Taxation

Considering a tax extension to get more time? Maybe you’ve heard from a friend or colleague that they filed for an extension and are wondering if it’s the right choice for you. Spoiler Alert: A tax extension does not give you extra time to pay your taxes. Neither it allows you to get a waiver for penalties or interest on late payments nor it buys you more time to contribute to the Retirement plans. It only extends the deadline for submitting your return. You’ll still need to pay any taxes owed by the original due date to avoid penalties and interest. A tax extension allows you to postpone filing your tax return by six months. For 2025, submitting an extension by April 15 moves your filing deadline to October 15. To request an extension, you must file Form 4868  with the IRS, either online or by mail. (Image Credit: IRS)   But does it really serve the purpose? Let’s find out. When to Apply for Tax Extensions Filing a tax extension can be helpful in certain situations. Here are some common reasons why you may consider it: Missing Important Documents: If you haven’t received all your tax forms, like W-2s, 1099s, or investment statements, an extension gives you time to gather them and avoid filing an incomplete return. Complex Financial Situations: If you have multiple income sources, investments, or business expenses that take time to calculate, an extension can help you file a more precise return. Unexpected Life Events: Major changes like illness, family emergencies, or moving can make it hard to file on time. An extension gives you breathing room. Self-Employed or Small Business Owners: If you own a business, you may need additional time to ensure all deductions, expenses, and financial reports are in order before submitting your return. Avoiding Errors and Penalties: Rushing through your tax return can lead to errors, audits, or missing out on deductions. More time means better accuracy. Affected by a Natural Disaster: If you’ve been impacted by a natural disaster – hurricane, wildfire, flood, or other emergency – the IRS often grants emergency relief and additional time to file. Living Abroad and Waiting for Foreign Tax Info: If you’re an American living overseas, the IRS grants an automatic two-month extension to file until June 16, 2025. Expats waiting for foreign tax documents can also file for an extension to get all their paperwork in order. The April 14” Syndrome: Forgot about the tax deadline? An extension gives you more time to file correctly. Expats with Foreign Income and Tax Credits: For expats having foreign income or tax credits, an extension gives them more time to sort out their complicated tax situation. Newly Married or Divorced Taxpayers: Sorting out your filing status can get tricky when undergoing a life-changing situation. An extension gives you time to figure it out confidently. Investors Waiting for K-1s: Still waiting on late-arriving K-1 forms from partnerships, hedge funds, or REITs? No need to rush—an extension lets you file once all the paperwork’s in How to Apply for a Tax Extension and Who Can Do That All or any taxpayer can apply for an extension. You just need to follow the following steps: Estimate – You must properly estimate the tax liability that you owe for the tax year. Report – You must report the amount of tax you owe—and it’s recommended that you pay it—to avoid interest and penalties. Apply – You must submit Form 4868 and apply for the extension by the regular April 15 due date. You can complete and file this form electronically through tax software or mail a paper form. The process of extension is relatively simpler, but the underlying apprehension remains: Should you apply for an extension, or should you not? Maybe you should look at the pros and cons that we have enlisted for you below before you make a decision. 1. More Time to File Your Tax One of the primary advantages is the additional time you get to gather necessary documents and ensure accuracy. Rushing through tax preparation can lead to mistakes that may result in costly penalties or missed deductions. By opting for an extension, you are empowering yourself to take a meticulous approach to your finances. On the flip side, you get more time to worry about filing taxes and that may not be a pleasant situation. 2. Extended Opportunity for Deductions If you’re self-employed or a business owner, an extension can help you maximize deductions by giving you time to make contributions that reduce taxable income. But remember, your tax payment is still due on April 15. 3. You Get More Time to Seek a Refund Later There are two sides to look at this aspect of seeking refunds. If you have made a mistake and are seeking refunds for this term, you can do so when you‘ve filed for an October extension. But on the contrary, if you have pending refunds from the last term, this refund might get delayed. 4. You Save on Tax Preparation Fee Tax professionals charge higher fees during peak tax season (around April). Filing later can save you money on preparation costs. However, if you owe taxes, the IRS may charge interest on unpaid balances. 5. Legal Right to an Extension The government has recognized the challenges associated with meeting deadlines sometimes, in some cases. Hence the provision for extensions on tax filing. Moreover, there are no extra charges for filing tax extensions. 6. Complex Tax Laws Tax laws are more complex than ever, with a plethora of intricate tax rules in comparison to just 10+ years ago. Navigating this labyrinthine system can be overwhelming, and rushing to file your return could lead to costly mistakes. By opting for an extension, you gain valuable time to meticulously review your financial records and assess your eligibility for all available deductions and tax credits. This careful consideration can make a significant difference in your overall tax liability. Common FAQs Related to Tax

Struggling with Taxes? You’re Not Alone For many business owners, taxes are a major pain point. With constantly evolving tax laws, even experienced entrepreneurs tend to overlook deductions, miss deadlines, or make filing errors, which leads to overpayments, IRS penalties, and stress. A Certified Public Accountant (CPA) can help you overcome the complexities of tax laws. As certified professionals, they work with you to maximize your deductions, minimize errors, and ensure full compliance with tax laws – so you can stay prepared when the taxman comes knocking on your door. Why Do Businesses Need a CPA?   1. To Understand and Interpret Tax Laws Tax regulations are constantly changing. It is difficult for businesses to stay updated with all the evolving tax laws. As certified professionals, CPAs can help you understand state, federal, and international tax obligations clearly and minimize the risk of non-compliance. 2. For Strategic Tax Planning Certified Public Accountants do more than just file taxes. They develop customized tax strategies and help businesses meet their financial goals easily. From identifying deductions to utilizing credits and incentives, they help you use all the tax credits and benefits available to you to legally reduce your taxable income. 