Tax Tip Tuesday – 1/5/2021

A New Round of Stimulus Checks

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 which included measures for both COVID-19 relief and sweeping funding provisions for the government through September 2021. While there are many sections of this law to explore, this article will focus on the stimulus checks.

Qualifying individuals will receive these economic impact payments, and the Washington Post reports that more than 85 percent of US households will receive a check.

To qualify:

  • For individuals making up to $75,000 per year, or if a couple, making up to $150,000 per year, the check will be $600.
  • For individuals making between $75,000 and $86,900 (couples: $150,000 to $173,900), the check will be between $595 and $5.  In this phaseout, the amount of the check decreases by $5 for every $100 of income above $75,000/$150,000, phasing out completely at $87,000/$174,000.
  • The amount sent will be based on the amount you earned (adjusted grow income, to be exact) on your 2019 tax return.
  • Includes children. The definition for child will be the same as the one used to calculate the child tax credit.
  • Excludes dependent adults over 17 at the end of the tax year.
  • Excludes persons who died on or before January 1, 2020.
  • Includes individuals who file jointly with an ITIN, but excludes the person with the ITIN.
  • Includes 2019 non-filers who receive benefits from Social Security Administration, Railroad Retirement Board, and the Department of Veterans Affairs.

Here are some examples:

  • A family of four – mom, dad, and two children under 17 – that earns a total of $100,000 per year will receive $2,400.
  • A single man earning $80,000 per year that lives with his disabled father will get $350 (80,000 – 75,000 = 5,000 / 100 = 50 * $5 = $250. $600 – $250 = $350). 
  • A woman with 2 small children earning $87,000 will not get anything.

Taxpayers do not have to do anything to receive their stimulus checks. Many taxpayers will receive their stimulus checks via direct deposit, if that information was included on your 2019 return.

If the IRS does not have your bank account information, you will likely get a check or a pre-paid debit card. If you’ve moved, you can update your address by completing an IRS change-of-address form (allow six weeks).

The checks are supposed to start hitting bank accounts early in January. You do not have to pay tax on this income.   

If you never got the first stimulus check, you can claim it on your 2020 tax return.  Details are here on the IRS site.  https://www.irs.gov/newsroom/recovery-rebate-credit

Categories: Tax Tip Tuesday

ABLE Accounts – Final Regulations

ABLE (Achieving a Better Life Experience) accounts are for eligible individuals with a disability – they are tax-favored savings accounts to which contributions can be made to help pay for qualified disability expenses. The IRS recently released final regulations providing guidance related to various issues surrounding the requirements for 529A ABLE accounts.

ABLE accounts were established under the ABLE Act of 2014, in an effort to address the financial hardships for families with children having disabilities, as well as the anticipated increasing financial needs throughout those disabled individuals’ lifetimes. Proposed regulations were released in 2015, and then again in 2019 to address modifications under the Tax Cuts and Jobs Act (TCJA).  The regulations provide a transition period of two years for ABLE programs to implement applicable provisions, and it is expected that IRS may issue additional guidance during that time as uncertainties and concerns arise.

Here are a few of the key areas of ABLE accounts.

Multi-State Programs

The final regulations clarify that an ABLE program may be maintained by two or more states if each of the states in the program sets all the terms of the program and is actively involved in its administration.

Persons Eligible to Set Up ABLE Account

A beneficiary can designate any person to establish an ABLE account, and if a beneficiary is incapable of setting up his/her own account, it can be set up by a power of attorney, conservator or legal guardian, spouse, parent, sibling, grandparent, or representative payee (in that order). A certification by an individual (under penalties of perjury) that he/she is authorized to set up the ABLE account on behalf of the beneficiary may also be accepted by ABLE programs, per the final regulations.

Persons with Signature Authority

The final regulations offer several options as far as who (and how many) may have signature authority on an ABLE account. The person who established the account generally does, although the beneficiary can replace that person’s signature authority with his/her own, or a specified designee. An ABLE program may allow co-signatories and may also permit the person with signature authority to establish sub-accounts within the ABLE account with different signatories for each.

