction is the primary tax break for K-12 teachers. In order to qualify for this deduction, you must meet certain criteria. First and foremost, you must have worked as a teacher, counselor, principal, instructor, or aide for students in grades K-12. Unfortunately, college professors are not eligible for this deduction. You must have worked at least 900 hours at a school certified by the state. This could be a public, private, or religious school. Finally, you had to have spent money on “qualified educator expenses.” Qualified educator expenses include books, school supplies, computer equipment including software, and any item appropriate and beneficial to students and the classroom. Since the COVID-19 pandemic, the list of qualifying expenses has been updated to include Personal Protective Equipment (PPE), sanitizer, disinfectant, and plexiglass. As long as you have not received reimbursement for the items, you can qualify for the deduction. In other words, if the school or parent-teacher association paid you back for the items, you can’t deduct them. A teacher can deduct a maximum of $250 in qualified educator expenses. If you are looking to utilize the Educator Expense Deduction, it is a good idea to keep a file of your receipts whether it is through physical copies or by writing everything down in a notebook. 

Charitable Gifts

Have you donated to a charity in the past year? Your gift or donation could be eligible for a deduction. In order to be eligible for this tax deduction, your donation must have gone to a nonprofit group or organization approved by the IRS. You can search for a particular organization using the IRS website. Some types of organizations included are religious, charitable, or educational. No matter how small the donation, you will need some kind of proof in order to write it off on your tax return. This proof may be a bank record or a receipt with the charity’s name and donation amount. This deduction does not include pledges to make a donation– It only counts if you actually followed through with your donation. Volunteer work can also be eligible for this deduction. For example, you can write off out-of-pocket expenses for materials, supplies, stamps, parking, stationery, and tolls. If you participated in a charity bake sale, you can write off the cost of the ingredients you used. There are limits to the amount you can deduct– Generally, you cannot exceed 60 percent of your Adjusted Gross Income (AGI). With that being said, you will want to keep a record of the charitable donations or contributions you made during the year if you plan to write them off later.

Medical Expenses

If you have recently been in the hospital or had a costly medical procedure, you may be eligible for a tax deduction. In 2022, you can deduct qualified, unreimbursed medical expenses that are more than 7.5% of your 2021 AGI. Some things that count as a medical expense are hospital or nursing home care, acupuncture, addiction programs, prescription drugs, reading or prescription eyeglasses, hearing aids, wheelchairs, and service animals. You can find the full list of eligible medical expenses here. You are only allowed to include medical expenses you paid during the year that were not reimbursed. That means if insurance paid your bill, it is not eligible for a deduction. Additionally, things such as cosmetic surgery and over-the-counter medicines are not eligible. This deduction is especially beneficial for anyone with a chronic medical condition. We recommend that you save all of your medical bills and other records of expenses throughout the year so that you have them all in one place when it comes time to file taxes. We previously wrote a blog all about writing medical expenses that you can check out here!

Gifts for Customers

If you are a business owner or work for a business and give gifts in the course of your business, you may be able to deduct part of the cost. However, you can deduct no more than $25 per person. For example, if you give four gift baskets to clients as a thank you, you can deduct $25 per basket. It is important to note that this deduction only applies toward gifts to individuals. If you give a gift to an entire company, it is not eligible for the $25 limit– You may be able to receive a larger deduction, depending on the price of the gift. Things like adding gift wrapping or a gift tag to a gift do not count towards the deduction, as they are considered “incidental costs”. Identical items that are widely distributed, such as pens or bags with a company name on it, are not eligible for a deduction. If both you and your spouse give gifts, you are both treated as one taxpayer regardless of the circumstances. This means that you cannot each deduct $25– You will only receive a single deduction.

These are just a few of the possible tax deductions available to taxpayers. With any deduction, it is helpful to keep records or receipts of your expenses in a safe and easily accessible place so that you can view them when it is time to file taxes. We hope you found this article informative, and we thank you for reading. If you have any questions regarding your taxes, or if you still need help filing, contact us! As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Everything You Need For A Successful 2022 Tax Day

3/29/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season, and Tax Day is fast approaching. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

As we close out the month of March and enter April, Tax Day is only a few weeks away! That’s right, Tax Day is April 18! Are you prepared? No worries if not– You still have some time. If you need help filing, don’t hesitate to reach out to us! Our knowledgeable tax professionals are eager to assist you and take some of that stress off your shoulders. We are also available to answer any questions you may have. Keep in mind that we offer a convenient and secure online portal to upload tax documents and review your return, which will save you a trip to our office! In the meantime, let’s get into today’s topic. 

