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What are some of the most common inquiries I receive from clients?

How do tax is calculated? Can you show me how to actually calculate it?
What is excise tax, sales tax?
What is State Income tax? Is it different to Federal Income Tax?
What is worker's compensation?
What are the different taxes in the USA?
What are the different business entities?
I have hobby income, how should I treat my expenses? What can I deduct?
Bookkeeping Quickbooks: How to record personal money I spent towards the business?
What are depreciable assets?
I'm a US citizen but I now lived in Canada, how do I get tax? and what credits I get?

How to structure account categories based on the industry?

I sold my personal residence, what are my tax complications?

What is the medical expenses ceiling percentage and how is it being calculated?

What is Standard Deductions and Itemized Deduction?

What is Standard Deductions for vehicles used for business? How about Mileage?

How to differentiate COGS to direct expenses? What are COGS (Cost of Goods Sold)?

I'm a business owner. Can I deduct charitable donations?What are Donations for personal and business?

What are refundable credits and non-refundable credits?

How should I depreciate my assets? What are capital assets and ordinary assets?

Knowledge is Power

Estimated taxes are quarterly tax payments made by individuals and businesses in the United States to the Internal Revenue Service (IRS) in order to avoid paying a large tax bill at the end of the year. These payments are based on an estimate of how much tax the individual or business will owe for the current tax year. Here are some key things to know about estimated taxes: Who needs to pay estimated taxes: If you are self-employed, a freelancer, or have income from sources that don't have taxes withheld (such as rental income or investments), you may need to pay estimated taxes. Additionally, if you receive significant income from a source that has taxes withheld but the amount withheld is not enough to cover your tax liability, you may need to make estimated tax payments. When to make estimated tax payments: Estimated tax payments are due four times a year: April 15th, June 15th, September 15th, and January 15th of the following year. If the due date falls on a weekend or holiday, the payment is due on the next business day. How to calculate estimated taxes: To calculate estimated taxes, you'll need to estimate your total income for the year, as well as any deductions and credits you may be eligible for. You can use IRS Form 1040-ES to calculate your estimated tax liability, or you can use tax preparation software to help you. Penalties for not making estimated tax payments: If you don't make estimated tax payments and you owe more than $1,000 in taxes at the end of the year, you may be subject to a penalty. The penalty is based on the amount of tax you owe and the number of days you were late in making the payment. How to make estimated tax payments: You can make estimated tax payments online using the IRS's Electronic Federal Tax Payment System (EFTPS), by phone, or by mail using Form 1040-ES. It's important to note that estimated taxes can be complex and the rules can vary depending on your individual circumstances. If you're unsure whether you need to make estimated tax payments or how to calculate them, it's a good idea to book a consultation with us, email us at emsmith@cad-accounting.com or call us at 509-322-3877.

Here are some tips to help you save on taxes: Take advantage of tax deductions: There are several tax deductions available, such as charitable donations, mortgage interest, and business expenses. Make sure you keep accurate records and claim all deductions that you are entitled to. Contribute to retirement accounts: Contributing to a traditional IRA or 401(k) can lower your taxable income and reduce your tax liability. Additionally, you can contribute up to a certain amount each year and enjoy tax-deferred growth on your investments. Consider itemizing your deductions: If your total deductions exceed the standard deduction, you may be able to save on taxes by itemizing your deductions. This requires more effort in terms of record-keeping, but it can be worth it if it lowers your tax bill. Take advantage of tax credits: Tax credits are even better than deductions, as they reduce your tax bill dollar-for-dollar. For example, the Earned Income Tax Credit can help low-income workers save on taxes, while the Child Tax Credit can help families with children. Plan ahead: If you know you will have a large tax bill at the end of the year, consider adjusting your withholdings or making estimated tax payments throughout the year. This can help you avoid a big tax bill and potentially even earn some interest on your money. It's important to remember that tax laws can be complex, and it may be helpful to consult with a tax professional to determine the best strategies for your specific situation.