One Account Rule

An ABLE account may not be set up for a beneficiary who already has an existing ABLE account open. If it is found that a previous ABLE account exists after a subsequent ABLE account has been set up, the subsequent account will maintain ABLE status if, by the due date of the tax return for the year in which the second account was established, all of the contributions to the new account (and any income earned) are returned to the contributor(s) or transferred to the beneficiary’s pre-existing ABLE account.

Disability Certification/Eligibility Recertifications

The final regulations permit an ABLE program to rely upon a certification signed by the beneficiary or an individual setting up the account on his/her behalf. The certification must state that the individual either has a medically determinable physical or mental impairment that can be expected to result in death or last for a period of not less than 12 months, or that he/she is blind and that such disability occurred before the age of 26. The regulations require ABLE programs to obtain annual recertifications unless an alternative method is established (giving ABLE programs broad discretion to create their own recertification methods).

Loss of Eligibility

The final regulations state that even if a beneficiary who was eligible when an ABLE account was established later loses eligibility due to an improvement in his/her condition, the ABLE account continues to be an ABLE account. The program must stop accepting contributions to the account on the first day of the first year a beneficiary is no longer considered an eligible individual. Withdrawals made from the account on any date after the date that the beneficiary is no longer considered disabled are not qualified disability expenses.

Annual Contribution Limit/Additional Contributions

The annual limit for contributions to an ABLE account is the same as the annual gift tax exclusion amount ($15,000 for 2020). However, certain employed or self-employed beneficiaries may qualify to make additional contributions. An ABLE program may rely on certification from the beneficiary (or a person acting on his/her behalf) that the employee is an “employed designated beneficiary” and therefore eligible to make the additional annual contributions.

Other Issues Addressed

Payment of administrative and investment fees out of ABLE accounts do not constitute distributions for tax purposes.

The beneficiary may treat expenditures made in the first 60 days of a calendar year as having been made in the prior year (for purposes of matching qualified disability expenses with distributions in a given tax year).

Upon death of a beneficiary, after the expiration of any statute of limitations for filing Medicaid claims against a beneficiary’s estate, an ABLE program may distribute the balance of the account to a successor beneficiary or, if none, to the deceased beneficiary’s estate.

Gift tax and generation-skipping transfer tax do not apply to transfers of an ABLE account by rollover, program to program transfer, or change in beneficiary. Any other transfer is considered a taxable gift or transfer of the entire account by the beneficiary.

If you’d like to discuss how ABLE accounts could impact your taxes, please feel free to contact us. 

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The Power of Listening

Now, more than ever before, the act of listening is important. Not only is it important to listen to someone, but to effectively listen to them. Sure, we all know that in order to understand individuals, to connect with them and understand their wants and needs, we need to be alert, focused, and mindful. After all, the power of listening—effective listening—will help you get more information from clients, increase their trust and commitment in you, and reduce conflict and misunderstanding.

Below, we’ve included more information on the power of listening, and tips on how to be a better listener.

What It Means To Listen

We don’t need to give you a textbook definition of listening; you already know what it means. However, it is necessary to point out that the act of listening and actually comprehending what a person is saying can lead to strong, healthy, and thriving relationships—all very important qualities in any type of relationships, specifically a business one.

If you don’t believe us, think about the last time you were having a conversation with someone and felt as if you weren’t being heard. How did that make you feel? How did that affect the relationship? Did it make you feel valued?

According to Dr. Carl Rogers, a psychologist, active listening is a specific communication skill. Giving free and undivided attention to a speaker through active listening is the most effective way to achieve individual change and group development.

Isn’t that the ultimate goal? Whether the relationship is professional or personal, don’t you want to establish a solid, mutual ground of respect? It’s the only way for both parties to succeed.

If your listening skills are in need of a little tune up, don’t worry—we’ve got you covered! We’ve put together a list of different ways to help you become a better listener. 

Tips On Becoming A Better Listener

If you truly want to become a better listener, then consider implementing these tips into your daily life.

Understand The Benefits

First, it’s imperative to understand that listening to someone is beneficial to both the person doing the talking and you. Nothing bad or negative comes from listening to another person speak, but the complete opposite. Remember, if you thoroughly listen to an individual, it’s more likely that same individual will listen to you when it becomes your turn to speak. The partnership the two of you are hoping to grow can only be successful with mutual listening.