When filing your taxes, there is quite a bit of information as well as a variety of documents that you will need. It can feel a bit overwhelming, but gathering this information ahead of time will save you some stress! Today, we’ll break down everything you’ll be needing in order to have a successful tax day. Let’s get started!

Personal Information

First and foremost, you will need to gather your personal information before filing taxes. Remember: If you are married and filing a joint return with your spouse, you will also need the following information for them as well.

  • Social security number OR tax identification number 
  • Full name as listed on your social security card
  • Date of birth
  • Home address 
  • Bank account number or routing number to receive your refund via direct deposit

All of this personal information tells the IRS and the state you are filing in who is filing a return, how to contact them, and where to deposit the refund. Additionally, you will also want to have a copy of last year’s federal and state tax returns on hand. If you, your spouse, or a dependent has been issued an Identity Protection PIN, you’ll need to provide that as well. 

This year, you will need your IRS Letter 6475 (your Economic Impact Payment) to determine your eligibility for the Recovery Rebate Credit. This letter was issued in January 2022 and provides the total amount of the third Economic Impact Payment received for tax year 2021. If you are married, both you and your spouse should have received your own letter.

Dependent Information

If you are claiming someone as a dependent, you will need their personal information as well. People claiming dependents are usually parents, legal guardians, or caregivers. You will need the following information:

  • Date(s) of birth and social security numbers or tax ID numbers
  • Proof of residency– This can be school records, a doctor’s bill, or other piece of mail with your dependent’s name and address
  • Childcare records with your tax ID number, if applicable
  • The income amount of dependents or other adults in your home
  • If you are the noncustodial parent, you will need Form 8332 showing that the child’s custodial parent is releasing their right to claim a child to you

This year, you will also need IRS Letter 6419. The letter was sent between December 2021 and January 2022 and provides the total amount of 2021 Child Tax Credit (CTC) payments. 

Sources of Income

You may have several different forms documenting the income you received in 2021. You will likely not need all of these forms to file taxes every year, but here are some of the most common ones:

  • W-2 forms from your employer(s)
  • 1099-G forms for unemployment income and state or local tax refunds
  • 1099-R for retirement plan distributions/pension/IRA
  • SSA-1099 for Social Security benefits
  • 1099-MISC for rental property income
  • 1099-B for sales of stock or other property
  • 1099-SA for distributions from a health savings account (HSA)
You should also gather documents from:

  • Expenses related to your investments
  • Gambling income
  • Prizes and awards
  • Trust income
  • Royalty income
  • Jury duty pay
  • Cancellation of debt
  • Transactions involving cryptocurrency 

If you are unsure of exactly which documents you need, contact us today to speak with one of our tax professionals! They are ready to answer any questions you may have.

Types of Deductions

Tax deductions are a reduction of income and are sometimes known as tax incentives. This can reduce the amount of tax you owe or increase your tax refund. There are a variety of tax deductions that you may be eligible for, depending on your circumstances. In order to be eligible for tax deductions, you must meet certain qualifications based on your filing status and amount of your income that is taxable. Here are some of the types of deductions and what documents you will need to provide:

  • Homeownership: Form 1098 or other documents to report mortgage interest, real estate and personal property tax records, receipts for energy-saving home improvements (solar panels, solar water heater, etc.), and all other forms within the 1098 series.
  • Charitable donations: Cash amounts donated to houses of worship, schools, and other charitable organizations, records of non-cash charitable donations, amounts of miles driven for charitable purposes. Charitable donations must be paid in cash or other property before the close of the tax year in order to be deductible.
  • Medical expenses: Amounts paid for healthcare, insurance, and to doctors, dentists, and hospitals.
  • Childcare expenses: Fees paid to a licensed daycare center or family daycare for the care of an infant or preschooler, amounts paid to a babysitter or provider for the care of your child under age 13 while you work, expenses paid through a dependent care flexible spending account at work.
  • Educational expenses: Records of any scholarships or fellowships you received, Form 1098-T from educational institutions, Form 1098-E if you paid student loan interest.