3. To Understand Business Structure and Its Tax Implications The legal structure of your business – LLC, S-Corp, C-Corp, Partnership, or Sole Proprietorship – significantly affects your annual tax duties. CPAs help businesses choose or restructure their entity type to minimize tax burdens and enhance financial efficiency. 4. For Audit Representation and IRS Liaison If a business is audited by the IRS or state tax authorities, having a Certified Accountant as a representative can be invaluable. They handle communications, provide documentation, and ensure compliance so that the business can traverse IRS audits confidently. 5. For Cash Flow and Financial Planning These professionals help businesses maintain healthy cash flow. They assist them in managing expenses and forecasting future tax obligations. This proactive approach allows businesses to plan for growth, investments, and potential tax liabilities well in advance. 6. To Stay Payroll and Sales Tax Compliant Beyond income taxes, businesses must meet payroll tax, sales tax, and industry-specific tax requirements. Chartered accountants manage calculations, filings, and reporting so that business owners can focus on growing their business. When to Hire a Certified Public Accountant? Hiring a Certified Public Accountant is extremely advisable: 1. When Starting a Business If you’re starting a new business, a certified accountant can help you choose the right business structure (LLC, S-Corp, C-Corp, Partnership) based on your tax implications and long-term goals. They also ensure you have the correct financial systems in place from day one. 2. During Tax Season Tax regulations are complex and ever-changing. A CPA ensures accurate tax filing with maximum deductions and minimum errors. So, if your tax situation has grown beyond basic returns, a state-licensed accountant can provide strategic tax planning services to minimize liabilities. 3. When Your Business is Growing Scaling a business means managing higher revenues, complex payrolls, and increased expenses. A CPA can optimize your financial planning for efficient budgeting and hassle-free cash flow management. 4. If You’re Facing an IRS Audit or Tax Issues If your business receives an IRS audit notice, having a CPA represent you ensures a smooth process. CPAs act as liaisons with tax authorities and help you navigate legal and regulatory challenges with ease. 5. When Seeking Business Loans or Investments Banks and investors require accurate financial statements, projections, and tax records before approving loans or funding. A CPA ensures your financial reports are in order, increasing the likelihood of securing financing. 6. If You’re Expanding or Entering New Markets Whether you’re expanding operations, hiring more employees, or going international, a chartered accountant can ensure compliance with tax laws across different states or countries and develop financial strategies to support your growth. 7. For Long-Term Financial Planning & Wealth Management As your trusted advisor, he/she can help you with retirement planning. They can devise profit reinvestment strategies for you to preserve your wealth. Pro Tip: If you’re following a simple business structure, you can use one of the best accounting software to manage your records. However, make sure have the skills and knowledge to manage your company’s finances and taxes. Choosing the Right CPA for Your Taxes Selecting the right Certified Public Accountant is a cautious business decision. Remember, not all certified accountants are alike. While some specialize in business tax strategy, others focus on personal tax filings, audits, or industry-specific financial planning. To ensure you hire the best professional for your business: Assess Your Tax Needs: Before selecting a CPA, determine whether you need help with Business tax planning, personal tax planning and preparation, or IRS audit representation. Then choose a professional with relevant experience. Verify Credentials: A legitimate accountant should be state-certified and, ideally, a member of the AICPA (American Institute of Certified Public Accountants). Always check the licensing status of your accountant through your state’s Board of Accountancy or AICPA directory. Evaluate Experience & Industry Expertise: Tax laws vary by industry. Find a CPA who understands your sector’s financial challenges. Understand Their Tax Strategy & Approach: Ask potential chartered accountants how they approach tax planning and whether they offer year-round consulting or just seasonal tax prep help. Consider Technology & Security Measures: Make data security a priority. A reliable CPA should offer secure online portals and use trusted accounting tools like QuickBooks, Xero, or NetSuite for streamlined reporting. Compare Fees & Service Agreements: CPA fees vary based on the complexity of your tax situation and the services you wish to avail. Request a clear fee structure upfront to stay within budget. Read Reviews & Ask for Referrals: Client feedback is invaluable. Look for testimonials and Google and Yelp reviews to ensure the professional you are planning to hire has a good reputation and tax expertise and will deliver quality services to your needs. It’s Time to Take Control of Your Finances If you’re a startup, a growing company, or an established business looking for strategic

If you sell products on platforms like Amazon or Etsy, provide services via freelancing platforms, or process payments through systems like PayPal or Stripe, Form 1099-K is a must-have. It is one of the most important tax documents for online business owners and serves as a record of income received through payment processors or third-party networks. Form 1099-K is an IRS (Internal Revenue Service) form that is used to report debit or credit card transactions and payments from third-party settlement organizations (TPSOs) such as PayPal, Venmo, or Square) during the year. It provides a summary of the total income you’ve earned through these platforms for goods or services you’ve provided. It’s the IRS’s way of ensuring that income from electronic transactions is reported and taxed correctly. When Do You Need Form 1099-K? You need a 1099 K form if your customers or clients have paid you directly by credit, debit, or gift card for the goods that you’ve sold to them or for the services that you’ve provided. A payment app or online marketplace is required to issue you a Form 1099-K if your payments for goods or services exceed $5,000. However, they may still send you a Form 1099-K with lower amounts. This includes payments for: Goods sold, including personal items like clothing or furniture Services you provide Property rentals Payments can come from – Payment apps Online marketplaces Craft or maker platforms Auction sites Car-sharing or ride-hailing platforms Ticket resale sites Crowdfunding platforms, or Freelance marketplaces Regardless of whether you receive this form, you are obligated to report all income on your tax return. However, payments that you’ve received from family and friends should not be reported on the 1099-K form. The current reporting thresholds for platforms to provide 1099-K forms are: For 2023: Over $20,000 in gross payments and over 200 transactions For 2024: Over $5,000 in payments and one or more transactions. For 2025: Over $2,500 in payments and one or more transactions. The Need for 1099-K Form 1. Provides Financial Clarity The form provides details of your income from specific sources. It makes it easier for you to organize your finances and prepare your tax return. 