Ferguson Timar https://fergusontimar.com Certified Public Accounting Firm Fri, 14 Feb 2020 21:41:33 +0000 en-US hourly 1 Making Sense of IRA Tax Strategies https://fergusontimar.com/2020/02/14/making-sense-of-ira-tax-strategies/ Fri, 14 Feb 2020 21:41:33 +0000 https://fergusontimar.com/?p=4836 Tax-advantaged retirement accounts are an important tool for getting the most from a lifetime of earning. Traditional and Roth IRAs, 401(k) programs and other options shelter a portion of an individual’s income from taxation, whether at the time it is contributed (such as with a traditional IRA) or when it is withdrawn (as with a...

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Tax-advantaged retirement accounts are an important tool for getting the most from a lifetime of earning. Traditional and Roth IRAs, 401(k) programs and other options shelter a portion of an individual’s income from taxation, whether at the time it is contributed (such as with a traditional IRA) or when it is withdrawn (as with a Roth IRA).

There are many strategies to maximize the tax benefits of an IRA. At Ferguson Timar, we think these are some of the more important ones to know:

  • Before retirement, try to maximize your contributions. 

Over a lifetime, an individual who contributes the maximum amount to an IRA account every year will be substantially better off in retirement than someone who does not. Even for people who are nearing retirement, contributing to an IRA is often still a good strategy. For 2019 and 2020, the maximum contribution an individual can make to an IRA (Roth or traditional) is $6,000, or $7,000 for people who are 50 or older.

  • Think about a Roth conversion of a traditional IRA.

The Roth was designed to provide an extra tax benefit to people who fall under a certain income threshold. As a consequence, Income and filing status can affect an individual’s eligibility to contribute directly to a Roth IRA. However, a taxpayer may have the option of converting all or part of a traditional IRA into a Roth IRA. Care must be taken during these transactions because any gain on the assets in a traditional IRA will be subject to tax. A conversion also triggers additional IRS reporting requirements.

  • Take Required Minimum Distributions (RMD) from traditional IRAs on time.

Individuals are required to begin taking minimum distributions from their traditional IRA accounts after they reach the midpoint of their seventieth year. The first distribution must be taken by April 1 of the year following this milestone. After that, they need to be taken by December 31 to avoid the penalty.

And the penalty for not taking the RMD is significant: 50% of the required minimum.

The RMD is based on an individual’s life expectancy and the balance in his or her combined traditional IRA accounts. Appendix B of IRS Publication 590-B provides life expectancy standards to help in the calculation, which is quite complex. A tax advisor should be consulted to ensure the right amount is being taken before the end of each year.

  • Have a strategy for RMDs.

IRAs typically hold a mix of cash and securities. When an RMD is made, choices must be made about which assets will be used. Some financial advisors default to taking a small percentage out of each investment in an account, which can result in the undesirable realization of losses or liquidation of investments that an individual might prefer to hold.

Fortunately, a strategy for RMDs can be crafted to cover several years into the future. A small effort now to prioritize which assets will be used to make RMDs will give long-term peace of mind. At the same time, it makes sense to automate payments to ensure compliance.

  • Think about where RMDs go.

Individuals who take RMDs from a traditional IRA have several options for reducing the resulting tax bill. Consider donating to a qualified charity. Donations made to a charity directly from an IRA will satisfy the RMD requirement but will not carry over to the individual’s adjusted gross income. A tax advisor will have other suggestions based on the individual’s circumstances and goals.

Let Ferguson Timar tune up your IRA strategies.

The tax advisors at Ferguson Timar are passionate about helping our clients get the most from their hard-earned retirements. Do you need help making a plan for your IRA or other retirement accounts? Give us a call us today at (714) 204-0100 or reach out through our contact page.

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Looking Forward to the 2020 Tax Year https://fergusontimar.com/2020/01/15/looking-forward-to-the-2020-tax-year/ Wed, 15 Jan 2020 21:44:08 +0000 https://fergusontimar.com/?p=4832 Late January is a time to wistfully look back at all those semi-forgotten New Year’s resolutions. It’s also a time to take stock of the coming year’s tax work. With 2019 in the books, it’s time to start putting together the pieces for a timely and well-crafted annual return. It’s also a time to reflect...