There are other deductions available such as deductions for federally declared disasters, K-12 educator expenses, and retirement and other savings. Talk with a tax professional to determine which deductions you are eligible for.


Tax credits

In addition to tax deductions, there are also tax credits. While deductions reduce the amount of income subject to taxes, credits directly reduce the amount of taxes you owe. One of the most common tax credits this year is the Child Tax Credit, which could get you up to $3,600 per child this year, as part of the coronavirus relief package known as the American Rescue Plan. Many taxpayers received half of the credit as advance monthly payments from July to December 2021. Another is the Recovery Rebate Credit, which can be claimed on your tax return if you did not receive your third stimulus check or received the wrong amount. 

As you can see, there are many documents needed when preparing to file taxes. You may find it helpful to collect and store all of these documents and receipts in a safe place throughout the year, so you can access them easily whenever tax season comes around. We hope you found this article informative, and we thank you for reading. If you have any questions regarding your taxes, or if you still need help filing, contact us! As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Notable Female Accountants

3/15/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Accounting has traditionally been a male-dominated industry, but as society has progressed, we are seeing more and more women in the field. Today, in honor of Women’s History Month, we’ll be highlighting some remarkable women in accounting throughout history. 

Mary Harris Smith 

Born in London in 1844,  Mary Harris Smith became interested in helping her banker father with bookkeeping work when she was a child. She went on to study mathematics and took some of the first bookkeeping courses run by the Society for Promoting the Employment of Women (SPEW) in 1860. SPEW was one of the first British women’s organizations. Harris Smith worked as a public accountant and opened her own practice in 1888. She applied multiple times to join the Society of Incorporated Accountants and Auditors, but was rejected because she was a woman. In 1919, the Sex Disqualification (Removal) Act was passed by the British parliament and allowed women to join professions and professional bodies. Harris Smith applied yet again to the Society but did not meet qualifications, so she was instead named as an Honorary Fellow. In 1920, at the age of 72, she renewed her application and was admitted to the Institute of Chartered Accountants in England and Wales. This made her the world’s first female Chartered Accountant.

Christine Ross

Born in Nova Scotia in 1873, Ross moved to New York City in the late 1890s. She became heavily involved in the women’s suffrage movement and the Women’s Henry George League (WHGL), which was an organization dedicated to the single tax movement. In 1896, New York offered the certified public accountant (CPA) exam for the first time, where Ross participated and passed, placing second in her class. However, many questioned whether or not a woman was capable of holding the CPA title. After a long dispute, Ross was issued her CPA title in 1899, making her the first female CPA in the United States. By 1905, she had become the president of WHGL and was a prominent advocate for tax reform. Ross’s work focused heavily on giving financial advice to female business owners to help them become more financially independent.

Ellen Libby Eastman

Eastman was born in Porter, Maine, in 1891 and excelled in mathematics as a student. As an adult, she taught in a school for 2 years before working for a lumber company founded by Merrill Lord, Harvey Granville, and Frank Fenderson. These three men were prominent businessmen and soon became her mentors, quickly realizing her potential. Granville helped Eastman secure contract work with various businesses for public accounting, and in 1918 she became the first woman in Maine to earn the CPA title. She then became the Town Auditor for the city of Sanford, and established her own accounting practice, making her the first woman to do so in New England. Later in 1921, she helped found the first state-wide professional women’s organization, known as the Maine Federation of Business and Professional Women’s Clubs. 

Jennie May Palen

Palen was born in New York in 1891, and studied accounting at New York University in 1918. She found a job in the auditing department at an accounting firm called Haskins & Sells. After her graduation in 1919, she began writing and reviewing reports in the report department of the firm. It was rare for women to be seen working in accounting at this time, especially at a large firm like Haskins & Sells. By 1923, Palen had earned her CPA title, becoming the 10th woman in the state to do so. From the 1920s to the 1940s, Palen was regarded as the highest-ranking and highest-paid female CPA. After her retirement in 1949, she dedicated the rest of her life to writing.