2. Accurate Income Reporting The IRS uses Form 1099-K to verify that all your income has been accurately reported. The Internal Revenue Services department matches the amounts listed on the form against the income you have reported on your tax return. Any mismatch can lead to an IRS audit. 3. Compliance with Tax Laws Form 1099-K can help you keep track of your credit/debit card transactions and third-party network payments and comply with federal tax laws. Who Issues Form 1099-K? The form is issued by payment settlement entities, such as: 1. Payment Card Processors: Companies that handle credit and debit card transactions, such as Stripe or Square. 2. Third-Party Payment Networks: Platforms like PayPal, Venmo, and Cash App that process transactions on your behalf. These entities send a copy of the 1099 K Form to both the recipient (you, the business owner) and the IRS. If payment is done or received through multiple settlement entities, each entity will send a separate 1099-K form. Information Found on the Form Understanding the information found on Form 1099-K is key to accurately reporting your income. Here’s what you’ll typically find on the form: 1. Payer Information: The name and contact details of the payment settlement entity issuing the form. 2. Payee Information: Your name, address, and taxpayer identification number (TIN). 3. Box 1a: The total gross amount of reportable transactions. This includes all payments processed during the year through payment cards and third-party network transactions. The gross payment amount isn’t adjusted for any fees, credit, refund, shipping, cash equivalents, and discounts. These items are not counted as taxable income and can be deducted from the gross amount. 4. Box 1b–1d: Breakdowns of transactions, such as the total number of payment transactions. 5. Boxes 2–5: Additional details, such as state taxes withheld (if applicable) and merchant category codes. Remember, just because a payment is reported on Form 1099-K, doesn’t mean that it’s taxable. Good bookkeeping is important to ensure your income and deductible expenses are reported correctly on your tax return. What to Do When You Receive Form 1099-K If you’ve received Form 1099-K, follow these steps to ensure accurate reporting: 1. Verify the Information: Double-check the details on the form, including your name, TIN, and income amounts. If there are errors, contact the issuer to correct them. 2. Compare with Your Records: Match the gross income reported on Form 1099-K with your own business records. Keep in mind that the form shows gross payments, so it may include amounts you refunded to customers, chargebacks, or fees deducted by the payment processor. 3. Report All Income: Include the total amount from Form 1099-K in your business income when filing taxes. Remember, you must report all income, even amounts not included on the form, such as payments you receive in cash, property, goods, or digital assets. 4. Deduct Fees and Refunds: While Form 1099-K reports gross income, you’re allowed to deduct business expenses like transaction fees, refunds, or costs of goods sold. Maintain clear records to substantiate these deductions. 5. Work with a Tax Professional: If you’re unsure how to handle Form 1099-K or its implications for your taxes, consult an experienced tax professional. They can provide guidance and ensure compliance with IRS regulations. Common Issues & How to Solve Them Form 1099-K can be a source of confusion for many business owners. Here are some common issues that you may face along with tips to resolve them: 1. Duplicate Reporting If you operate on multiple platforms, you may receive multiple 1099-K Forms for the same income. Ensure that you don’t accidentally report the same income twice. 2. Personal Payments Included Payments classified as business income may occasionally include personal transactions. For example, Venmo payments from friends could be mistakenly reported. Keep separate accounts for business and personal use to avoid this issue. 3. Discrepancies

As the Year 2024 approaches its conclusion, many small businesses are preparing for a promising new start. For this, one must first pause and reflect. What went well this year? What could have been done differently? Was there a heavy cash outflow on taxes? Are there ways to minimize this tax burden in the new year? Year-end tax planning is crucial for business success. It isn’t just a way to save money; it helps you create a solid financial foundation for your business. Here are some tips that can help US business owners maximize tax deductions, manage cash flow, and stay ahead of the game. Benefits of Year-End Tax Planning Strategic tax planning offers more than just immediate financial benefits; it’s an opportunity to: Strategic Tips for Maximum Tax Savings 1. Maximize Deductions Before Year-End Year 2024-25 tax code offers numerous opportunities for small businesses and CPA firms (to help their clients) reduce their tax bills. Some common tax credits and deductions include Home Office Expenses, Business Meal Deductions, Child Tax Credit, Earned Income Tax Credit (EITC), American Opportunity Tax Credit (AOTC), IRA and 401(k) Deductions, Employee Retention Tax Credit (ERTC), Energy Efficiency Tax Credits, and more. Pro Tip: Tax credits reduce your tax liability dollar-for-dollar and can make a big difference in your bottom line. Work closely with a certified tax professional to ensure you’re leveraging all available deductions and credits that apply to your business. 2. Manage Cash Flow and Expenses Year-end planning offers a chance to align your cash flow with tax advantages. 3. Consider Tax-Advantaged Retirement Contributions Retirement plans not only help you save for the future but also reduce your taxable income. Some options to explore include: 4. Optimize Your Charitable Contributions Charitable contributions are a great way to save on taxes. They reduce your taxable liabilities while allowing you to support causes that matter. Small business owners can leverage these contributions as a key component of year-end tax planning. Here’s how you can maximize the financial and philanthropic benefits of charitable contributions: Pro Tip: You must itemize charitable deductions on your tax return and ensure that your total itemized deductions exceed the standard deductions. 5. Organize Your Financial Records for 2024 Preparation is key to a smooth tax filing process. Use the year-end to: Start the New Year on a Strong Foot Year-end tax planning is more than a checklist – it’s an opportunity to optimize your business financial strategy and set the tone for the year ahead. So, follow these tips to reduce your tax burden and focus on growing your business. At KnowVisory Global, we offer expert tax planning and return preparation services to help businesses improve cash flow and stay IRS compliant. Our team is here to provide personalized support so you can enter the new year with confidence and keep your financials on track. Contact us today to get started on securing a financially prosperous 2025!  

