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8 Money-Saving Hacks for Tax-Savvy Small Business Owners

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After years of internal debate, you’ve finally decided to take the plunge and transform your passion project into a sustainable source of income. Taking this leap of faith means that you now have the freedom to launch your business vision as you see fit, hand-select your team of rockstar employees, and set your own work hours. (Unlimited PTO? Check.)

However, doing so also means assuming a high level of financial risk. During the leaner months, you’re the person who’s on the hook for payroll. Accordingly, meeting all of your legal obligations to your employees can translate into your business going without profit for a few months.

Playing your odds conservatively isn’t the hallmark of a failing operation—even booming businesses prepare for leaner times. Instead, leveraging your money wisely is a indicator of business acumen and a surefire blueprint for success.

Trust us when we say: Tax-savvy small business owners know how to implement the following money-saving hacks. So, roll up your sleeves, and let’s dive in.

1. Write off home office expenses IF you qualify.

If you’re operating your business venture out of your home, then you may qualify to deduct a bevy of associated expenses from your end-of-year taxes. But, certain conditions must apply:

  • You must regularly and exclusively use the space to conduct business. This requirement means that your office can’t double as a spare room, entertainment space, library, doggy boarding area, or at-home gym. Remember: If the IRS ever audits your business, they’ll want to conduct an in-depth inspection of this space. So, when in doubt, it pays not to take any risks. Best to shove those winter skis in the attic instead.
  • Your home office must serve as your principal place of business. If your home office doesn’t function as home base for your day-to-day business ops, then forget it. You’ll need to be able to prove that you conduct business here on the regular, whether that means coding websites or meeting in person with prospective clients.  Did you meet the criteria to claim the home office deduction? If so, then you can deduct a percentage of expenses related to your mortgage interest payments, utilities, office repairs, and essential services like high-speed internet. To ensure that you adhere to the letter of the law, entrust the guidance of a certified public accountant who can help you calculate your eligible expenses.

2. Invest in your retirement pronto.

Retirement plans don’t just benefit your employees. They allow you to defer paying taxes on any earnings that you invest into traditional retirement plans. The funds therein are only taxed when an employee withdraws them in retirement. However, because you made that initial investment into an eligible account—such as a 401(k) or IRA—that grows as the years tick by, you’re actually earning money. So, invest away and watch your money grow!

For example, individuals under age 50 can invest up to $5,500 per year into their traditional or Roth IRAs. For individuals over age 50, that annual investment value increases to $6,500.  However, thanks to the beauty of compounding interest, those investments mature over time, generating a robust source of retirement income.

3. Accurately calculate and deduct business vehicle expenses.

This deduction isn’t for the faint of heart. It requires meticulous attention to detail in your recordkeeping and receipts. Boatloads of them.

If you use a car in an official capacity to complete business activities, you can deduct certain expenses related to its operation. However, for mysterious reasons, vehicles that double as equipment (e.g., forklifts) or private transit (e.g., taxi cabs) don’t qualify. For less mysterious reasons, neither do luxury automobiles. So, save the Maserati for personal use.

Once your vehicle meets these qualifications, you must determine the percentage of the time that you devote its use to business activities. Here’s an important tip: The answer is never 100% of the time. For example, if you use the company car to make a Starbucks run—while essential in our opinion—it doesn’t count.

Also—and this is particularly important for small business owners to know—commuting miles from your home to your business aren’t deductible either. Unfortunately, Congress assumes this to be a baseline cost for any worker vs. a deductible business expense.

From there, decide if you’ll be deducting the standard mileage rate or itemizing the costs to reflect hidden fees (such as monthly parking passes, tolls, etc.). For 2021, the IRS has set the standard mileage rate at 56 cents per US dollar.

4. Receipts, receipts, receipts.

On that note, let’s discuss the importance of saving your receipts and divulge a little-known hack.

According to the IRS, you’re supposed to save any business receipts for up to five years. We hear you. That’s crazy talk. But, annoyingly, creating a paper trail is essential in the event of an IRS audit. The agent assigned to your case will expect you to furnish evidence of home office expenses, mileage, you name it. So why not say goodbye to those little crumpled-up bits of paper and let an app organize the data for you? There are numerous apps on the market with built-in scanning functionality to digitize those receipts.

Conveniently, this discussion provides the perfect segue into our next topic: Quickbooks.

5. Quickbooks to the rescue.

Quickbooks is one such app that enables you to upload and store your receipts with minimum hassle. But, it’s also an ideal tool for running many of the day-to-day financial operations of a small to mid-sized business.