Mary E. Murphy

Mary Elizabeth Murphy was born in Iowa in 1905. She graduated from the University of Iowa in 1927 with a Bachelor of Science in Commerce, having studied accounting among mostly male peers. She then moved to New York City to attend Columbia University where she earned a Master of Science in Accountancy. In 1930, she applied to take the CPA exam in her home state of Iowa, and became the first woman in the state to receive a CPA certificate. After a few years of working in public accounting, she went to London and earned her Ph.D. in accounting from the London School of Economics and Political Science. She was only the second American woman to do so. Later, Murphy became an assistant professor in economics and conducted prolific academic research, including the publication of more than 20 books and 100 journal articles.

Mary T. Washington

Washington was an African-American woman born in Mississippi in 1906, and later raised by her grandparents in Chicago. She excelled in mathematics and earned her bachelor’s degree in business from Northwestern University in 1941, where she was the only woman in her program. As a college student, she worked at Chicago’s Douglas National Bank, and by 1939 she founded her own accounting firm called Mary T. Washington & Co., providing people and businesses with accounting and tax services. At the beginning of her business, it was run out of the basement of her home. In 1943, she became the first black woman to become a CPA in the United States. While working, she trained a generation of younger black CPAs. Washington was a prominent figure in Chicago’s African-American business community, even after she retired in 1985 at the age of 79. 
 
Larzette Hale-Wilson

Born in Oklahoma in 1920, Hale-Wilson went on to attend Langston University where she graduated in 1937 with a degree in business administration and secondary education. She later earned her M.A. degree in accounting and finance from the University of Wisconsin-Madison in 1943. In 1951, she became a CPA, and in 1955 she earned her Ph.D. in accounting– This made her the first black female CPA to also hold a Ph.D. in accounting. She established her own CPA office in Atlanta and later moved to Utah in 1971 where she became a professor of accounting at Utah State University. She also became the head of the School of Accounting at the university. 

Ruth Coles Harris

Born in Virginia in 1928, Ruth Coles Harris is the great-granddaughter of slaves and grew up during the Great Depression. She graduated from Virginia State College in 1948 with a degree in business, but had to leave the state to pursue further education due to segregation rules in place during the Jim Crow era. Although she earned her MBA from New York University in 1949, she could not get hired by any accounting firms because of her race. She was hired as a teacher in the commerce department at Virginia Union University where she taught for 48 years. The department later expanded into the Sydney Lewis School of Business, with Harris being the school’s first director. In 1962, Harris passed the CPA exam and became the first black woman in Virginia to be certified. 


These are just a few of the trailblazers who helped create a space for women in the accounting field. Today, women make up about 62% of all accountants and auditors in the United States. We hope you found this article informative, and we thank you for reading. As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!

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Business Bankruptcy

2/28/2022

3 Comments

 
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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

Today, we’ll be discussing bankruptcy and what it means for businesses, whether big or small. Bankruptcy is a legal process in which a person or business that cannot repay debts to creditors seek relief from some or all of their debts. Bankruptcies among both individuals and businesses have increased significantly due to the COVID-19 pandemic. There are six types of bankruptcy within the United States Bankruptcy Code. The right type of bankruptcy must be selected for the success of the filing. If you are interested in learning more about bankruptcy and what it can mean for a business, you’re in the right place.

Types of Bankruptcy

The six types of bankruptcy are known as Chapter 7, 9, 11, 12, 13, and 15. Chapters 7 and 13 are the most common types, but 13 is not available for businesses. Chapter 11 is fairly common among businesses. Because of these circumstances, we’ll be focusing on Chapters 7 and 11.

  • Chapter 7 is sometimes referred to as a liquidation bankruptcy because the bankruptcy trustee will gather and sell the debtor’s non-exempt assets and use the proceeds to pay creditors. There are three types of assets: personal property (anything you own and can touch), real property (land or property connected to land, such as a house), and intangible property (life insurance policy, tax refund, etc). There are some federal exemptions that determine which assets can be sold. This can depend on the state you file for bankruptcy in.
  • Chapter 11 is sometimes referred to as reorganizing bankruptcy. This is usually associated with businesses and partnerships. This type of bankruptcy involves a repayment plan. It aims to allow a business to stay operating while debts get paid to creditors over time. However, Chapter 11 filings tend to be the most costly and lengthy. Small businesses can file Chapter 11 bankruptcy under two different categories. Subchapter 5 was added in 2019 and went into effect in 2020 to give small businesses a better, more simplified chance at repaying their debts.

When should a business file for bankruptcy?