Small business owners as well as self-employed individuals are always on the lookout to minimize their tax liability. Whether it is through eligible tax credits, deductions, or strategic financial planning, every opportunity to save matters. One significant provision that has been helping small business owners and self-employed individuals save more on taxes is the Qualified Business Income Deduction (QBID). Also known as the Section 199A deduction, QBID was Introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017. It allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI) and enhance their financial efficiency. However, the rules surrounding QBID are complex and it is important to carefully understand them. Let’s see what QBID is and how you can use it to maximize your tax savings. What is a Qualified Business Income Deduction? QBID is a federal tax deduction that provides tax benefits to self-employed individuals and certain pass-through businesses that are earning income from qualified businesses. Unlike deductions for operating expenses, QBID is applied at the personal income tax level. It reduces 20% of their qualified business income (QBI) without requiring additional out-of-pocket expenses. Income from a (qualified) trade carried out in the United States is considered qualified business income. It comprises earnings from S-corporations, partnerships, sole proprietorships, and some trusts and estates. However, C corporations and several forms of foreign income are not eligible for QBID. Who Qualifies for QBID? To claim QBID, you must meet the eligibility criteria. This includes: 1. Income Type: The deduction applies to qualified business income (QBI) only. It excludes: 2. Business Structure: Only pass-through entities qualify for QBID. These include: As mentioned above, C corporations and entities taxed as corporations do not qualify for QBID. 3. Taxable Income Thresholds: Taxpayers having taxable income below a certain threshold can claim QBID without limitations. For 2024, the taxable income thresholds are: Taxpayers below these thresholds can claim the full deduction. Those above these amounts face limitations based on: 4. Specified Service Trades or Businesses (SSTBs): SSTBs include professions where the principal asset is the reputation or skill of employees or owners. Examples are: Special Rules and Limitations for SSTBs For SSTBs, QBID is phased out for taxpayers with taxable income above the thresholds. Planning to stay below these limits or re-evaluating the business structure can mitigate these limitations. How to Calculate Qualified Business Income Deduction? The QBID is generally 20% of Qualified Business Income (QBI). However, this straightforward calculation applies if taxable income is below the thresholds. If taxable income exceeds the thresholds, the deduction is limited to the lesser of : For SSTBs, the deduction phases out completely at certain income levels: To calculate QBID: Understanding QBID with Examples Example 1: Basic Qualified Business Income Tax Deduction John owns a sole proprietorship and earns $120,000 in QBI. He is a single filer and his taxable income is below the threshold. Example 2: Income Above the Threshold Mary owns an LLC. She earns $500,000 (married filing jointly). Her business pays $150,000 in W-2 wages and has $500,000 in qualified property. Here’s how her deduction for qualified business income will be calculated: Calculation Component Formula Result Potential QBID deduction 20% x $500,000   W-2 Wage Limit 50% × $150,000 $75,000 Property-Based Limit (25% × $150,000) + (2.5% × $500,000) $62,500 Maximum Deduction Allowed Lesser of (20% × QBI = $100,000) or $75,000 $75,000 Final Deduction Amount   $75,000   0.25 × $150,000 + 0.025 × $500,0000 = 37,500 + $12,500 = $50,000 Hence, Mary’s QBID: $75,000 Example 3: SSTB with High Income David, a lawyer, earns $600,000 (married filing jointly). In this case, David does not qualify for QBID as his income exceeds $514,200. Advantages of QBID Limitations of QBID 1. Complicated Regulations for High Income: Taxpayers who earn more than the thresholds are subject to restrictions and exclusions, particularly for SSTBs.2. Excluded Income: The potential deduction is decreased by non-QBI income, such as dividends and capital gains, which are not eligible.3. Temporary Provision: QBID is a temporary deduction. Unless Congress extends it, the QBID will stop on December 31, 2025. Tips for Maximizing the QBID Here are some the ways to maximize the benefits of the QBID: The Final Words QBID is an excellent tax benefit for small businesses and self-employed individuals. However, its rules and limitations require careful navigation. That’s why it’s better to seek professional tax guidance to maximize this deduction and reduce your tax burden. If you need expert assistance with QBID or other tax matters, consult tax professionals at KnowVisory. We can help you evaluate your individual tax situation to ensure compliance and maximize tax savings.