Quickbooks integrates seamlessly with a range of programs from PayPal and Shopify to Amazon Business and Microsoft Excel. Like Salesforce, Quickbooks’ customizability is one of its crucial features, whether it’s displaying data via reporting or generating invoices and processing payroll. But, unlike Salesforce, Quickbooks is easy and intuitive to use.

Likewise, when tax time rolls around, you’ll be grateful that you have it. Simply give your accountant access to your Quickbooks, and watch the magic happen.

If you’re not a technology guru and setting up Quickbooks seems daunting, you need not stress. At Steven Lissner & Company, our accountants provide Quickbooks setup, tutorials, and customized solutions for your business. Enlist a best-in-class accounting whiz to solve your bookkeeping issues and free up more time for the things you love—like interacting with customers.

6. Deduct fees for new (and used) business equipment.

We all know that you can deduct the business expenses incurred for purchasing new equipment, whether it be an updated computer, an industrial-grade freezer, or a company van.

But, did you know that you can also deduct the costs associated with used equipment that you purchased during the tax year? If you weren’t in the know, don’t beat yourself up too badly over it. The IRS amended Section 179 to expand the equipment eligibility requirements within the last five years.

Exactly how much in expenses can you deduct? You can write off the eye-popping full amount of $1,0505,000 in equipment costs. If your enterprise falls into the small business category, this deduction can feel like a much-needed windfall.

7. Don’t be afraid to claim your losses.

By losses, we don’t mean the money you lose during a particularly poor-performing quarter. Instead, we’re talking about certain debts that you’re unlikely ever to collect. Let’s face it: Sometimes customers don’t pay up.

When that occurs, you don’t have to chalk it up simply as a financial loss. Instead, the government allows you to deduct those debts from your yearly earnings. This provision can take some of the sting out of a business deal gone bad.

8. Advertise away!

Marketing costs to enhance your business’s profitability margins are fully deductible—so advertise away! Hire a UX designer to give your website a user-friendly interface. Employ an SEO expert to fine-tune your content strategy, enriching your site with the keyword-rich language that search engines love. Divert some funds to social media marketing, video production, and expanding your online presence.

In capable hands, advertising costs are a win-win. They bring you business revenue and they save you money on end-of-year taxes.

The Secret Sauce of Tax Savings

Just as advertising is better off left in the hands of professionals, so too is filing your taxes. Almost any cook can make brisket, but only a handful of cooks know the secret sauce recipe that makes customers queue up for miles around.

A skilled certified public accountant is like a Michelin star chef. They possess all the ingredients needed to whip up a winning financial strategy. Whether you’re a small business owner or a late-career CFO, hiring a tax accountant to maximize your returns is always a good idea.

With an industry-leading tax expert in your corner, you’ll be able to identify unique solutions for your business and devise a blueprint for your financial future. You’ll receive human support for all of your tax questions, instead of relying on automated algorithms and faq sections. And, you’ll be prepared when chaos descends in the form of an IRS audit. Scratch that. What would otherwise seem like chaos will now proceed like orderly, predictable clockwork.

At Steven Lissner & Company, our certified public accountants possess the skills you need to help your small business thrive. Contact our tax advocates today to plan for your future tomorrow.

8 Tax Audit Red Flags & Reporting Pitfalls to Avoid

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We’ll begin by imparting an inconvenient truth: Even if you dodge all the tax audit red flags detailed in this guide, the IRS still may audit you.

That’s because the IRS selects approximately 50,000 random tax returns each year to flesh out its annual audit. With nearly 200 million people filing their taxes every year, this amounts to a minuscule percentage of random audits indeed. But, just how tiny do we mean? We’re talking about only .025% of all filers.

If you avoid any funny business, then your audit risk is roughly the same odds of being born with an extra finger or toe. Sure, it can still happen, but it doesn’t occur all that often. However, what happens if you get a little too creative on your tax returns? Your risk of being audited jumps up nearly ten times.

Needless to say, none of us is above making an honest mistake. But, if you avoid the common reporting pitfalls laid out in this guide, you can significantly decrease your chances of suffering an audit. (And, we definitely meant to use the word suffering as a descriptor here.)

Have you already received an audit request from the IRS? Then, read no further. Time is of the essence when it comes to getting your ducks in a row and avoiding a more serious set of consequences. Contact our award-winning tax audit experts at Steven Lissner & Company today and receive best-in-class audit protection. With a certified public accountant in your corner, you’ll be able to minimize your losses and ensure a clean bill of financial health.