It is important to have bookkeeping experts handle your financial records before filing your taxes for several reasons: Accuracy: Bookkeeping experts can help ensure the accuracy of your financial records, which is essential when filing taxes. They can help identify errors or discrepancies and make corrections before the deadline. Compliance: Bookkeeping experts can help ensure that your financial records are compliant with all relevant tax laws and regulations. They can also help you stay up-to-date on changes in tax laws and regulations that may affect your business. Time-saving: By handling your financial records, bookkeeping experts can save you time and reduce the stress of preparing your own taxes. This allows you to focus on other important aspects of your business. Tax savings: Bookkeeping experts can help identify tax deductions and credits that you may not have been aware of. This can help lower your tax bill and save you money. Audit support: In the event of an audit, bookkeeping experts can provide the necessary documentation and support to help you navigate the audit process and minimize the potential impact on your business. Overall, having bookkeeping experts handle your financial records before filing your taxes can help ensure accuracy, compliance, and tax savings, while saving you time and reducing stress.

In the United States, pet expenses, including expenses for companion dogs, are generally not tax-deductible. The Internal Revenue Service (IRS) considers pets to be personal expenses and not eligible for deductions. However, there are some exceptions. If you have a service animal, such as a guide dog for the blind, you may be able to deduct expenses related to their care as medical expenses on your tax return. These expenses may include the cost of food, grooming, and veterinary care that are necessary for the service animal to perform its duties. To claim a deduction for service animal expenses, you must have a written statement from a qualified medical professional that certifies that you have a disability and that the service animal is necessary to help you cope with the disability. You must also keep detailed records of your expenses. It is important to note that emotional support animals (ESA) do not qualify for tax deductions as they do not perform a specific task to assist with a disability.

The filing due date for a not-for-profit organization's tax-exempt return in the USA depends on the organization's fiscal year-end and the type of return being filed. Form 990-N (e-Postcard): If the organization has gross receipts of $50,000 or less per year, it can file Form 990-N electronically. The due date for Form 990-N is the 15th day of the 5th month following the end of the organization's fiscal year. For example, if the organization's fiscal year ends on December 31st, the Form 990-N would be due on May 15th. Form 990-EZ or Form 990: If the organization has gross receipts of more than $50,000 per year, it must file either Form 990-EZ or Form 990. The due date for Form 990-EZ and Form 990 is the 15th day of the 5th month following the end of the organization's fiscal year. For example, if the organization's fiscal year ends on December 31st, the Form 990-EZ or Form 990 would be due on May 15th. It is important to note that if the due date falls on a weekend or holiday, the due date is extended to the next business day. Additionally, if the organization is unable to file by the due date, it may request an extension by filing Form 8868, Application for Extension of Time to File an Exempt Organization Return, by the original due date of the return. The extension provides an additional six months to file the return.

Foreign taxes refer to taxes paid to a foreign government by an individual or business on income earned or sourced from that foreign country. In the United States, individuals and businesses may be able to claim a foreign tax credit for these taxes on their U.S. tax return to offset their U.S. tax liability. Here are some key things to know about foreign taxes: What qualifies as foreign taxes: Foreign taxes can include income tax, property tax, value-added tax (VAT), and other taxes paid to a foreign government. These taxes must be legally owed and paid to a foreign government in order to qualify for the foreign tax credit. Claiming the foreign tax credit: To claim the foreign tax credit, you'll need to file Form 1116 with your U.S. tax return. The amount of the credit is generally limited to the amount of U.S. tax owed on the foreign-sourced income. Any excess credit can be carried forward to future tax years or carried back to previous tax years. Foreign tax credit limitations: The foreign tax credit is subject to certain limitations, including a limitation based on the amount of foreign-sourced income and a limitation based on the foreign tax credit percentage. Additionally, certain foreign taxes may not be eligible for the foreign tax credit, such as taxes on income that is exempt from U.S. taxation. Foreign tax deduction: In some cases, individuals and businesses may also be able to deduct foreign taxes on their U.S. tax return instead of claiming the foreign tax credit. However, the deduction is subject to limitations and may not be as beneficial as the foreign tax credit in some cases. Tax treaties: The United States has tax treaties with many foreign countries that may affect the availability and calculation of the foreign tax credit. These treaties may also provide for reduced or eliminated foreign taxes in certain circumstances. It's important to note that foreign taxes can be complex and the rules can vary depending on your individual circumstances. If you have foreign-sourced income or have paid foreign taxes, it's a good idea to consult with a tax professional to help you navigate the foreign tax credit rules and maximize your tax benefits.