When saving your tax bill, Tax Credits offer the easy way out. They are the financial rewards that the IRS provides to reward small businesses for their actions that benefit the community, support employees, or drive innovation. Whether you’re hiring veterans, providing health insurance to employees, or investing in eco-friendly practices, there’s a tax credit to reward your efforts. These credits can significantly reduce your tax bill and put more money back into your business. However, understanding which credits apply to your business and how to claim them isn’t always straightforward. You need professional guidance from a certified tax expert and some knowledge to maximize your savings. Here’s our list of various tax credits that your business might be eligible for. Keep it handy to ensure you save more on your tax bill! What are Tax Credits? Tax credits are financial incentives that directly reduce the amount of tax owed to the IRS. Unlike tax deductions that reduce your taxable income, tax credits reduce your tax bill dollar-for-dollar. However, to claim these credits, businesses must meet specific eligibility criteria and follow detailed IRS credits and deductions guidelines set for different tax credits. Tax credits come in two main types: 1. Non-Refundable Tax Credits: These are the credits that reduce your tax liability up to $0 by the corresponding credit amount but will not result in a cash refund. These credits are valid only in the year of reporting and hence, not carried over to future years. For example: 2. Refundable Tax Credits: These credits are subtracted from Income tax liability and may result in a cash refund when credits exceed tax liability even if no tax is withheld. For example: How to Claim Business Tax Credits For businesses claiming multiple credits, IRS Form 3800 needs to be filled. It consolidates all the credits into a general business credit. However, if only one credit is being claimed, it can be reported directly on your Income Tax Return Form 1040. Calculating Your Tax Credit Limit To determine the limit on tax credits, follow these steps: 1. Add the net income tax and alternative minimum tax. 2. Subtract any other allowable tax credits from this total to find the net income tax liability. 3. Deduct the greater of: Unused business credits can be carried back to the previous year or carried forward for up to 20 years, following a first-in, first-out order. The order is as follows: Tax Credits for Small Business Owners Now let’s take a look at all the important income tax credits that can help you reduce your tax outgo, legally! 1. Work Opportunity Tax Credit The Work Opportunity Tax Credit (WOTC) is a non-refundable federal tax credit that encourages businesses to hire individuals from certain underserved groups, including: How it Works: The credit amount depends on several factors, including the eligible employee’s targeted group, wages, and number of hours worked. Generally, You can claim up to 40% of the first $6,000 of wages paid to eligible employees during their first year of employment. For veterans and certain other groups, the maximum credit can be even higher. How to Claim: File Form 5884 along with your tax return to claim the credit. Keep all necessary documentation proving the eligibility of the employees for IRS review. Credit for small business health insurance premiums (Form 8941) is for companies that provide small-business health insurance to their employees through a qualified health plan from the SHOP Marketplace, provided they meet certain qualifying conditions. A credit equal to 50% of employer-paid health insurance premiums during the first two consecutive years. This is a refundable credit, meaning that you may claim a tax refund even if you are tax-exempt or have no taxable income. 2. Employer Credit for Paid Family and Medical Leave This fully refundable tax credit encourages businesses to support their employees by giving paid family and medical leave, subject to certain conditions. This includes offering wages and financial security to employees during critical life events, such as childbirth, accidents, serious health conditions, or other family-related needs. How It Works: You can claim around 12.5% to 25% of wages paid to employees during their family or medical leave period. Eligibility: To qualify, you must have: a. A written policy offering at least two weeks of paid family and medical leave annually to  all qualifying employees andb. Paid at least 50% of the employee’s regular wages during the period. How to Claim: Use Form 8994 to calculate and claim the credit and submit it along with your tax return. The credit is effective for wages paid in taxable years beginning after December 31, 2017, and before January 1, 2026. 3. Credit for Increasing Research Activities Like most other Tax credits, this is a non-refundable tax credit. The credit incentivizes businesses and organizations to increase their research and development. The credit is available for expenses incurred on qualified research conducted in the US. How It Works:  Small businesses can apply up to $500,000 of their research credit to reduce their Social Security taxes. Eligibility: R&D activities must be carefully documented with process diagrams, lab results, etc., to be able to claim this credit. How to Claim: File Form 6765 to calculate and claim the R&D credit and attach it to your business tax return. Depending on your business’s size and financial situation, you may also be able to carry the credit forward for up to 20 years or backward to reduce prior tax liabilities. 4. Low-Income Housing Tax Credit This non-refundable tax credit is a federal incentive program designed to encourage real estate developers to invest in affordable housing for low-income families. The amount of tax credit is determined by the number of low-income housing units the qualifying developer plans to build and is applied over a ten-year period after a building is placed in service. How It Works: Eligibility: To qualify, projects must keep a certain percentage of units occupied by low-income tenants at capped rents for at least 15 years. How to

Have you ever wondered why your company’s tax bill doesn’t always match your financial statements? Or why sometimes your business seems to owe taxes even when profits are down? The answer might lie in Deferred Tax Accounting. Deferred tax is an accounting concept that represents the ‘difference’ between the profit reported on financial statements and the taxable profit. This difference arises because income and expenses may be recorded differently in your financial statements compared to how they are treated for tax purposes. Deferred tax accounting is essential for accurate financial reporting. It reflects the current and future tax effects on a company’s income, ensuring net earnings are properly reported within the same period. These differences are categorized as: The temporary differences can lead to the creation of either a deferred tax asset (DTA) or a deferred tax liability (DTL), depending on whether they result in future tax savings or future tax expenses. Let’s see what is a deferred tax asset is what is a deferred tax liability and how they differ from each other. Deferred Tax Asset vs Liability: Understanding the Difference Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) are essential to a company’s financial statements. A Deferred Tax Asset arises when a business has paid more tax than required on its book profit. In such cases, the company can claim the excess tax in the future, thus creating an asset on its balance sheet. A deferred tax asset can arise in various situations, such as when a business incurs a net loss and carries it forward to offset against future profits. This effectively reduces the company’s taxable income in the following year, leading to a lower tax liability. It’s important to note that since the net loss was incurred in a specific year, any future tax benefits resulting from it should be recorded in that same year, thereby recognizing it as a deferred tax asset. Deferred Tax Asset Example: If an entity’s book profit includes bad debts that are not yet allowed for tax purposes, the entity pays more tax now and thus creates a DTA. When this provision is allowed in future years, the business will pay less tax. Deferred Tax Liability, on the other hand, occurs when a business pays less tax at present but expects to pay more in the future. For example – when a company’s tax statement reflects higher depreciation than its income statement, it results in lower tax liability for that year. However, since this difference is temporary, the company will eventually need to pay the taxes owed in future years, and this obligation is recorded as a deferred tax liability.   