Without further ado, our experts reveal their top 8 red flags to avoid if you don’t wish to trigger an IRS audit.

1. Failure to report all of your taxable income.

This tax-filing no-no may sound like a no-brainer. Unfortunately, however, this reporting mistake is easier to make than you may think—especially if you work as a freelancer or subcontractor.

Often, gig workers receive a 1099 form from their clients for services rendered. This non-descript form usually appears in your mailbox, crammed between stacks of junk correspondences and sales circulars.

However, a 1099 form holds the same weight as a W-2 with the IRS. Specifically, the values from your W-2s and 1099s go directly into a database that the IRS checks alongside your tax returns. Failure to report any income results in an automatic mismatch in the system, often triggering an official audit.

What’s the moral of the story here? Always go through your mail with a fine-tooth comb and never dispose of a 1099 form. The funds therein may seem paltry, but every penny adds up in the eyes of the IRS.

2. Fudging the numbers on your business expenses.

If you’re the proud owner of a small business, then you’ve probably heard that the IRS offers generous tax deductions to self-employed entrepreneurs. While this is true, some business entrepreneurs stretch the boundaries of what the law allows when it comes to claiming deductions.

Consider the much-loved (and hated) home office tax deduction. You can deduct expenses (e.g., utilities, a portion of your mortgage, etc.) associated with operating a home office if and only if the space meets specific requirements:

  • The space is dedicated solely and regularly to your business activities. Unfortunately, this requirement means that you can’t devote the room to, say, 60% home office and 40% fitness studio use—unless, that is, you run a fitness studio.
  • The home office that you’re deducting serves as your principal place of business. If you spend the majority of your time conferring with clients at a brick-and-mortar location outside of your home, then your “home office” doesn’t make the cut.

Here’s where tax filers fall into a potential sandpit. They either claim a home office that doesn’t count as such or claim “business expenses” that fall into the personal expense category. Always be mindful of the costs you claim, handing off the tricky calculations to a certified public accountant. If you attempt to outfox the IRS, it usually catches up with you.

3. Fibbing about your charitable donations.

Here’s where the IRS is a little crafty. Their experts have aggregated the data from decades and decades of tax returns. This attention-to-detail means that the IRS can now predict the value of your annual charitable donations based on your income bracket.

This fact doesn’t mean that you shouldn’t donate—and donate BIG—to your favorite charities. But, it does mean that you definitely shouldn’t fib about the amounts and always keep a detailed record of your contributions. You should be able to furnish receipts for any donations for at least five years.

4. Hiding funds in an offshore banking account.

This audit trigger is a screaming red flag for illegal activity—especially tax evasion. In the olden days, overseas banks didn’t have to report your holdings to the United States. Instead, you simply had to admit on your taxes that you owned foreign assets. These days, however, the regulations stipulate that these institutions must report any foreign investments made by American citizens to the IRS. As for your personal responsibility to the IRS, you must report any funds in these accounts that exceed $50,000 and divulge the specific entity holding the assets.

Needless to say, if you can avoid opening an overseas account, you should do so at all costs. Merely claiming to have an offshore account can trigger an audit. But, not doing so can result in jail time.

5. Inaccurately claiming rental losses.

If your Adjusted Gross Income (AGI) is less than $150,000, then you can deduct up to $25,000 in rental losses from your income. Furthermore, you can deduct unlimited rental losses if you work as a real estate professional who fulfills the following criteria:

  • You devote more than 50% of your annual work hours to activities involving real estate development, brokerage, or serving as a landlord.
  • The time spent engaging in these real estate activities also equals more than 750 hours each year.

These deductions can confer HUGE benefits on those who engage in real estate activities, safeguarding their livelihood from unscrupulous renters. But, the IRS knows that any significant tax break will also attract individuals who may try to game the system.

Like claiming charitable contributions, you should still take this deduction if it applies to your situation. But mind your p’s and q’s as this deduction tends to fire up the audit machine.

6. Double-dipping when claiming education credits.

If you attend an institution of higher learning, you may be eligible to claim the American Opportunity Tax Credit (AOTC) for the first four years of your education. But, don’t think you can get away with claiming the AOTC for a fifth year. The IRS monitors this credit exceptionally closely to ensure that taxpayers aren’t cheating the system.

Similarly, students who have completed more than four years of postsecondary education can leverage the Lifetime Learning Credit (LLC). Unlike the AOTC, the LLC exists to provide much-needed financial assistance to lifelong learners.

However, there’s an additional caveat to taking either of these credits. In a given year, you can’t claim more than one of these education tax credits. This is because simultaneously claiming both of these credits amounts to double-dipping when deducting your expenses, and it will result in the IRS flagging your tax return for closer inspection.