Make Eye Contact

Next, when someone is speaking to you, always make eye contact. This tactic not only shows respect, but it will also help you focus on the other person’s words, what he or she is saying and how they feel.

No Distractions

When sharing a conversation with someone, make sure there are no distractions. Obviously, this means you need to put down your phone and give the speaker your full attention. Don’t worry about what’s going on around you; don’t think about your next meeting or what you plan to have for lunch. Listen, engage, and show the person talking that you care.

Ask Questions

One of the best ways to show the speaker that you are really listening to them, is to ask them questions. Make sure you fully understand what they’re saying by verifying their wants, needs, and/or concerns with specific questions.

Remember, nothing bad comes from listening—only good. The next time someone is speaking, consider opening up your eyes, ears, and mind just a little bit more. In doing so, you will gain the full benefits of the power of listening.  

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Tax Considerations of a Chapter 11 Bankruptcy Filing

Chapter 11 bankruptcy is a form of bankruptcy that can be filed by businesses or individuals. Its goal is to give the filer time to reorganize and reduce their debt rather than discharge it. Under this type of bankruptcy, businesses can continue to operate, and individuals can keep certain assets that might otherwise be sold under a different type of bankruptcy.

Going through a Chapter 11 bankruptcy process doesn’t necessarily guarantee that any tax debts will be reduced or discharged, and it doesn’t get the debtor out of current and future tax obligations and filing requirements.

Tax Filing and Payment Requirements When Chapter 11 Bankruptcy Has Been Filed

Regardless of the type of bankruptcy filed, a debtor is still subject to Federal income tax laws and must continue to file tax returns in a timely fashion. Failing to file returns can result in conversion of the bankruptcy to a different type, or even dismissal of the proceedings.

In general, debtors under Chapter 11 bankruptcy should not incur additional debt during the process. They must also make sure they are capable of meeting financial obligations moving forward, including paying taxes due in a timely fashion.

Under bankruptcy law, when an individual debtor files a bankruptcy petition under Chapter 11, a separately taxable bankruptcy estate is set up to take ownership of the debtor’s assets. A separate tax return is required to be filed for that estate, and any taxes due must be paid in a timely manner. This is in addition to the individual tax return and liability that the debtor is required to file and pay. The return must be filed by the trustee of the estate, who in some cases is the bankruptcy filer.

Can Tax Debt Be Forgiven in Chapter 11 Bankruptcy?

The rules surrounding the ability to reduce or discharge tax debt in Chapter 11 bankruptcy can be complicated, but in general, three elements must be satisfied for tax debt to be dischargeable:

  1. Taxes can’t be discharged until at least three years after they were due. Example: 2016 taxes were due in April 2017, so they would not be dischargeable until April 2020.
  2. A tax return for the taxes owed must have been filed at least two years before bankruptcy. Example: if the 2016 return was filed late or not filed until 2019, the tax wouldn’t be dischargeable until 2021.
  3. The taxes must have been assessed within 240 days (roughly eight months) before the bankruptcy filing. In the case of an audit where taxes were reassessed, you would need to wait until 240 days after the audit for the taxes to be dischargeable.

Note that any taxes a debtor attempted to evade willfully as well as penalties for tax fraud are never dischargeable. Also, even if taxes are discharged, a tax lien will remain on the debtor’s property if the IRS recorded it prior to the bankruptcy filing.

Other Considerations

In some situations, the IRS considers canceled debt taxable income, but NOT in the case of Chapter 11 bankruptcy. So, if taxes that were owed are discharged as part of the bankruptcy process, the forgiven amount will not need to be reported as taxable income on your tax return.

If a taxpayer is considering Chapter 11 bankruptcy due to unpaid tax debt, it may be worth exploring other options first, like entering into an installment agreement or offer-in-compromise with IRS. There are fees associated with an installment agreement and penalties and interest continue to accrue, and IRS won’t always accept an offer in compromise, but these are other possible alternatives.

As always, due to the complicated rules surrounding bankruptcy and taxes, it’s important to get legal advice from a bankruptcy lawyer when deciding whether filing for Chapter 11 bankruptcy is the right choice or not.