As a business owner in the USA, you are eligible for various tax deductions that can help you reduce your taxable income and save money on your tax bill. Here are some common business deductions that you may be able to take advantage of: Business expenses: You can deduct expenses that are necessary and ordinary for your business, such as office rent, utilities, supplies, equipment, and business travel expenses. Home office expenses: If you use a portion of your home exclusively for business, you may be able to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, insurance, and utilities. Employee wages and benefits: You can deduct the wages and benefits you pay to your employees, including salaries, bonuses, health insurance, retirement plan contributions, and other benefits. Self-employment tax: As a self-employed individual, you can deduct half of the self-employment tax you pay on your business income. Professional fees: You can deduct fees paid to attorneys, accountants, and other professionals for services related to your business. Advertising and marketing expenses: You can deduct the costs of advertising and marketing your business, such as website design, social media advertising, and print ads. Bad debts: You can deduct bad debts that are related to your business, such as unpaid invoices. Depreciation: You can deduct the cost of assets that have a useful life of more than one year, such as equipment and vehicles, over their useful life through depreciation. It's important to note that there are specific rules and limitations for each deduction, and not all deductions may apply to your business. It's always a good idea to consult with a tax professional or accountant to ensure that you are taking advantage of all the deductions you are eligible for and to ensure compliance with tax laws and regulations.

ERC stands for Employee Retention Credit, which is a tax credit available to eligible employers in the USA who have experienced a significant decline in gross receipts or have been fully or partially shut down due to the COVID-19 pandemic. The credit was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and has been extended and expanded by subsequent legislation. The ERC is designed to encourage employers to keep their employees on payroll by providing a refundable tax credit for a portion of wages paid to eligible employees during certain periods. The credit is equal to a percentage of qualified wages paid to eligible employees, up to a maximum credit of $7,000 per employee per quarter. To be eligible for the ERC, employers must meet certain criteria, such as having experienced a significant decline in gross receipts or being fully or partially shut down due to government orders related to the COVID-19 pandemic. The credit is available for wages paid from March 12, 2020, through December 31, 2021. The amount of the credit varies depending on the period in which the wages were paid, and the eligibility criteria may also vary depending on the period. For example, for wages paid in 2021, the credit is available for employers who experienced a decline in gross receipts of at least 20% compared to the same quarter in 2019, or who were fully or partially shut down due to government orders related to the COVID-19 pandemic. Employers can claim the credit by reporting it on their quarterly employment tax returns (Form 941) and can apply it against their payroll tax liabilities. Any excess credit can be refunded to the employer. The ERC can provide significant financial relief for eligible employers who have been impacted by the COVID-19 pandemic. It's important to consult with a tax professional or accountant to determine eligibility and ensure compliance with the rules and regulations of the ERC.

Farmers in the USA are eligible for special tax provisions under the Internal Revenue Code that recognize the unique income and expenses associated with farming. Here's a summary of some key provisions and how to report taxes as a farmer: Income: Farmers may have income from selling crops, livestock, and other agricultural products, as well as from other sources such as government payments and rental income. This income is generally reported on Schedule F (Form 1040), Profit or Loss from Farming. Expenses: Farmers are allowed to deduct various expenses associated with farming, such as the cost of seeds, feed, fertilizer, equipment, and labor. Certain expenses, such as the cost of land and buildings, may need to be depreciated over time. These expenses are also reported on Schedule F. Farm income averaging: Farmers can take advantage of a special provision called income averaging, which allows them to average their farm income over three years to reduce the tax burden on years with high income. To qualify, the farmer must have had at least two years of significant income from farming. Self-employment tax: Farmers are generally considered self-employed and are subject to self-employment tax on their net farm income. The self-employment tax rate is currently 15.3% (12.4% for Social Security and 2.9% for Medicare). Estimated taxes: Farmers who expect to owe more than $1,000 in taxes for the year are required to make quarterly estimated tax payments. The estimated tax payments are based on the farmer's expected income and expenses for the year. Special provisions: There are various special provisions for farmers, such as the ability to defer gain on the sale of farmland if the proceeds are reinvested in other farmland, and the ability to expense certain purchases of farm equipment and property under Section 179. Overall, farming is a complex business with unique tax considerations. It's important for farmers to keep accurate records of income and expenses and to consult with a tax professional or accountant who is familiar with the specific tax provisions for farming.