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Late January is a time to wistfully look back at all those semi-forgotten New Year’s resolutions. It’s also a time to take stock of the coming year’s tax work. With 2019 in the books, it’s time to start putting together the pieces for a timely and well-crafted annual return. It’s also a time to reflect on last year’s tax strategies, review changes in the law, and begin shaping a refreshed plan for 2020. Contact us for all your bookkeeping and tax needs for 2020.

Every year brings a slew of changes to way taxes work. Some are relatively small, affecting only a tiny percentage of taxpayers, while others have wide-reaching consequences. In this blog, Ferguson Timar explores some of the important topics we’ll be sharing with our clients heading into 2020.

Inflationary adjustments in 2020

Every year certain key figures are adjusted to account for inflation. A full breakdown of these adjustments is available from the IRS here. These are some of the most important ones:

  • The standard deduction has risen. For taxpayers who are married and filing jointly, the deduction increases $400 to $24,800. Single taxpayers and those who are married but filing separately, the deduction rises $200 to $12,400.
  • Marginal rates, which progressively determine how personal income taxes are calculated, have undergone similar adjustments to the standard deduction amounts. The brackets applicable to income in 2020 are as follows:
Rate Income bracket (Single filers) Income bracket (for Married Filing Jointly filers)
10% $9,875 or less $19,750 or less
12% Income over $9,875 Income over $19,750
22% Income over $40,125 Income over $80,250
24% Income over $85,525 Income over $171,050
32% Income over $163,300 Income over $326,600
35% Income over $207,350 Income over $414,700
37% Income over $518,400 Income over $622,050

 

  • Retirement plan limits sometimes rise in new tax years, and 2020 is no different. IRA contribution limits in 2020 will remain the same as in 2019: $6,000 for people under 50, or $7,000 for people who are age 50 or older. Base contribution limits for workplace retirement plans, like 401(k) or 403(b) plans, have risen by $500 to $19,500, or $6,000 for catch-up payments made by people who are 50 or older.

Important healthcare changes

Beyond inflationary adjustments, 2020 ushers in many important changes, some of which have been on the horizon for a while. In the healthcare realm, 2020 introduces two important adjustments. From 2020, the individual mandate penalty under the Affordable Care Act (ACA) will no longer apply. In previous years, people who chose not to have health insurance coverage were required to pay a penalty with their taxes. In 2020 this penalty goes to zero.

In another healthcare change, people who have high out-of-pocket medical expenses will face a higher threshold before they are permitted to deduct them. In 2019 a taxpayer could begin deducting personal medical expenses that exceeded 7.5% of their adjusted gross income. In 2020 this threshold goes up to 10%.

Ferguson Timar can get you on track for 2020.

At Ferguson Timar, we help clients make sense of how evolving tax rules affect them. For all your bookkeeping and tax needs in 2020, call us today at (714) 204-0100 or reach out through our contact page.

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Start the New Year with a 2020 Bookkeeping Plan https://fergusontimar.com/2019/12/17/start-the-new-year-with-a-2020-bookkeeping-plan/ Tue, 17 Dec 2019 22:01:58 +0000 https://fergusontimar.com/?p=4825 New Year’s resolutions are once again upon us. Time to think about all the wonderful things 2020 will bring: a better diet, a more consistent gym routine, tackling that mess in the garage. This is also a good time of year to evaluate financial habits, both for individuals and for businesses. As the year winds...

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New Year’s resolutions are once again upon us. Time to think about all the wonderful things 2020 will bring: a better diet, a more consistent gym routine, tackling that mess in the garage. This is also a good time of year to evaluate financial habits, both for individuals and for businesses.

As the year winds down Ferguson Timar works with business clients to look forward as well as back. The 2019 income tax season is just around the corner, and getting started early is important. At the same time, the new year offers an opportunity to draw lessons from the previous one. These lessons can be used to craft a robust bookkeeping plan for 2020.