Financial statement asset Financial statement liability Deferred tax asset  Tax basis > Book carrying value Tax basis < Book carrying value Deferred tax liability  Tax basis < Book carrying value Tax basis > Book carrying value Let’s understand DTA and DTL with an example: Assume that your business has purchased machinery worth $100,000. For tax purposes, you choose to depreciate the equipment over 3 years, but for accounting purposes, you depreciate it over 5 years. This creates a temporary difference. In the first few years, you record higher depreciation for tax purposes, which will reduce your taxable income. However, this creates a deferred income tax liability because the accounting income is higher than the taxable income. The DTL represents the taxes you’ll eventually have to pay when your taxable income catches up. However, if your business incurs a loss in one year, you may carry the loss forward and offset profits in future years. This creates a DTA because it will reduce future taxable income, giving you a tax benefit down the road. When Is a Deferred Tax Recorded? Deferred tax assets and liabilities can arise from various financial events. Some common scenarios include: Conversely, expenses recorded in the books but not yet incurred are not included in tax calculations. This means that if the company’s book profit is lower than the profit shown in the tax statement, it will lead to advance tax payment and will create a deferred tax asset. How is Deferred Tax Calculated? Deferred tax is calculated based on the difference between the gross profit reported in the Profit & Loss Account and the taxable income in the tax statement. Here’s an example to illustrate it: Consider a company with a 30% tax rate that sells a product worth $10,000, but receives payments from its customer on an installment basis over the next five years – $2,000 annually. For financial accounting purposes, the company recognizes the entire $10,000 revenue at the time of the sale, while it records only $2,000 based on the installment method for tax purposes. This results in an $8,000 temporary difference that the company expects to liquidate within the next five years. The company records $2,400 in deferred tax liability on its financial statements. Particulars Company Books Tax Statement Revenue $10,000 (full amount) $2,000 (installments) Temporary Difference – $8,000 Applicable Tax Rate 30% 30% Deferred Tax Liability Created – $2,400 ($8,000 x 30%) Accounting for Deferred Taxes Derecognition of Deferred Tax Assets Due to the accounting principle of conservatism, businesses must carefully assess their deferred tax assets. In other words, there needs to be virtual certainty about how deferred tax assets will be used in the future. For example, if a carryforward loss is allowed, a deferred tax asset will appear on the company’s financial statements, reflecting past losses. In this case, a deferred tax asset should be recorded only if there is sufficient future taxable earnings to offset the tax loss. However, if the company is not profitable enough, the deferred tax asset value will be reduced. To account for this, the company needs to create a contra-asset account. Also known as a valuation allowance, it reduces the value of the deferred tax asset if the company cannot fully utilize its DTAs. An increase in the valuation allowance leads to higher tax expenses on the company’s financial statements. Impact on Business Finances Deferred Tax

Investing can be exciting, especially when you see your account balance climbing up the ladder. But does all that growth mean more money in your pocket? Not really! While your portfolio might be looking better on paper, you practically have gained nothing – until you decide to sell those assets. These ‘theoretical profits’ that you see on paper are known as “Unrealized Capital Gains”. These gains reflect the increase in the value of your assets, but they aren’t taxable or accessible until you decide to sell. Understanding unrealized gains, how they work, and how recent discussions on the unrealized capital gains tax—including proposals by Kamala Harris—might affect is important for investors to plan their financial growth and avoid hefty surprises later. What Are Unrealized Capital Gains?  Unrealized gains are profits “on paper” from investments that you haven’t sold yet. Let’s understand this with an example. Imagine you bought ten shares of a company for $10 each, and now the price for these shares has increased to $15 each. While the value of your investment has risen from $100 to $150, the gain is unrealized because you haven’t sold those shares yet. The profit is there, but it’s not actual cash in your bank account. When the value of your investments goes up, and you keep holding onto them, the increase is considered an unrealized gain. These gains are not taxed until you sell the asset (realized gain). On the flip side, if the value of your investments drops, the losses that you incur also remain unrealized (unrealized losses) until you sell the asset. When you sell your asset/ investment at a loss, the loss that you’ve incurred (realized losses) can be used to offset any realized gains for tax purposes. GAAP Accounting for Unrealized Gains and Losses on Investments Under Generally Accepted Accounting Principles (GAAP): To ensure clarity and transparency in financial reporting, companies must separately track realized and unrealized gains and losses. This distinction helps stakeholders assess the long-term performance of a company’s investments. How are Unrealized Gains Taxed? Unrealized gains are not taxable under current U.S. tax law. The capital gain taxes are deferred until the investments are sold and actual profits are realized. Realized gain occurs when the asset is sold, and the profit is “realized” or actualized. This tax on Actualized gain is known as capital gains tax. The tax rate depends on how long the asset was held and the taxpayer’s income level. It can either be: To determine the tax implications of your capital gains, it’s important to consider how long you’ve held your assets. If you sell assets after holding them for a year or less, your gains will be classified as short-term and taxed at your regular income tax rate. However, long-term capital gains apply to assets held for more than a year. These are taxed at different rates. The IRS sets these rates based on your income. For 2024, long-term capital gains are taxed at the following rates: Filing Status 0% Tax Rate 15% Tax Rate 20% Tax Rate Single $0 to $47,025 $47,026 and $518,900 $518,901 or more Married, Filing Separately $0 to $47,025 $47,026 – $291,850 $291,851 or more Married, Filing Jointly $0 to $94,050 $94,051 – $583,750 $583,750 or more Head of Household $0 to $63,000 $63,001 – $551,350 $551,351 or more The idea of a tax on unrealized gains has become a hot topic in recent years, especially with high-profile discussions around potential policy changes. One such discussion involves Kamala Harris’s unrealized gains tax proposal, which suggested taxing wealthy individuals on their unrealized gains to increase government revenue. While Kamala Harris’s unrealized gains tax hasn’t yet been implemented, it’s a concept that could dramatically alter how taxes on investments will be approached in the future. Why Do Unrealized Gains Matter? For investors, understanding unrealized gains is crucial for tax planning and investment strategy. This deferred taxation allows investors to benefit from the time value of money, reinvesting potential gains and compounding their investments without immediate tax liabilities. If investments are increasing in value, but you don’t sell them, your gains remain untaxed. However, this also means that if the market takes a downturn, those gains can quickly disappear. Investors may choose to hold onto their investments longer to avoid triggering the unrealized gains tax. This can be a smart strategy if you anticipate your investment will continue to rise in value or if you want to wait for more favorable long-term capital gains tax rates, which are often lower than short-term rates. Tips for Managing Unrealized Gains Follow these tips to efficiently manage your assets and minimize your unrealized gain tax: The Risks of Holding onto Unrealized Gains While it’s tempting to hold onto assets for further gains, it comes with its own set of risks. Market volatility can cause asset values to fluctuate, and the price of your investments could fall just as quickly as they rise. Additionally, factors like company performance, economic conditions, and industry trends can impact the value of your assets. If you hold onto an asset for too long and its value decreases, you could miss out on the opportunity to lock in a profit. This is why it’s essential to have a well-rounded investment strategy and not rely solely on potential future gains. Partner with Financial Advisors for Tax-Efficient Investing Realized and unrealized gains are complex, and understanding how they impact your taxes can be even more challenging. A financial advisor can help you analyze your investments, determine the best time to sell, and suggest strategies to minimize your unrealized gain tax burden. They can also assist with long-term financial planning to ensure your portfolio grows in a tax-efficient manner. Partner with certified CPAs at KnowVisory Global. We can help you maximize your investment potential while minimizing your tax liability. Contact us today for expert guidance on smart financial planning!  