When a business realizes it is having trouble managing its debts, debt relief options should first be considered. Debt relief options can be loan refinancing, consolidation of debt, or interest rate reductions. Business owners should write up a business plan and estimate revenue– If you cannot identify enough future revenue to pay off debt, borrowing loans may make matters worse. Bankruptcy is generally considered a last resort, so if none of these options work, then a business should consider filing. Those filing for bankruptcy should be aware of the types that can be filed, as well as potential risks and benefits. 

How can I avoid bankruptcy?

Efficient tax preparation and accounting are necessary for keeping any business afloat. (You can read our previous blog on small business accounting here!) If you are struggling with finances, contacting an accountant immediately can be beneficial. Consider consolidating your balances, using business debt consolidation. This works much like personal debt consolidation, by replacing many types of debt with one loan. The potential downside to this is that you’ll need a high credit score. You will also need to go through an initial consultation, including an interview process, to determine if you are a good candidate for the process. Debt consolidation results in more manageable payments and improved cash flow to your business. Another step you can take is to prioritize your bills. Keep an eye on the spending behavior of your business, and pay the most important or essential bills first. This could be the key to getting back on track before you end up in too much debt. Hoods Tax & Accounting Services offers strategic business planning services as well as a comprehensive offering of accounting services. Contact us today to start getting all of your bookkeeping needs in order!

Do I still need to file/pay taxes before or after filing bankruptcy?

Yes! According to the IRS, before filing Chapter 7 or 11, the debtor must file tax returns for the last four tax periods. Post-petitioning of bankruptcy, the debtor must timely file income tax returns and pay the income tax due. Most taxes cannot be eliminated with bankruptcy filing.

What if my business was closed down during the pandemic?

Unfortunately, many small businesses were forced to close amid the coronavirus pandemic. Some of these businesses won’t be able to reopen, and business owners may turn to Chapter 7 to relieve business debt. A Chapter 7 discharge wipes out debt and erases many obligations. However, defunct businesses are not entitled to a Chapter 7 discharge. This means that even after declaring bankruptcy, debt remains. Chapter 7 may work if you can keep your business open during the filing. Sometimes a sole-proprietor can keep a business afloat amid Chapter 7. The debtor’s own labor must be the basis of the company, and the business must not rely heavily on inventory, products, tools, or equipment. Some bankruptcy trustees will not allow a business to stay open during a Chapter 7 bankruptcy. Others will let a business continue to operate as long as there is liability insurance in place. Even if your company was profitable before COVID-19, you may still qualify for Chapter 7. In most cases, whoever is personally responsible for paying business debt, such as a sole proprietor or shareholder, can file Chapter 7 individually to erase personal liability, as long as that debt is dischargeable. 

How do I know if Chapter 7 will work for me as an individual?

First, check whether the debts you want to erase are dischargeable. If they aren’t, Chapter 7 will not be beneficial to you. You should review your state exemption laws to see whether you can protect your property. In South Carolina, there are exemptions for personal property, motor vehicles, tools of the trade, and more. You can read more about South Carolina’s exemptions here. Additionally, you should check whether filing for bankruptcy will breach a partnership or other agreement. 

What does Chapter 11 mean for my business?

Under Chapter 11 bankruptcy, your business can continue to operate, and will hopefully come out in better financial condition. This type of bankruptcy resolves all debts and liabilities at once. There will also be an automatic stay of creditor actions, which allows your business to get some relief from creditors. If your business decides to sell assets or property as part of its restructuring, you can obtain court approval to sell free of liens or other interests on the property. This may result in an increased interest in purchasers and an overall better sale price.

Closing

Bankruptcy can sound ominous, but it can be a necessary step to either closing your business or keeping it afloat. Bankruptcy law is complicated, and every small business has its own needs, so consulting with an expert is best. Specifically, a local bankruptcy lawyer who specializes in small business. There are a variety of ways to avoid bankruptcy, such as debt consolidation. Speaking with an expert can also help you determine which steps will be the most beneficial to your business. We hope you found this article helpful, and we thank you for reading. As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!
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Tips For Small Business Accounting

2/15/2022

0 Comments

 
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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! We are officially in tax season. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

For some small business owners, the phrase “tax season” can be unpleasant. But don’t worry– We are here to help! Today, we’ll be sharing some helpful tips for small business accounting. 