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9 Things to Do Before Year-End to Reduce Your Tax Bill

Who doesn’t want to pay less taxes, as long as it’s legally permitted? Here are nine tips to consider taking action on before 2020 comes to a close. 

Maximize Retirement Contributions Through Your Employer’s 401(k) Plan

This type of plan allows you to contribute pre-tax dollars to retirement, and contributions directly reduce taxable wage income. While contributions to IRAs and other types of retirement accounts can be done after year-end/up through the due date of your tax return, deferrals through an employer 401(k) plan must be completed by year-end, so make sure you will be able to contribute the desired amount for the year by December 31, 2020.

For tax year 2020, you can contribute up to $19,500 if under age 50, and $26,000 if 50 or older by year-end.

Harvest Investment Losses to Offset Capital Gains

If you have sold stock or other property that has generated capital gains, consider whether you have investment losses you can generate before year-end to reduce to overall capital gain you report and pay tax on. For example, if you have stock that you’ve held for some time that has consistently been in a loss position, selling by year-end will allow you to offset those other capital gains – and also possibly find a better use for those funds that were invested.

It is always ideal to time capital gains and losses in the same year if you can because they can offset each other, and you are only able to deduct up to $3,000 of overall loss per year. So, if you have a large capital gain in one year and a large capital loss in the next, you will have had to pay tax on that capital gain in that first year, but then might not fully realize the benefit of the loss in the latter year for a number of years, because of that $3,000 per year limitation (unless other capital gains come up to offset it). If they happen in the same year, they would be netted together and the tax benefit would be fully received in the current year. Timing is everything!

Bunch Deductions So You Can Itemize

Because the Tax Cuts and Jobs Act (TCJA) both increased the standard deduction and capped the deduction for state and local income taxes paid when itemizing at $10,000, many taxpayers are finding that they benefit more from taking the standard deduction. However, this prevents them from receiving any direct benefit or deduction for certain expenses, like charitable donations and health care costs over a certain level.

One way around this is to strategically time the payment of these costs so you can bunch them together and take advantage of itemizing deductions every other year. For example, if you already made donations earlier in the year and know that you plan to for 2021, consider paying your 2021 donations early – by year-end 2020 – in order to exceed the standard threshold and take advantage of itemizing for the 2020 tax year.

Defer Income

If you are self-employed or an independent contractor, consider delaying invoicing clients for work to time it so you receive the income in January 2021 instead of December 2020. This will allow you to keep that income off of your 2020 return, and therefore hold off on paying tax on that income for another year.

Donate Appreciated Stock to Charity

The benefits of doing this are two-fold: you avoid capital gains tax and also receive a charitable deduction for the appreciated value of the stock. Just be sure that you are actually going to itemize and that you won’t be taking the standard deduction, because the charitable deduction benefit is only available to you if you itemize deductions.

Purchase Business Equipment

If you are a business owner and have been thinking about purchasing equipment for your business (machinery, computers, software, a vehicle, etc.), now is the time to do it!

With the expanded accelerated depreciation options that came out of the TCJA (which will be reduced in future years), many of these items qualify for significantly higher deductions – possibly even 100 percent. Whereas in prior years you may have had to deduct the cost of these items over a number of years, you will now likely be able to deduct them fully in the year purchased, or at least take a much higher first-year deduction. This will reduce the taxable profit of your business, which directly reduces your taxable income and tax liability.

Install Solar Panels

Consider installing solar panels on your home prior to year-end to take advantage of a Federal tax credit that is set to expire in 2022. When you install a solar system, 26 percent of your total project costs can be claimed as a credit on your IRS tax return (this will decrease to 22 percent for 2021). So, if you spend $10,000 on the system, you will directly reduce your tax bill by $2,600.

Invest in a Qualified Opportunity Zone

As part of TCJA, taxpayers can now defer payment of capital gains tax to 2026 by investing the proceeds of a sale in a qualified opportunity zone. These zones are located all over the country and were designated as areas that would benefit from economic development. Tax can be deferred on the portion of the gain that was used to benefit the distressed zone.