Here are some “big picture” tips from the bookkeeping pros at Ferguson Timar as we head into a fresh year:

  • Look for a better process.

Bookkeeping is a discipline that spans across an entire business. Properly executed, it has daily, weekly, monthly, and quarterly tasks. Daily tasks, like recording day-to-day transactions, are the foundation of effective bookkeeping. But weekly reports to capture the current condition of the business’s accounts payable, accounts receivable, and cash flow are essential for managers to understand whether they are on track. Likewise are monthly processes to bring another layer of analysis to the table.

Each of these tasks can take significant amount of time and be prone to error—unless they are reduced to a clear, documented set of bookkeeping processes. By installing best practices or working with an outside firm, a business can get control of its bookkeeping and save money.

  • Learn from past mistakes.

Many businesses that handle their bookkeeping in-house make mistakes. Sometimes those mistakes get caught before they cause serious problems, like errors in tax filings or misrepresentations to a lender, but other times the errors slip by. Other mistakes aren’t a question of detail but of procedure. Perhaps the bookkeeping function is handled by people who don’t enjoy it, or who take a long time doing it when they could be doing other, more value-added work instead.

By taking the time to review and reset a business’s bookkeeping practices, lessons from past mistakes can be integrated into the business’s ongoing procedures.

  • Anticipate change.

Any business that wants to grow in 2020 will need to think about how that growth will affect its bookkeeping requirements. Whether the goal is to expand into new markets, hire new employees, raise fresh capital, or sell the business, robust financial records are essential for making informed choices and giving key stakeholders accurate information. Put the right bookkeeping system in place now, before change forces a rushed adoption of new practices.

Ferguson Timar provides complete bookkeeping services to businesses and high net worth individuals. We’re excited to give clients the support they need heading into 2020. If you have questions about how you can prepare for the coming year, call us today at (714) 204-0100 or reach out through our contact page. We wish you and your family a very happy New Year!

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Prepare for the Holidays with these Tax Tips https://fergusontimar.com/2019/11/14/prepare-for-the-holidays-with-these-tax-tips/ Thu, 14 Nov 2019 19:44:44 +0000 https://fergusontimar.com/?p=4819 As the end of 2019 draws near, taxes might not be on everyone’s mind. Between holiday planning, keeping up with the news cycle, and staying on top of today’s complicated business landscape, it’s easy to forget that many cost-saving strategies are available for taxpayers who remember to take advantage of them. Ferguson Timar wishes everyone...

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As the end of 2019 draws near, taxes might not be on everyone’s mind. Between holiday planning, keeping up with the news cycle, and staying on top of today’s complicated business landscape, it’s easy to forget that many cost-saving strategies are available for taxpayers who remember to take advantage of them.

Ferguson Timar wishes everyone a happy and safe holiday season.

If you would like to explore ways to optimize your 2019 taxes before year-end, or would like advice for preparing for tax season early, please give us a call at (714) 204-0100.

Here are a few ways to prepare your taxes for the holidays:

  • Optimize your deductions strategies.

The fourth quarter of every year means many things: more time with family, lots of rich food, and a flood of donation requests from charities. Nonprofits concentrate on year-end donations, not just because they’re trying to meet their annual financial goals. They also know that donors want to improve their income tax deductions.

Charitable giving is a powerful way to lower taxes while also supporting a cause you care about. Always be sure to get a receipt for any gift you intend to claim. If you have the option, think about giving an appreciated asset, like shares of stock, which nets you a double benefit: not only can you deduct the total value of the gift, but you can also avoid capital gains taxes.

Businesses can also optimize their deductions strategies by loading expenses into profitable years. Buying long-term assets, like new computer equipment, can be a good way to make the business’s cash go further and improve the business’s accounting picture.

  • Investors should be looking for opportunities to harvest loss.

Loss harvesting involves selling investments that have not done well. Taxpayers can reduce the amount of taxable gain on stock sales in a calendar year by up to $3,000 in losses. Anything over $3,000 can be carried forward into future tax years.

  • Begin thinking about complex tax situations now.