Determine What Kind of Business You Are

One of the first things you will need to do as a small business owner is determine what type of business entity you are. You must register your business in the state you will be operating in. In South Carolina, businesses can operate as a sole proprietorship, partnership, corporation, or limited liability company (LLC). 

  • A sole proprietorship is the simplest business structure. If you are the only owner of your business, you are automatically a sole proprietorship and there is no need to register with the state. However, you might need local business licenses or permits. 
  • A partnership is similar to a sole proprietorship, but the business has two or more owners. There are two types: general partnerships (GPs) and limited partnerships (LPs). It is the default mode for businesses with multiple owners, so there is no need to register with the state. Each owner is personally liable for the business’s debts. Owners can deduct most business losses on their personal tax returns. 
  • A corporation exists separately from the business’s owners. There are two types: C Corporations and S corporations. There are many more regulations and tax laws that a corporation must comply with. C Corporations are eligible for more deductions than any other business entity. Both C and S corporations are more expensive to create than sole proprietorships or partnerships. 
  • Limited liability companies combine the flexibility of partnerships with the personal liability protection of a corporation. LLCs require registration with the state. You can choose whether you want to be taxed as a partnership or as a corporation. 

Deciding your form of business will determine which income tax return form you have to file. For example, all businesses except partnerships must file an annual income tax return. Partnerships should file an information return. The IRS website provides information on business entities, as well as charts to help you determine which type of business you are. We provide small business consulting, so reach out to us if you want to know more!


Preparation and Communication: Hire an Accountant!

Now that you’ve determined your business entity, it’s time to start preparing for tax filing. Preparation is key, whether you are a first-time filer or a tax professional. Many small business owners manage their own bookkeeping, but as your business grows you may find that you need support. You’ll need to find an accountant or bookkeeper that is right for your business. It’s important to make sure your accountant is a good fit and is in tune with your business’s structure and goals. They should do more than just file your taxes. In fact, they should be someone you keep in contact with throughout the year– not just during tax season. As the structure of your business evolves, there will likely be new forms to fill out. Your accountant or bookkeeper should help you track your business’s spending throughout the year. This is vital for the longevity of your business’s success and growth. Think of them as a business partner. Working together with them is going to make the entire process easier for all. As a business owner, you have enough on your plate. Can you manage bookkeeping yourself while still giving your small business the attention it needs? Hoods Tax and Accounting can handle the bookkeeping for you. We also offer payroll services to make things easier for you.

Maintain Neat and Accurate Records

Make sure all records of your spending are easy to access and read. Your small business should invest in basic accounting software. This will help you keep track of your income and expenses and see all of your files in one place. Inadequate record-keeping can cause you to owe more money in the long run, and could cause your business to be denied deductions or credit. There are a variety of easy-to-use softwares out there. Here at Hoods Tax & Accounting, we are experts at QuickBooks! QuickBooks is a software aimed at small to medium-sized businesses. We offer QuickBooks training, so feel free to contact us today to get started!


Be Aware of Deductions You May Qualify For

Tax deductions are expenses that can be deducted from a person or business’s taxable income. There are quite a few tax deductions that small businesses can claim, so it’s important to be knowledgeable of what’s out there and figure out what you may qualify for. There are deductions for business meals, business insurance, legal fees, rent, phone and internet expenses, home office, charitable donations, startup expenses, and more. One deduction that might seem more relevant than ever before is the home office deduction. Since the start of the pandemic, many people have transitioned to working from home. However, not all people who work from home are eligible for this deduction. According to the IRS, employees are not eligible to claim this deduction. Additionally, there must be exclusive use of a portion of the home for conducting business on a regular basis. It’s important to research these different deductions ahead of time and take note of which ones your business may be eligible for. Waiting until the last minute could cause you to miss out on saving money!

Calculate and Understand Startup Costs

To go along with tax deductions, a specific one that you should keep in mind is startup expenses. When your business is brand new, this is especially relevant. You will have expenses such as rent, payroll, utilities, and professional services as well as things like permits, licenses, website creation, logo design, and even business cards. Although starting a business can be pricey, the good news is that some of these costs can be eligible for tax deduction. You should act quickly, though: You’ll need to claim the deduction for the tax year that your business officially opened. If you are interested in this deduction, it’s best to calculate and keep track of your expenses as soon as possible after starting your business.