7. Deducting your expenses using only round numbers.

This red flag may sound a little bit silly to you. Who cares if you claim deductions totaling $1,000 vs. $1,000.18 on your tax returns?

Unfortunately, the IRS expects you to track your expenses down to the penny with supporting documentation (like receipts) to prove your claim. If you take a series of deductions amounting to $1,000, $500, and $725, the IRS assumes that you didn’t bother to do your math. This approach poses a significant challenge for the IRS as those flawed guestimations can add up to LARGE deductions.

Here’s the bottom line: Ditch those round numbers and hold on to those crumpled-up receipts. Think of filing your taxes as analogous to preparing for court. If you want to win your case, it pays to have hard evidence in your back pocket.

8. Botching the math.

Even a math whiz occasionally punches a wrong value into their calculator while daydreaming about… anything other than filing their taxes.  As the proverb goes, “To err is human.” If only the IRS were so forgiving.

Simple math errors are among the most common reasons that the IRS issues an audit or initiates a collections strategy. You may think that automated tax services deliver an error-proof solution to committing math blunders. But, think again. Software programs are as imperfect as their creators.

Given these challenges, what’s the best way forward? The answer is more straightforward than you may think. It involves harnessing the best of both worlds.

Enlisting the expertise of a certified public accountant can help you avoid costly mistakes and defang the consequences of an audit. Certified public accounts use software programs to file your tax returns, but their meticulous attention to detail provides an added layer of protection to the process. Think of your CPA as the safety valve that prevents your tax return from completely melting down.

Help! I’ve been audited by the IRS.

If you’ve been audited by the IRS, then don’t panic. With over 30 years of tax filing experience, Steven Lissner & Co. delivers the superior intervention you need to overcome a tax audit. Mounting an adequate defense ensures that you’ll minimize your invoice and possibly avoid legal consequences for honest errors. With a tax representative in your corner, your interactions with the IRS will seem like a piece of cake.

For tax audit protection that you can trust, contact Steven Lissner & Company today!

Single Moms: Save an Extra $1000 (or More) on Your 2021 Taxes

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We all get it: Tax season burnout.

Now, imagine trying to muck your way through the tax filing process while operating a single- parent household and working nights while earning your degree.

Seems nearly impossible, right?

And yet, today’s single moms are superheroes—juggling childcare with financial responsibility, work-life balance, and more.

Accordingly, when tax time rolls around, the IRS rewards single moms in BIG ways. Understanding the ins and outs of these tax benefits can help you save thousands of dollars on your next return.

And, things just got even better in 2021. We’ll explain how you can leverage recent changes in the Child Tax Credit to receive an additional $1000 (or more) on your next tax return.

But before we dive into these tax breaks, let’s review some best practices for single parents who wish to claim their children as dependents.

Best Practice #1: File as Head of Household

Want to maximize your 2021 return? Then, file for “head of household” instead of “single” if you can meet the following criteria:

  • On the last day of the 2021 tax year, you were unmarried.
  •  In 2021, you contributed more than 50% toward household expenses. (Household expenses include rent, mortgage interest payments, property taxes, utilities, food,
    essential maintenance repairs, and homeowners insurance.)
  • Your children cohabitated with you for the majority of the year.

Did you meet all of the criteria above? Next, make sure that you’re the only parent who intends to claim the child as a dependent on their taxes. In the event of a dispute between you and a former partner, consult this handy list of Tiebreaker Rules published by the IRS.

Best Practice #2: Request Financial Assistance for Tax Preparation

Do you make less than $57,000 per year, have a disability, or identify as a non-native English speaker? Then, you may qualify for Volunteer Income Tax Assistance (VITA).

By taking full advantage of the VITA program, you can obtain access to trained volunteers who will use automated software to process your tax returns.

In this instance, free assistance doesn’t mean reduced quality. VITA volunteers must undergo extensive training and testing to prove their mastery of the latest tax laws.

How about single grandparents above age 60? Instead of using VITA, consider trying Tax Counseling for the Elderly (TCE). Unlike VITA consultants, TCE volunteers receive specialized training to field questions on financial matters that affect retirees.

Best Practice #3: Hire a Certified Public Accountant

If you bring in more than $57,000 per year, then you should consider hiring a certified public accountant to file your taxes. Doing so could mean the difference between being stretched too thin and flourishing during the next tax year.

As we’ll see shortly, tax laws are constantly changing. A perfect storm in 2020—courtesy of the COVID-19 pandemic—has led to the odds stacking up in your favor during 2021.