The investment must be made within 180 days of the sale that generated the capital gains, so if you’ve already had a property sale in 2020 and would like to explore this, you’ll want to pay attention to the timeframe and act accordingly (also note that due to the COVID-19 pandemic, the 180-day rule was relaxed for those who would have hit the 180-day mark on or after April 1, 2020 and before December 31, 2020 – all now have until December 31, 2020 to invest the gain in a Qualified Opportunity Zone).

Meet with Your Tax Professional to Review Your Projected Tax Bill and Discuss Strategies

It can be extremely beneficial to meet with your tax professional before year-end and review a projection of your tax situation for the year, discussing possible strategies for reducing your tax bill. You may be able to strategize to get yourself in a lower tax bracket and allow for taking advantage of more deductions and credits, which might not be available to you at a higher income level.

In order for your tax professional to project your tax situation/liability for the year, you’ll need to provide information regarding your income for the year – pay stubs, Profit & Loss reports if you have a business, information regarding investment income, details regarding any other types of income, and any changes to your situation from the prior year.

Schedule a time with us in November or early December if you can, to give yourself time to take any necessary actions to reduce your tax bill for the year!

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Being Grateful in a Less-Than-Awesome Year

It goes without saying that 2020 has been quite the year—and it’s not even over yet! Of course, any one of us could easily come up with a long list of things to be ungrateful for, a negative list of every bad occurrence that has taken place since March due to the Coronavirus pandemic. In a sense, being sad or negative or depressed is simple. Being grateful is what’s really difficult, but we want to help you achieve the feat.

Below, we’ve put together different techniques to help you see that there are many things to be grateful for, both in our business and personal lives. This is a great time of year – just before the U.S. holiday of Thanksgiving – to stop and practice gratitude. 

What Are You Grateful For?

The act of being grateful can lead to experiencing positive emotions. As a matter of fact, if you are experiencing negative emotions and don’t want to, the fastest way to “reset” your physiology is to start thinking of things you are grateful for. 

Here are some ideas to help get you started:

Your Health 

Are you healthy? Are you able to see, to smell, to breathe, to walk? Health comes in many various forms; the idea of being healthy can mean something entirely different to two people. Consider what being healthy means to you, and then, if you do think you have your health, try and be grateful for it.

One good thing about the pandemic is that most people are eating more healthful meals and less fast food, and they are feeling better with more energy.  People are also watching their weight and even losing excess pounds, especially after some of the initial reports that overweight people were having a harder time fighting Covid-19 than slimmer people. 

Friends and Family

Are you surrounded by loved ones? Now, more than ever before, it’s important to be grateful for people who are in your life. You may be facing hardships but think how much more difficult times would be if you were dealing with them by yourself. Be grateful for having someone in your life that you can lean on.

Work and Business

So many people have lost their jobs, their income, their sense of security. If you still have work or your business to keep you busy, focused, and earning a steady paycheck, be grateful. It’s a wonderful exercise to express your gratitude to your clients or boss by writing them a thank you note or leaving them a review on Google My Business, Yelp, their Facebook business page, or their LinkedIn profile as a recommendation. 

Similarly, it’s the perfect time of year to ask your clients or boss to leave you a review on one of these digital assets. 

Never Stop Being Grateful

Of course, there are plenty of other things to be grateful for in this world; everyone’s list will look different. Perhaps you’re grateful for a pet or something you’ve achieved. Maybe the fact that you have a special skillset or the ability to be patient and understanding during trying times gives you reason to smile.

That’s the thing about being grateful: there is nothing too big or too small to be grateful for; no right or wrong answer. And while it may feel more difficult this year compared to others, you can always find something when you look hard enough.

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The 13-Week Cash Flow Forecast

One of the best tools to forecast cash requirements is the 13-week cash flow forecast. It can help a business owner predict what their cash balance will be 13 weeks in the future. It helps to answer whether there will be enough cash to cover payroll and bills for a particular week. If you’re having significant ups and downs in your cash balance, it’s the perfect tool to help gain clarity around your cash needs. 

Thirteen weeks may sound like an odd length to select, but it’s the length of a calendar quarter. This is the length of a financial projection that is typically used when a business is in financial distress; however, it’s also useful when a company is going through some ups and downs or simply wants to get a better handle on its cash requirements.    