Separate Business and Personal Expenses

Separating your business and personal expenses can have a range of benefits, including tax advantages. If these two intertwine, it can limit your eligibility for tax deductions. Having your personal expenses tied to your business expenses can also make it more difficult to accurately determine and report your business’s income. You don’t want to sit down and go through receipts to figure out which expenses were personal. If these expenses are not calculated accurately, it can be damaging to your business credit, which is the financial history of your company. Business credit can be used to borrow money, or loans, to purchase products and services. Ideally, this credit should be separate from the business owner’s credit. Getting a separate bank account and credit card for your business can be a step in the right direction. When looking for a bank to set up your business’s account, there are a few things you should think about. First, make sure the bank is conveniently located. Is there a branch close to your business? You’ll want to be able to get there whenever you need to. Next, gather as much information about the bank as possible. What kind of banking fees do they have? Are there fees per transaction? These will need to be factored into your business’s budget. 
Conclusion
These are certainly not the only things you must do to start up your business and keep it running smoothly, but they are important first steps in the process! As stated above, Hoods Tax & Accounting offers a variety of services including small business consulting, QuickBooks training, tax preparation, accounting, payroll, and more! Visit our website for more information, as well as helpful links to resources you may find useful. Thank you for reading and we hope to see you back next time to keep learning about various tax and accounting topics!

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Writing Off Medical Expenses

1/28/2022

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Hello, readers! Welcome back to the Hoods Tax & Accounting blog! If this is your first time here, welcome! We’re delighted to be able to share up-to-date information about taxes, bookkeeping, and accounting. Our blog is also dedicated to educating you about tax-advantaged savings accounts, tax provisions, programs, and more! We aim to provide you with the tools needed to meet your short and long-term goals. Our seasoned professionals are experts on the tax code, eligible deductions, and QuickBooks—all necessary fundamentals for saving you money! The Hoods Family has been around since 1988 and our comprehensive accounting and tax planning services are among the best in the Lowcountry. If you’re in need of tax preparation, accounting, QuickBooks training, or business consulting services, do not hesitate to schedule an initial consultation! Tax season is upon us. We recommend preparing early to maximize your savings and refund. We do offer contactless services using a combination of over-the-phone consultations and digital drop-offs, for safety and convenience. You can read more about our hours and submit a request for a meeting using our website!

It’s tax season, everyone! For us, tax season is an exciting time of the year. We prepare year-round to help individuals and small businesses reap the best refund possible and owe the littlest amount possible. The past two years have seen two of the most complicated, unpredictable tax seasons yet. This year is shaping up to be no different, with experts predicting delays and many families stuck with figuring out how having received the Advance Child Tax Credit will affect their return. Not to worry! Not only is Hoods here to help, we already published an article addressing just how to tackle this tax season! Our last article provided a list of important dates so you could begin marking your calendar. We explained when to expect your refund, based on how you choose to file your tax return. We also made a checklist of documents you’ll need to have on-hand before filing. We discussed how to calculate your withholding and how to find a tax professional! (Hint: We’re here to help!) Hoods Tax & Accounting offers a secure digital portal for uploading documents, providing e-signatures and making necessary payments. At Hoods, we try to make tax season as simple and painless for our clients as possible. Instead of worrying or procrastinating, use our last article to tackle your taxes easily and efficiently! 

Speaking of tax returns, did you know you can write off your medical expenses? Well, some medical expenses. For an eligible few, healthcare premiums and medical costs are considered deductible. Not many people are aware of this provision and, as such, are missing out! Today, we’re going to explain exactly how this deduction works and who’s eligible to take advantage. With healthcare costs rising, it’s never been more essential to ensure you’re utilizing every available credit. As well, you should never forgo medical care due to the cost. We hope this article will help and, without further ado, let’s dive in! 

Who can deduct their medical costs?  

The medical expense deduction applies to those taxpayers who have spent over 7.5% of their adjusted gross income on qualified medical expenses. If you have health insurance provided by your employer (or your spouse’s employer), you are not eligible to deduct your medical expenses. Likewise, if you are eligible to receive healthcare through your employer (or your spouse’s employer) and you opt out, you are not eligible to deduct your medical expenses. If you pay for your own health insurance out-of-pocket–and are not reimbursed by an employer–then you are eligible to deduct qualified medical expenses. 