The Employee Retention Credit (ERC), also known as Employee Retention Tax Credit (ERTC) is an IRS tax credit that was created to help businesses during the COVID-19 pandemic. It was established as a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and was designed to reward companies that kept employees on their payroll during tough times and offered cash-struck businesses a significant financial boost during testing times. While ERC is a game-changer for businesses, it is important to understand it completely to seek maximum benefits and avoid potential scams. What is Employee Retention Credit (ERC)? The IRS Employee Retention Credit is a U.S. Federal tax credit scheme for businesses and Tax-Exempt organizations that were negatively impacted by the COVID-19 pandemic. The credit was available for wages paid from March 12, 2020, to December 31, 2021. Eligibility and credit amounts vary depending on when the business impacts occurred. The Employee Retention Tax Credit was designed to offset a portion of employee wages and its federal tax deposits, namely the deposits of federal withholding tax, employee Social Security tax, employee Medicare tax, employer Social Security tax, and employer Medicare tax. For eligible employers, the credit can be a: Claiming ERTC: Is It Still Applicable? While ERTC was introduced during the pandemic, it remains available for eligible businesses to claim retroactively. The IRS is still accepting Employee Retention Tax Credit claims. Though there was a moratorium on processing new claims filed after September 14, 2023, it was lifted as of August 8, 2023. Claims filed between September 14, 2023, and January 31, 2024, are now being processed. Although the U.S. House of Representatives passed a bill proposing January 31, 2024, as the new deadline for filing ERTC claims, the Senate did not consider it, leaving the original end date to amend 2021 tax returns at April 15, 2025. While you can submit a new claim, be prepared for potential delays in processing as the IRS works through a backlog. Employee Retention Credit Eligibility A company is eligible for the ERC if it satisfies at least one of the following requirements: What Are the Limitations of the ERC? Some limitations to keep in mind when applying for ERC include: How to Claim ERC? Claiming the ERC isn’t automatic—you have to file an amended tax return Form 941-X (the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) in case you didn’t claim the credit when they filed their original employment tax return Form 941. This form allows you to go back and claim the ERC for any eligible wages paid during the pandemic. Once you’ve submitted the form, you will receive the credit either directly or as a refund – if you’ve already paid your payroll taxes. Avoiding ERC Scams While employee retention tax credit is a legitimate tax credit, there are a number of scams around ERTC. The common ones include: What to Do If You’ve Filed a Fraudulent ERC Claim If you realize you’ve filed an ineligible employee retention credit claim, it’s important to take corrective action quickly: Common FAQs on the Employee Retention Credit (ERC) 1. How Much is the ERC Per Employee? For 2020: The maximum Employee Retention Credit per employee is $5,000. This credit covers up to 50% of qualifying wages, including health plan expenses, up to a maximum of $10,000 per employee annually. For 2021: The ERC provides a higher benefit. For the first three quarters of the year, businesses can claim up to $7,000 per employee, per quarter, which totals up to $21,000 per employee for the year. This is calculated as 70% of qualified wages per quarter, with a cap of $10,000 in wages per employee, per quarter. In total, businesses can potentially claim up to $26,000 per employee when combining both years. 2. Can You Claim Both Employee Retention Credit and PPP? Yes, businesses can claim both the ERC and PPP loan forgiveness. Initially, this wasn’t allowed, but the Consolidated Appropriations Act (CAA) of December 2020 changed the rules, allowing businesses to benefit from both programs. When applying for PPP loan forgiveness, businesses must ensure they don’t double-dip by counting the same payroll expenses for both the ERC and PPP loan forgiveness. This is a critical compliance requirement, and failure to adhere to it could result in penalties. 3. Is being subject to a government order enough to make me eligible for ERC? (added July 28, 2023)? No. You need to demonstrate that the government order was related to COVID-19 and that it resulted in your trade or business being fully or partially suspended.  4. Was my business or organization fully or partially suspended if I had a supply chain issue? A supply chain issue by itself does not qualify you for the ERC. The IRS provided a narrow, limited exception if an employer was not fully or partially suspended but their supplier was. The exception, however, only applied when the employer absolutely could not operate without the supplier’s product and the supplier was fully or partially suspended. In addition to having the supplier’s governmental order, you will need to show that: Partner with Professional Tax Consultants to Maximize ERC Without the Risks The Employee Retention Credit can provide substantial relief for businesses that were hit hard by the COVID-19 pandemic. However, understanding the qualifications and avoiding scams is essential. By leveraging professional tax planning and return preparation services, you can file your claim correctly and stay on the right side of the law. Need help with your ERC claim? Reach out to our team today to ensure you’re getting the right guidance and avoiding any potential pitfalls.