Some taxpayers have complicated circumstances that will require sifting through piles of records, analyzing alternative tax strategies, and making difficult choices. Individuals who have sold a home or businesses that have completed major transactions, like an acquisition or significant investments in equipment, will want to begin the analysis process early. By developing a good picture of what you will owe, or what you will be getting back, you can better plan for the future while also getting ahead of the tax filing crush.

Ferguson Timar is here to help you explore these and other tax-saving strategies at year-end. Give us a call today for a personalized review of your tax situation for 2019 and beyond.

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Four Reasons Why Hiring a Tax Pro is the Way to Go https://fergusontimar.com/2019/11/06/four-reasons-why-hiring-a-tax-pro-is-the-way-to-go/ Wed, 06 Nov 2019 19:03:23 +0000 https://fergusontimar.com/?p=4813 Software tax tools can create a false sense of security. Some taxpayers with relatively simple situations—a single source of income, no big family changes, no businesses, and so on—might do fine with an online tool. But for many taxpayers, the assistance of a professional tax preparer can result in a better strategy for lowering the...

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Software tax tools can create a false sense of security. Some taxpayers with relatively simple situations—a single source of income, no big family changes, no businesses, and so on—might do fine with an online tool. But for many taxpayers, the assistance of a professional tax preparer can result in a better strategy for lowering the yearly tax bill.

Want to get ahead of your tax prep? Contact us at (714) 204-0100 for a customized tax projection.

A personalized tax projection is just one of many advantages to working with a tax professional to develop a short- and long-term strategy. Here are a few of the many good reasons for working with a tax pro:

  • Change is inevitable.

The interaction between taxes and life changes can be unpredictable and counterintuitive. Life throws all kinds of surprises at us, like a serious illness or an inheritance, which can influence tax returns in a variety of ways. Sorting out how to account for major changes can be complicated and stressful. A tax preparer takes over the technical work and finds the accurate and cost-saving approach to incorporating change into a return.

  • Developing a personalized plan for the future.

It’s easy to think of taxes as an annual ritual, but the reality is that planning and accounting for a given year’s taxes can begin the year before, or in the years afterward. A tax advisor works with each client to analyze the tax consequences of planned activities, like buying or selling a home, getting married, or starting a business, to reduce tax consequences and optimize deductions. Estate planning, or saving to help a grandchild go to college, are other examples of goals that need extra tax attention. A professional’s long-term view can benefit every taxpayer.

  • Complexity is lurking everywhere.

Many taxpayers don’t know how complex their tax situation really is. Automated tax tools are designed to address the most common tax situations, but they invariably have blind spots that don’t capture important events. A taxpayer with business income and expenses, or investment transactions like a conversion of a traditional IRA into a Roth IRA, can easily lose sight of important reporting obligations. A missed form can trigger an unexpected tax bill years down the road, and increase the risk of an audit. It’s better to address hidden complexities the first time.

  • Details, details, details.

For many taxpayers the rationale for hiring a professional can be found just by glancing at the pile of disorganized receipts and records left over from the previous year. Tax preparers are used to helping clients sort through their piles and make sense of the jumble. Of course, a tax preparer does much more than that. Putting the numbers together, completing forms with accuracy, and exploring ways to maximize deductions all can be confusing jobs even with the help of software. A professional knows how to navigate it all.

Ferguson Timar gives clients the service they need

At Ferguson Timar we aren’t worried about how tax software might affect our business. Our record of cost-saving service speaks for itself. What worries us is the mistakes and missed opportunities that can result from a taxpayer relying too much on software alone.

For a personalized tax projection, or to begin exploring ways to make the tax system do more for you, give us a call today to schedule an appointment.

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Important 2020 Business Tax Deadlines https://fergusontimar.com/2019/09/23/important-2020-business-tax-deadlines/ Mon, 23 Sep 2019 16:28:22 +0000 https://fergusontimar.com/?p=4806 Running a business involves keeping track of lots of details. Although every business owner knows the importance of tax deadlines, it’s easy to lose track of time when customers are demanding service or new employees are being hired. We have put together this list of important upcoming tax deadlines to help clients get ahead of...