How much can you deduct? 

For those looking to deduct their medical expenses, you’ll first need to determine your adjusted gross income. This might require a little bit of math, but it’s too hard to figure out. Start with your gross income, which is the entirety of what you (or you and your spouse) made during the year. This includes wages, dividends, alimony, capital gains, social security payments, pension payments, unemployment payments, revenue from your businesses (including real estate), retirement distributions, and any other form of taxable income (according to the IRS). Once you have your gross income, you’ll subtract qualifying expenses. These qualifying expenses might include: IRA contributions, student loan interest, child care expenses, business expenses, moving expenses (for active military members), deductible HSA contributions, deductible tuition or school fees, charitable contributions (up to $600 with standard deduction), and more. 

Sometimes, depending on the complexity of your financial situation, it’s necessary to consult with a professional tax preparer to determine your AGI. It’s important your reported AGI is accurate, as your adjusted gross income is your taxable income. An inflated AGI could mean you pay more than you need to, while an underestimated AGI could mean owing the IRS money. As well, an inaccurate AGI will screw up the next part of determining how much you can deduct. 

Once you have an accurate adjusted gross income, you’ll need to calculate what 7.5% of your AGI is. For example, if your adjusted gross income is $130,000 annually, then 7.5% is $9,750. This means you’re eligible to deduct unreimbursed medical expenses when they exceed $9,750 in a tax year. If you spent $22,000 on medical bills in the same year, $12,250 would be the maximum amount you could deduct. 

However, only certain kinds of medical expenses are deductible according to the IRS. These deductible medical expenses include: payments to medical practitioners (i.e. doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists), nursing home care, hospital care, acupuncture, prescription drugs (including insulin), addiction programs and rehabs, weight loss programs (prescribed by a doctor), dentures, eyeglasses, contacts, hearing aids, crutches, wheelchairs, service animals, transportation to medical care, cost of medical conference (for diseases you or your spouse have), insurance premiums, and more. For a full list of eligible medical expenses, visit the IRS’s Publication 502. 

You cannot deduct medical expenses which were not paid in the tax year for which you are filing your return. Likewise, you cannot deduct medical expenses which have been reimbursed, by insurance or an employer. Medical expenses which are not deductible include: funeral expenses, vacations, (a majority of) cosmetic surgery, over-the-counter medications, nonprescription nicotine substitutes, and hygienic products. 

What if you’re self-employed? 

Health insurance premiums became entirely deductible for those who are self-employed as of 2003. Self-employed individuals, as well, do not need to itemize to take advantage of this deduction (as the health insurance write-off is found on the first page of Form 1040). You cannot be the spouse of someone who is eligible to participate in an employer-subsidized health plan and take advantage of this deduction. As well, this deduction cannot exceed the amount of income you earned from your business in the year for which you’re filing. 

How do you claim a tax deduction for medical expenses this tax season?

To take advantage of medical expense deductions, you have to itemize your deductions. The standard deduction for the 2021 tax season is $12,550 and it’s not recommended you itemize unless you anticipate your deductions exceeding this amount. If you choose to itemize, you’ll use Schedule A–a form you’ll attach to your 1040–to calculate the amount of your deduction. You’ll want to have kept all receipts and medical records pertaining to deduction. (If you threw these receipts or records away, you can request them from your medical provider or pharmacy). Filing an itemized deduction can be quite tedious. You might want to consider consulting a professional tax preparer, as they’ll be able to answer any questions you may have and ensure your deductions are made correctly. ​


The medical expenses deduction is a helpful tool for those who have been paying out-of-pocket for healthcare costs. With the ongoing pandemic and the constant need for affordable medical care, this deduction offers many a way to save money and receive care. We hope you’ll take advantage of this deduction. If you need help figuring out how or would like a professional tax preparer to handle the logistics for you, we’re here to help! At Hoods, we offer bookkeeping, accounting, and business consulting services. As well, we offer tax preparation, payroll, and QuickBooks training! If you have any questions or are interested in a consultation, do not hesitate to reach out. We do offer virtual consultations over Zoom, as part of our effort to accommodate everyone in these trying times. We look forward to hearing from you! Thank you for taking the time to read and we hope you’ll return for future learning! Until next time!
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