The forecast computations start with entering cash receipts and cash disbursements into a spreadsheet. Start with actual spending and receipts for the first week, then use estimates for the remaining weeks. Include planned expenditures such as overhead, payroll, and loan payments. Add in inventory purchases. Project your receipts based on history or recent changes in your business.

Once you’ve completed your forecast, you can make changes and do what-if scenario planning.  For example, if the forecast shows that you will run out of cash in week seven, you have some time to decide what you need to do to remedy the shortfall. Options might be:

  • Accelerate the collection of 30% of your receivables.
  • Dip into your line of credit to cover a portion the shortfall.
  • Furlough 10% of your workers.

Plug your selected scenario into the forecast to see how much that relieves your shortfall. 

The benefits of creating a 13-week cash flow forecast are many. You can see what actions need to be taken and when to take them well ahead of time. You can also see how much of an action you need to take. For example, instead of furloughing 50 percent of your staff, you may only need to furlough 25 percent.  Or instead of borrowing $50,000, you might only need $20,000.

The cash flow forecast can also save time when developing your annual budget. Budgets are especially useful when business conditions are volatile or when business owners need all the clarity they can get. 

Try your hand creating a 13-week cash flow forecast for your business, or reach out to us for help any time. 

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Are You Withholding Taxes on Your State Unemployment Compensation?

Many people erroneously believe that state unemployment compensation is not considered taxable income, resulting in quite an unpleasant surprise at tax time when they realize their mistake.  With a record number of Americans filing for unemployment benefits due to the Covid-19 pandemic and struggling to make ends meet, it’s important to plan ahead in order to not have a shortfall.

Unemployment Compensation is Taxable Income

While taxpayers don’t pay Medicare or Social Security taxes on unemployment compensation, they are still required to pay federal taxes on the income.  Additionally, most states count unemployment compensation as taxable income, too.  Currently, only California, Montana, New Jersey, Oregon, Pennsylvania, and Virginia do not require income tax to be paid on unemployment compensation.  This also applies to states that don’t have state income taxes, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Establishing Withholding

If your state allows you to specify withholding, take advantage of it!  However, it doesn’t necessarily mean that the amount withheld will satisfy your tax burden.  Some states only calculate withholding on the state unemployment portion of the income, not on the additional $600/week federal pandemic unemployment compensation component. 

To illustrate, say your weekly state unemployment compensation benefit is $300 and you qualify for the additional $600 federal pandemic unemployment assistance, giving you a combined weekly benefit of $900.   You select 10% withholding, thinking that you will have $90 withheld, but notice that the actual withholding is only $30.  Consequently, this lack of withholding could result in a balance owed at tax time. 

How to Fix Under-Withholding of Taxes

If you are having little or no income taxes withheld from your unemployment compensation, the first step in making a course correction is to determine what your effective tax rate (not tax bracket—effective rate is the actual percentage of taxes you pay to the IRS) was for the prior year.  While current year income may have trended up or down this year, knowing your prior year effective tax rate provides a good starting point.  Compare that number to the percentage of tax that is being withheld from your unemployment compensation—if it is less, there’s a good chance you’re not having enough tax withheld and will owe when you file your tax return.  Consider taking one or more of the following steps:

  1.  If your state allows it, increase your withholding percentage on your unemployment compensation.  If you are at the maximum amount of withholding and don’t believe that it will be sufficient, look to step 2 below.
  2. Make quarterly estimated tax payments.  In order to avoid both a large balance owed at tax time and possibly neutralize an underpayment penalty, initiate quarterly estimated tax payments for the amount you believe you may be under-withholding.  Using the example in the paragraph above where there is a difference of $60 not being withheld each week, a taxpayer could earmark those funds for taxes and remit an estimated tax payment to the IRS on a quarterly basis.
  3. Adjust withholdings on a secondary W-2.  In a situation where you have a spouse who continues to receive W-2 income, consider increasing the amount of tax withholding on that activity in order to offset the lack of withholding on the unemployment compensation.

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Cool Tech Tools: Easy Ways to Create Video Graphics

Video creation has gotten so easy that just about anyone can do it. You no longer need professionals. You don’t even need video editing software with the long learning curve and high price tag. All you need is an app and your imagination. 