The filing due dates for tax returns of different types of businesses in the USA are as follows: Sole Proprietorship: The tax return for a sole proprietorship is reported on Schedule C of the individual tax return (Form 1040). The due date for filing the individual tax return is April 15th of the following year, unless an extension is filed. The extension allows for an additional six months to file, making the due date October 15th. S Corporation: An S corporation is a pass-through entity, which means that the income and expenses flow through to the shareholders and are reported on their individual tax returns. The S corporation itself is required to file an information return on Form 1120-S. The due date for filing the Form 1120-S is March 15th, unless an extension is filed. The extension allows for an additional six months to file, making the due date September 15th. C Corporation: A C corporation is a separate legal entity from its shareholders, and is required to file its own tax return on Form 1120. The due date for filing the Form 1120 is generally April 15th of the following year, unless an extension is filed. The extension allows for an additional six months to file, making the due date October 15th. Partnership: A partnership is also a pass-through entity, and the income and expenses flow through to the partners and are reported on their individual tax returns. The partnership itself is required to file an information return on Form 1065. The due date for filing the Form 1065 is generally March 15th, unless an extension is filed. The extension allows for an additional six months to file, making the due date September 15th. It's important to note that these due dates can vary depending on the specific circumstances of the business. It's always best to consult with a tax professional or accountant to ensure that the correct due date is met and all necessary tax filings are submitted on time.

Filing status is a designation used on a tax return in the USA that determines the tax rate, deductions, and credits for the taxpayer. The IRS offers five filing statuses: Single: This filing status is for taxpayers who are unmarried or considered unmarried on the last day of the tax year, and do not qualify for any other filing status. Married Filing Jointly: This filing status is for taxpayers who are married and wish to file a joint tax return with their spouse. Both spouses report their income, deductions, and credits on the same tax return. Married Filing Separately: This filing status is for taxpayers who are married but wish to file separate tax returns from their spouse. This status is generally less advantageous than filing jointly, as there are certain tax deductions and credits that may not be available. Head of Household: This filing status is for unmarried taxpayers who provide more than half the cost of keeping up a home for a qualifying person, such as a child or parent. Qualifying Widow(er) with Dependent Child: This filing status is for taxpayers who are widowed and have a dependent child. This status is available for the two tax years following the year of the spouse's death. It's important to note that the filing status can have a significant impact on the taxpayer's tax liability, so it's essential to choose the correct filing status when filing a tax return.

The standard deduction amounts for the tax year 2022, as announced by the IRS, are as follows: Single or Married Filing Separately: $12,950 Married Filing Jointly or Qualifying Widow(er): $25,900 Head of Household: $19,400 These amounts are adjusted annually for inflation, so the standard deduction amounts for tax year 2023 may be slightly different. It's important to note that taxpayers may also be eligible for additional deductions, such as itemized deductions, which may provide greater tax savings than the standard deduction.

Payroll in Washington state is subject to both state and federal regulations. Employers in Washington state must follow the Washington Minimum Wage Act and the federal Fair Labor Standards Act (FLSA) when it comes to payroll. The minimum wage in Washington state is currently $13.69 per hour, and employers must pay employees at least this amount for each hour worked. However, certain employees may be exempt from minimum wage requirements, such as those who are classified as "executive," "administrative," or "professional" employees under the FLSA. Employers in Washington state must also withhold certain taxes from employee paychecks, including federal income tax, Social Security tax, and Medicare tax. Additionally, employers must pay unemployment insurance taxes and workers' compensation premiums to the state. When it comes to pay frequency, Washington state law requires that employees be paid at least twice per month on regular paydays designated in advance by the employer. Employers must also provide employees with itemized wage statements that include information such as the pay period dates, hours worked, pay rate, and deductions. It's important for employers in Washington state to stay up-to-date on the latest payroll regulations to avoid any potential legal issues or penalties. Employers may also want to consider using a payroll service or software to help manage their payroll processes and ensure compliance with all applicable laws and regulations.