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Running a business involves keeping track of lots of details. Although every business owner knows the importance of tax deadlines, it’s easy to lose track of time when customers are demanding service or new employees are being hired. We have put together this list of important upcoming tax deadlines to help clients get ahead of the curve through the end of the year and into 2020.

As we reminded clients in August, October 15 is the deadline for submitting final 2018 returns for individuals and C corporations that filed for an extension by April 15. We urge all clients who must file by October 15 to get in touch with us now to begin finalizing their returns.

Income Tax Payments and Returns Filing Deadlines

Date                                  What is due

January 15, 2020        Quarterly estimated business tax payments for the period from September 1 to December 31, 2019.

March 15, 2020          2019 IRS tax returns for partnerships and S corporations are due, unless an extension is requested.

April 15, 2020             Tax day! April 15 is an important deadline for many types of tax filing:

  • Individuals and C corporations using the calendar year for accounting purposes must submit their 2019 state and federal tax returns or submit an application for automatic extension on Form 4868 for individuals or Form 7004 for corporations.
  • Regardless of whether a return is filed or an extension is requested, most taxpayers must make a tax payment by April 15 to avoid penalties. Taxpayers that are not finished with their returns should make a good faith effort to estimate their tax due.
  • Quarterly estimated business tax payments for the period from January 1 to March 31, 2020.
  • Final 2017 tax returns—this is the last chance to claim a refund for that year.

June 15, 2020             Quarterly estimated business tax payments for the period from April 1 to May 31, 2020.

September 15, 2020   Quarterly estimated business tax payments for the period from June 1 to August 31, 2020. Partnerships and S corporations that requested an extension must submit their final 2019 returns by this date.

October 15, 2020       Tax returns due for taxpayers that submitted an extension by April 15.

IRS Form 1099-MISC filing dates

Any business that relies upon independent contractors, freelancers, and other types of non-employee needs to keep track of its Form 1099-MISC filing obligations. Failure to comply with these obligations can result in steep penalties. A contractor must be provided with a 1099-Misc if the business paid the contractor more than $600 in a year. Businesses can often get confused about the deadlines that apply to it. We are happy to help clients get clear about when their obligations are due.

Businesses can request a 30 day extension on the dates below, provided that the request is made by the normal filing deadline.

Date                                       What is due

January 31, 2020        Forms 1099-MISC that use box 7 to report non-employee compensation (NEC) must be furnished by businesses to their contractors and the IRS, regardless of whether they are submitted to the IRS on paper or electronically.

February 28, 2020      Forms 1099-MISC that do not report NEC in box 7 and that are provided on paper must be submitted to contractors and the IRS.

March 31, 2020          Forms 1099-MISC that do not report NEC in box 7 and that are filed electronically must be submitted to contractors and to the IRS.

Businesses that file Forms 1099 must also submit a Form 1096 to the IRS on this date. Form 1096 summarizes the information the business has provided to contractors and the IRS in separate 1099 forms, including 1099-MISC. Note that Form 1096 can only be submitted electronically.

Ferguson Timar can help

Ferguson Timar recommends putting these dates on your calendar. Planning ahead for deadlines is critical for avoiding a last-minute rush, with all the potential for errors that come with it. Our team of tax experts routinely helps individuals and businesses stay ahead of their tax obligations. Complying with deadlines is only the beginning. Completing accurate returns and maximizing deductions is best thought of as a year-round activity. Let Ferguson Timar assist you. Call us today at (714) 204-0100 or reach out through our contact page.

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The Final IRS Deadlines for Extended 2018 Returns Are Fast Approaching – Are You Ready? https://fergusontimar.com/2019/08/20/the-final-irs-deadlines-for-extended-2018-returns-are-fast-approaching-are-you-ready/ Tue, 20 Aug 2019 17:05:22 +0000 https://fergusontimar.com/?p=4790 Taxpayers who filed for an extension on their 2018 income tax returns should be getting ready to file their final returns. Individuals who submitted a timely extension request have until October 15, 2019, to submit their final returns. Partnerships and S corporations only have until September 16 to file. For most extended filers, it’s time...