There are many reasons to create a video:

  • Web pages that include video rank higher than those that don’t have video.
  • People love to watch video; it’s more interesting than text. 
  • Video is often the best way to educate people.
  • Your message comes more alive when you use more senses: sight and sound

The first step is to figure out what you want to say.  Here are a number of video topic ideas for your business:

  • A customer service tip
  • Your company mission, vision, and values
  • Your company’s origin story
  • Why you’re in business
  • A product, event, or service promotion
  • A sale
  • An employee spotlight
  • A customer spotlight
  • A how-to
  • A deadline reminder
  • A new product or service announcement

The next thing you need is a rough script of what you want the video to say, as well as graphics you can use to illustrate your points. 

The final thing you need is a video creation app. Animoto is a great example of an easy-to-use video creation app.  Just open your browser and go to https://animoto.com/.  There are free and paid plans to choose from.   

With most video creation apps, you have hundreds of templates that can get your started fast.  Choose the template that is closest to the type of message you want to start with.  You can easily replace your text, graphics, and sound with your own items, or ones that the software provides. 

Options besides Animoto include Adobe Spark, Magisto, and several others.  Don’t be afraid to try your hand at video creation.  It’s an easy way to impress your customers.

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Business Owners—Taking Money Out of a Business

When taking money out of a business, transactions must be carefully structured to avoid unwanted tax consequences or damage to the business entity. If the loan and repayments are not set up and processed properly, the IRS can reclassify the funding as nondeductible capital contributions and classify the repayments as taxable dividends, resulting in unexpected taxation. A weak loan structure can also create a danger zone where a court can “pierce the corporate veil,” resulting in personal liability for the business owner.

Intermingling Funds

One of the most dangerous financial mistakes a business owner can make is to intermingle funds, such as paying personal expenses from the business checking account, or paying business expenses from the owner’s personal account.  This behavior can leave openings for the IRS or courts to question the integrity of the business entity. Failure to maintain complete financial separation between a business and its owners is one of the major causes of tax and legal trouble for small businesses.

Sole Proprietorships

A sole proprietor is taxed on self-employment income without regard for activity in the business bank account. A sole proprietor should never pay himself or herself wages, dividends, or other distributions. A sole proprietor may take money out of the business bank account with no tax ramifications.

  Taking Money OutWages

One way for a business owner to take money out of a corporation is through wages for services performed. Wages are appropriate only for C corporations and S corporations, not for sole proprietorships or partnerships.

Reasonable Wages

Both C corporations and S corporations are required by law to pay “reasonable wages,” which approximate wages that would be paid for similar levels of services in unrelated companies.  In a C corporation, wages are deductible by the corporation but dividends are not, creating incentive for a C corporation shareholder to inflate the wages for higher deductions. In an S corporation, wages are subject to payroll taxes but flow-through income is not, creating an incentive for artificially low wages.

Guaranteed Payments

Guaranteed payments to partners are the partnership counterpart to corporate wages. With guaranteed payments, there is no withholding for payroll taxes or income tax. These amounts are computed and paid on the partner’s individual Form 1040.

Dividends

Dividends are generally the means by which a C corporation distributes profits to shareholders. Amounts up to the C corporation’s “earnings and profits” are taxable to the shareholder.

Flow-Through Income—S Corporations and Partnerships

Income from S corporations and partnerships flow through to the shareholder or partner’s individual tax return.  Distributions of cash to an S corporation shareholder or partner are not taxable to the individual until the person’s cost basis reaches zero.

Loans

A corporation or partnership can receive loans from shareholders or partners, and can give loans to shareholders or partners. There is generally no taxable event when a corporation or partnership repays a loan from a business owner, and no taxable event when a corporation or partnership makes a bona-fide loan to a shareholder or partner.

Limited Liability Companies (LLCs)

A single-member LLC owned by an individual is considered a “disregarded entity” and is taxed as a sole proprietorship by default. If the LLC makes an election to be taxed as a corporation, either C corporation or the S corporation rules apply. An LLC owned by more than one individual is taxed as a partnership by default. As with a single-owner LLC, a multiple-owner LLC may make an election to be taxed as a corporation.

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