As a daycare business owner in the USA, there are several deductions you may be able to take on your tax return. Here are some examples: Wages and Salaries: If you have employees, you can deduct their wages, salaries, and other compensation. This includes salaries, bonuses, and wages for services provided by employees. Rent or Mortgage Interest: If you rent or own a space for your daycare business, you can deduct the rent or mortgage interest. Utilities: You can deduct the cost of utilities, such as electricity, water, and gas, used in your daycare business. Supplies: You can deduct the cost of supplies, such as toys, books, and art supplies, used in your daycare business. Food and Snacks: If you provide food and snacks to the children in your care, you may be able to deduct the cost of these items. Insurance: You can deduct the cost of liability insurance and other insurance policies related to your daycare business. Depreciation: You can deduct the cost of equipment and other assets used in your daycare business over time through depreciation. It's important to keep detailed records of all expenses related to your daycare business in order to accurately claim deductions on your tax return. Additionally, it's always best to consult with a tax professional or accountant to ensure that you are taking advantage of all available deductions and credits.

As an auto shop business owner in the USA, there are several deductions you may be able to take on your tax return. Here are some examples: Rent or Mortgage Interest: If you rent or own a space for your auto shop business, you can deduct the rent or mortgage interest. Utilities: You can deduct the cost of utilities, such as electricity, water, and gas, used in your auto shop business. Equipment and Supplies: You can deduct the cost of equipment, such as tools and machinery, and supplies, such as oil and filters, used in your auto shop business. Insurance: You can deduct the cost of liability insurance and other insurance policies related to your auto shop business. Maintenance and Repairs: You can deduct the cost of maintaining and repairing equipment, such as lifts and compressors, used in your auto shop business. Depreciation: You can deduct the cost of equipment and other assets used in your auto shop business over time through depreciation. Business Mileage: If you use your personal vehicle for business purposes, such as making deliveries or running errands, you may be able to deduct the mileage driven. It's important to keep detailed records of all expenses related to your auto shop business in order to accurately claim deductions on your tax return. Additionally, it's always best to consult with a tax professional or accountant to ensure that you are taking advantage of all available deductions and credits.

As a construction business owner in the USA, there are several deductions you may be able to take on your tax return. Here are some examples: Materials and Supplies: You can deduct the cost of materials and supplies used in your construction projects, such as lumber, nails, and concrete. Labor Costs: You can deduct the cost of labor, including wages, salaries, and benefits, for employees who work on your construction projects. Rent or Mortgage Interest: If you rent or own a space for your construction business, you can deduct the rent or mortgage interest. Equipment: You can deduct the cost of equipment, such as tools and heavy machinery, used in your construction business. Insurance: You can deduct the cost of liability insurance and other insurance policies related to your construction business. Vehicle Expenses: If you use vehicles for business purposes, such as transporting equipment and supplies to job sites, you may be able to deduct the related expenses, such as gas and maintenance. Office Expenses: You can deduct the cost of office expenses, such as rent, utilities, and office supplies, used in your construction business. It's important to keep detailed records of all expenses related to your construction business in order to accurately claim deductions on your tax return. Additionally, it's always best to consult with a tax professional or accountant to ensure that you are taking advantage of all available deductions and credits.

Budgeting is an important aspect of financial management for non-profit organizations. Here are some steps that not-for-profit organizations can follow to prepare a budget: Start with the mission: Before creating a budget, it is important to understand the organization's mission and goals. This will help to identify the programs and services that the organization needs to provide to achieve its mission. Identify income sources: Non-profit organizations may have different sources of income, including grants, donations, sponsorships, and fundraising events. It is important to identify all potential income sources and estimate the amount of revenue that the organization expects to receive. Estimate expenses: Non-profit organizations should estimate their expenses for the upcoming year. This includes expenses for programs, salaries and benefits, rent, utilities, office supplies, and other overhead expenses. Prioritize expenses: Once the expenses are estimated, it is important to prioritize them based on the organization's mission and goals. This will help to ensure that the most important programs and services are adequately funded. Allocate resources: After prioritizing expenses, non-profit organizations should allocate resources to different programs and services. This will help to ensure that each program and service receives the necessary funding. Monitor and adjust the budget: Once the budget is in place, it is important to monitor the actual income and expenses throughout the year. This will help to identify any areas where the organization is over or under budget, and make adjustments as needed. It's important for not-for-profit organizations to create a realistic budget and to make sure it aligns with their mission and goals. Additionally, it's always a good idea to consult with a financial professional or accountant to ensure that the budget is accurate and effective.