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Taxpayers who filed for an extension on their 2018 income tax returns should be getting ready to file their final returns. Individuals who submitted a timely extension request have until October 15, 2019, to submit their final returns. Partnerships and S corporations only have until September 16 to file. For most extended filers, it’s time to get those returns polished up.

Beat the rush.

The extended filing deadlines create miniature versions of the April 15 deadline for tax preparers. Waiting until the last minute to get returns together is a mistake. With time, a tax preparer can scour a taxpayer’s records for opportunities to take deductions, double and triple check calculations, and verify the accuracy of every part of a return before it gets submitted. A last-minute filing risks losing out on all of these benefits.

Second extensions are rare.

After the first extension is granted, very few taxpayers qualify for additional extensions. The IRS allows members of the military, individuals living abroad, and victims of qualified natural disasters to request an additional extension of time if circumstances warrant it. For the rest, September 15 or October 15 are hard deadlines.

What if there are still questions to resolve?

For taxpayers who are working through especially complex tax situations, even the extended deadlines can feel too soon. Bear in mind that a filed return can typically be amended up to three years from the date it was filed. The key is to provide the IRS with good faith, honest responses in the initial return, even if there are questions still open.

Give Ferguson Timar a call about your extended filing.

At Ferguson Timar we look forward to helping clients get their returns completed accurately and on time. Our team is standing by to help you work through your last-minute concerns, analyze deductions strategies, and meet your compliance obligations. Call us today at (714) 204-0100 or reach out through our contact page.

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Taxes Are Due Soon. Are You Ready? https://fergusontimar.com/2018/04/11/taxes-due-soon-ready/ Wed, 11 Apr 2018 16:48:07 +0000 https://fergusontimar.com/?p=4684 Whether you are filing your personal tax return or one for your self-employed business, the tax deadline is April 17, 2018. Hopefully, you’ve already filed by now, but if not, it’s time to get started. Failing to get your taxes in on time could result in fines or other tax penalties. For those filing their...

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Whether you are filing your personal tax return or one for your self-employed business, the tax deadline is April 17, 2018. Hopefully, you’ve already filed by now, but if not, it’s time to get started. Failing to get your taxes in on time could result in fines or other tax penalties.

For those filing their personal tax returns, Ferguson, Timar & Company has put together this helpful checklist of information and documents needed to file your taxes correctly.

  • Form W-2 – This document highlights all of your employment earnings and taxes withheld the previous year. You should have received this form by the end of January 2018.
  • Form 1099-INT – This form shows the interest earned in any banking accounts.
  • Form 1099-MISC – If you do any freelance or contract work on the side, you should have received your 1099 forms from your clients/employers by January 2018.
  • Form 1098 (Mortgage Interest Statement) – This form tracks any and all mortgage interest paid on a home loan.
  • Receipts for Deductible Purchases/Payments – If you do any work at home, keep all your business-related expenses tracked, along with healthcare payments, mileage and education expenses.

If you would like to get your federal and state tax return direct-deposited into your bank account, have your bank’s routing number handy. In addition, make sure you have the social security number and birthdates for you, your spouse and any other dependents that you may claim.

Let Us Help
The important thing to know is that time is of the essence when it comes to filing your taxes. If you want to try and file for a tax extension, we can help. Contact Ferguson, Timar & Company today for the best in professional tax preparation.

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3 Things a CPA Does Better Than Your Tax Software https://fergusontimar.com/2018/04/06/3-things-a-cpa-does-better-than-your-tax-software/ Fri, 06 Apr 2018 23:49:55 +0000 https://fergusontimar.com/?p=4681 When it comes to preparing your tax return (personal or business), you have three options: You can do it yourself by hand, use a tax software or hire a CPA or professional tax preparer to do it for you. Nowadays, most people choose to use a tax software or go to the pros. Sure, accounting...