Cryptocurrency is a digital asset or a virtual currency that’s designed to act as money. It works through a computer network and is not regulated by any bank. The industry started around 2009 and within a decade, it achieved a staggering investment of over USD55 billion. Over the years, the demand for cryptocurrency has risen phenomenally, creating the need for centralized regulations that protect consumers while promoting innovation. For individuals and businesses dealing in crypto, it’s crucial to understand how these digital assets are taxed. Whether you’re trading, mining, or simply holding onto Bitcoin, Ethereum, or other digital currencies, navigating cryptocurrency taxes can seem complex. The reason why most individuals and business owners rely on professional tax planning and preparation services is to ensure compliance and optimize their tax outcomes. What are Crypto Taxes? Per Notice 2014-21, tax authorities in the USA consider crypto to be a form of property, similar to traditional assets like stocks and real estate. This means crypto gains and losses are subject to capital gains tax, while income from crypto-related activities may fall under income tax regulations. Every time you sell, trade, or use cryptocurrency to purchase goods or services, it creates a taxable event. A few crypto tax events include: How are Cryptocurrencies Taxed? Cryptocurrencies are taxed when you sell, trade, or exchange them. The tax treatment depends on how long you’ve held the assets. Capital Gains Tax When you sell or trade cryptocurrency for a profit, the transaction is subject to capital gains tax. (Image Credit: Blockpit.io) For example, if you bought Bitcoin for $10,000 and sold it for $15,000 within a year, the $5,000 profit would be taxed as short-term capital gains at your regular income tax rate. If you held it for more than a year, the $5,000 would be taxed at the lower long-term capital gains rate. Here’s a breakdown of tax rates for both short-term and long-term gains: Short-Term Capital Gains Rates (Held Less Than 1 Year) Tax Rate Single Head of Household Married Filing Jointly Married Filing Separately 10% $0 to $11,000 $0 to $15,700 $0 to $22,000 $0 to $11,000 12% $11,001 to $44,725 $15,701 to $59,850 $22,001 to $89,450 $11,001 to $44,725 22% $44,726 to $95,375 $59,851 to $95,350 $89,451 to $190,750 $44,726 to $95,375 24% $95,376 to $182,100 $95,351 to $182,100 $190,751 to $364,200 $95,376 to $182,100 32% $182,101 to $231,250 $182,101 to $231,250 $364,201 to $462,500 $182,101 to $231,250 35% $231,251 to $578,125 $231,251 to $578,100 $462,501 to $693,750 $231,251 to $346,875 37% Over $578,126 Over $578,101 Over $693,751 Over $346,876 Long-Term Capital Gains Rates (Held More Than 1 Year) Tax Rate Single Head of Household Married Filing Jointly Married Filing Separately 0% Up to $44,625 Up to $59,750 Up to $89,250 Up to $44,625 15% $44,626 to $492,300 $59,751 to $523,050 $89,251 to $553,850 $44,626 to $276,900 20% Over $492,301 Over $523,051 Over $553,851 Over $276,901 Income Tax Cryptocurrency earned through mining, staking, airdrops, or as payment for goods and services is taxed as ordinary income. The value of the crypto at the time of receipt is added to your taxable income and taxed according to your income tax bracket (10%-37%). For instance, if you mined Ethereum worth $5,000, that amount would be taxed as income in the year it was mined. Also, it is worth noting that different agencies in the US recognize cryptocurrency differently. This has led to the creation of distinct laws surrounding this digital asset. For example, in Wyoming, you don’t need a license for cryptocurrency. However, you’ll need a Money Transmitter License (MTL) to trade in cryptocurrency in Colorado. Tax Exemptions and Crypto Losses Certain crypto transactions may be exempted from tax. For example, small transactions, like those below a specific threshold, may not trigger taxable events. Similarly, cryptocurrency losses can be used to offset capital gains (or up to $3,000 of ordinary income annually), which helps in reducing your overall tax liability. When offsetting your capital gains with losses, pay attention to the holding period of the assets under consideration. You can only offset long-term capital losses against long-term capital gains and short-term capital losses against short-term capital gains. Excess of losses can be carried forward. Some events that may not trigger a tax obligation include: Non-Traditional Forms of Cryptocurrency Cryptocurrency is not the only form of digital asset that is taxed. Another form of cryptocurrency, Non-Fungible Tokens, or NFTs, are also taxed. NFTs are unique digital assets that use blockchain technology like cryptocurrency to signify digital ownership. They are categorized as property, meaning the sale and trade of cryptocurrencies are taxable. Some NFTs, on the other hand, may be considered collectibles, and are taxed at higher rates than other types of property.  Strategies to Minimize Cryptocurrency Taxes Want to minimize your crypto taxes? Here are some strategies to follow: Recording and Reporting Crypto Taxes Properly recording and reporting your cryptocurrency transactions is crucial to staying compliant with IRS regulations. Failure to do so can lead to penalties, interest, and even potential legal consequences. Here’s how to ensure you’re correctly recording and reporting your cryptocurrency taxes: Maintain Detailed Records: Make sure to record the date of each transaction, the amount of crypto involved, the fair market value at the time of the transaction, and any associated fees. Many crypto investors rely on third-party tools to automate the process of recording transactions. These tools integrate with popular exchanges and wallets, helping you track the cost basis, gains, and losses automatically. Identify Taxable Events: Taxable events in cryptocurrency can be categorized into capital gains and income. Make sure to accurately identify and record them. File Crypto Gains and Losses on Form 8949 and Schedule D:  Report your cryptocurrency capital gains and losses by filling out IRS Form 8949 and Schedule D. While Form 8949 reports the sale, disposals, and exchange of capital assets, including cryptocurrencies. Schedule D summarizes the net gain or loss from all your capital transactions, including cryptocurrency. Report Crypto Income on Form 1040: If you’ve