As a rental property owner in the USA, there are several deductions you may be able to take on your tax return. Here are some examples: Mortgage Interest: You can deduct the interest you pay on your rental property mortgage. Property Taxes: You can deduct the property taxes you pay on your rental property. Repairs and Maintenance: You can deduct the cost of repairs and maintenance on your rental property, such as fixing a leaky roof or repairing a broken appliance. Depreciation: You can deduct a portion of the cost of the rental property over a period of time, based on its useful life. Insurance: You can deduct the cost of insurance policies related to your rental property, such as liability insurance and property insurance. Utilities: If you pay for utilities, such as water, electricity, and gas, for your rental property, you can deduct these expenses. Professional Services: You can deduct the cost of professional services related to your rental property, such as legal and accounting fees. In terms of income recording, rental income should be reported on Schedule E (Supplemental Income and Loss) of your personal tax return. You will need to report the total amount of rent you received during the year, as well as any expenses you incurred in connection with the rental property. It is important to keep detailed records of all income and expenses related to your rental property in order to accurately report your income and claim deductions on your tax return. Additionally, it's always best to consult with a tax professional or accountant to ensure that you are taking advantage of all available deductions and credits, and reporting your income and expenses accurately.

ITIN and Social Security Number (SSN) are two different identification numbers used in the USA. A Social Security Number (SSN) is a unique nine-digit identification number issued by the Social Security Administration (SSA) to citizens, permanent residents, and certain non-immigrant workers in the USA. It is primarily used for tracking an individual's earnings and benefits for social security purposes, but it is also used as a general identification number for various purposes, such as opening bank accounts, obtaining credit, and filing taxes. On the other hand, an Individual Taxpayer Identification Number (ITIN) is a nine-digit tax processing number issued by the Internal Revenue Service (IRS) to individuals who are required to have a U.S. taxpayer identification number but are not eligible to obtain an SSN. For example, non-resident aliens, foreign investors, and dependents or spouses of individuals who are not eligible for an SSN can apply for an ITIN. The ITIN is used exclusively for tax purposes and does not authorize work in the USA or provide eligibility for Social Security benefits. In summary, while both ITIN and SSN are nine-digit identification numbers used in the USA, they serve different purposes. SSN is primarily used for tracking an individual's earnings and benefits for social security purposes, while ITIN is used exclusively for tax purposes and is issued to individuals who are not eligible for an SSN.

If a senior has investment income and Social Security benefits income but no other income, they may still be able to reduce their tax bill through careful planning and taking advantage of certain tax deductions and credits. Here are some strategies that seniors can use to save on taxes: Use the standard deduction: Seniors who are 65 or older can claim a higher standard deduction than younger taxpayers. For tax year 2022, the standard deduction for a single filer who is 65 or older is $14,700, while the standard deduction for a married couple filing jointly where both spouses are 65 or older is $27,800. Consider tax-exempt investments: Certain investments, such as municipal bonds, pay tax-exempt interest. Seniors can invest in these types of securities to reduce their taxable income and lower their tax bill. Use retirement account distributions: If a senior has money in a traditional IRA or a 401(k) plan, they can take distributions from those accounts to supplement their income. While those distributions will be taxable, they can be offset by deductions and credits. Take advantage of the retirement savers' credit: Seniors who contribute to a retirement account, such as an IRA or a 401(k), may be eligible for the retirement savers' credit. This credit can be worth up to $1,000 for single filers and up to $2,000 for married couples filing jointly. Consider charitable contributions: Seniors who make charitable contributions can claim a tax deduction for those contributions. This can help reduce their taxable income and lower their tax bill. Be aware of the taxation of Social Security benefits: Seniors who receive Social Security benefits may be subject to taxation on a portion of those benefits. By understanding how Social Security benefits are taxed, seniors can plan accordingly and reduce their tax bill. It is important to note that tax laws can be complex, and the strategies for reducing taxes will vary based on each individual's specific circumstances. It's always best to consult with a tax professional or accountant to ensure that you are taking advantage of all available deductions and credits.