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When it comes to preparing your tax return (personal or business), you have three options: You can do it yourself by hand, use a tax software or hire a CPA or professional tax preparer to do it for you. Nowadays, most people choose to use a tax software or go to the pros. Sure, accounting technology can work well, but there are some things that software can never replace.

Let’s take a look at some of the things that an experienced CPA will do better than any tax software.

1. Attention to Detail
Yes, the math will be perfect in your tax software. However, someone still has to input the right numbers and not overlook any expenses, income, fees and other figures that need to be calculated. Even if you have all your accounts automatically connected to the software, things can be missed. A professional accountant will know to cover every detail, ask the right questions and double check all the numbers so that your books are truly accurate.

2. Tax Preparation Expertise
If you’re a business owner, it’s especially important to start thinking about ditching your tax software. Tax laws continue to evolve and it’s essential to know every possible deduction or tax credit you can take advantage of based on your specific situation. A CPA will be able to accomplish this better than any tax software out there.

3. Year-Round Advice
When you hire an accountant to prepare your taxes, you have more access to them year-round. This is especially helpful for small business owners, contract workers or freelancers who need to pay quarterly estimated taxes. Unlike a one-time-use software, your accountant is available to answer questions and offer advice.

Nothing can beat having a real person (or team of CPAs) working with your best interests in mind. If you are looking for a great CPA in Orange County to help with your small business or personal finances and tax preparation, look no further than Ferguson, Timar & Company. Contact us today to learn more about our tax and accounting services, and to schedule a consultation with one of our experienced CPAs.

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Do You Need to Update Your W-4? https://fergusontimar.com/2018/03/28/need-update-w-4-withholdings/ Wed, 28 Mar 2018 18:42:02 +0000 https://fergusontimar.com/?p=4677 Did you know that common lifestyle changes such as starting a new job or getting married can automatically change your tax liability? Nobody wants to get caught off-guard by a higher-than-expected tax bill. That’s why you may want to consider adjusting your W-4 withholdings. What is a W-4? If you make income as an employee,...

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Did you know that common lifestyle changes such as starting a new job or getting married can automatically change your tax liability? Nobody wants to get caught off-guard by a higher-than-expected tax bill. That’s why you may want to consider adjusting your W-4 withholdings.

What is a W-4?
If you make income as an employee, you will be required to fill out Form W-4 by your employer. This determines the amount of taxes you will pay with each paycheck. Ultimately, how much you withhold is up to you, but ideally, you want to find the right balance that nets you a paycheck you can live on but doesn’t end up costing you more come tax season.

The truth is most people withhold too much or too little with their W-4. It is something you should review regularly with a qualified tax expert and adjust as needed. Here are 5 of the most common reasons why you would want to update your W-4 withholdings:

1. Change in Marital Status
When getting married or divorced, you will have to provide your employer with a new Form W-4. The federal tax brackets are larger for couples, so you usually won’t owe as much in taxes after you tie the knot than you did when you and your spouse filed single returns.

2. Second Job
Many people work more than one job. When you take on a second (or third) job with another employer, you will need a new W-4 for each one. If you start a home business, you may want to increase your W-4 withholdings from your main employer to offset ­tax liabilities you will have from the additional income.

3. Dependents
If you have a baby or adopt a child, it is not only a major life event, but it is a major tax event as well and your W-4 withholdings should be adjusted. Likewise, if you have a dependent that grows up and is no longer part of your tax liability, you will want to adjust your W-4 accordingly.

4. Spouse Job Change
Whenever your household income changes, whether it’s your job changing or your spouse’s, W-4 adjustments should be made. Make sure the tax you withhold is relative to the total income you plan to receive.

5. Unemployment
If you are laid off or spend part of the year unemployed, you probably will have had too much tax withheld. However, once you start a new job, the W-4 will need to be adjusted to make up for the downtime.

Finding the right W-4 withholding amount can be tricky, so it never hurts to talk with a tax expert who can help you navigate the process and get the most out of your tax return. Ferguson, Timar & Company is here to help with all your tax planning and preparation needs. Contact us today for more information or to schedule your personal income tax consultation.

The post Do You Need to Update Your W-4? appeared first on Ferguson Timar.

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