Don’t miss out on the essential resources you need to help your family thrive. By enlisting the trusted guidance of a certified public accountant with decades of experience, you’ll feel well ahead of the curve.

Especially when it comes to staying up to date on the latest tax news. Let’s consider recent changes to the 2021 Child Tax Credit as a case in point.

Supercharge Your Tax Refund with the 2021 Child Tax Credit

For one year only, the IRS has increased the Child Tax Credit by 50%, or at least $1,000 per child. (Before 2021, a single parent claiming the Child Tax Credit would receive $2,000 for each qualifying child under the age of 16.)

But, all of that changes for the 2021 tax year before reverting back to business as usual.  In response to the COVID-19 pandemic, Congress passed the American Rescue Plan Act (ARPA) on March 11, 2021. Aside from providing much-need financial assistance to forestall foreclosures and evictions, the ARPA greatly expanded the Child Tax Credit.

Now, eligible families can receive $3,600 for dependent children under the age of 6 and $3,000 for children between the ages of 6 and 17. (That 17 isn’t a typo. For the first time, 17-year-olds will count as eligible dependents.)

As in prior years, income restrictions will apply. If you’re single and filing as “head of household,” then your Adjusted Gross Income (AGI) must not exceed $112,500 per year. (Your AGI refers to your pre-tax income before the IRS adds back in certain deductions.)

For single filers, your income must not exceed $75,000 annually if you intend to claim the credit. This is why best practice #1, or filing as head of household, can make such a crucial difference come tax time.

After your income surpasses the thresholds mentioned above, phase-out ranges apply. For example, head of household filers will receive $50 less for each $1,000 in income that exceeds $112,500. This means that a single mom can make up to $240,000 in annual income and still receive a partial payment, albeit a very small one.

Advance Child Tax Credit Payments

You may be thinking, “That sounds great, but I need money now.”

After all, it’s been a difficult year. At the height of the COVID-19 pandemic, 14.8% of Americans had lost their jobs. 

Although the economy is on the rebound, when you’re living paycheck-to-paycheck, those temporary setbacks aren’t so temporary. Especially if you’re raising children on a single income.

In recognition of this, the IRS will be issuing advance payments of the Child Tax Credit. Beginning July 15, 2021, the IRS will begin distributing installments of the credit via direct deposits or checks to qualifying families.

For example, families will receive monthly payments of $300 for each qualifying child under age 6. Therefore, by the end of the year, you should have already acquired 50% of your annual Child Tax Credit. Any amount missing or owed back to you will be reconciled on your 2021 tax return.

Often, this is a good thing.

The IRS estimates the advance payment amounts you will receive in 2021 based on your 2020 tax return. If your income declined in 2021, for instance, then the IRS will likely owe you a larger refund.

Additional Tax Credits for Single Moms

But, there’s more.

In 2021, the Child and Dependent Care Credit will also increase for one year only. Single parents eligible for the credit must meet the following criteria:

  • You hired paid childcare so that you could attend work or search for employment.
  •  Your child is younger than 13-years-old or older than 13-years-old and meeting federal
    requirements for having a disability.

In 2020, single moms claiming this benefit could receive a maximum tax credit of $3,000 for childcare expenses for one child. If multiple children were in the picture, then that value doubled to $6,000.

However, the American Rescue Plan Act (ARPA) widens those amounts to $4,000 and $8,000, respectively.

That’s a significant jump!

Lastly, if you’re a single mother making less than $50,000, then you may qualify for the Earned Income Tax credit (EITC). But, your eligibility hinges on how many children you can claim. To discover if you qualify, review this table of income requirements published by NerdWallet.

Your Largest Tax Refund Yet

Keeping up with the latest changes in tax law is complicated, to say the least.

If you’re also a single mom who’s juggling a thousand responsibilities, then you probably don’t have time to research tax regulations.

And, who could possibly blame you? Children are difficult enough to raise when two adults are shouldering all the responsibility—let alone one.

When it comes to filing your taxes, you don’t have to shoulder the burden alone. Enlisting the assistance of a certified public account ensures that you have access to up-to-the-minute changes in tax laws.

Even better, you don’t have to get your hands dirty. With a world-class tax accountant in your corner, you’ll eliminate needless hours sitting in front of a computer screen.

Have you ever tried to find the answers you need to important tax questions by using the “help” section of an online tax filing system? Working with a CPA ensures that you’ll never have to interact with robots or dig your way through online forums again. Instead, you’ll be interacting with a human who has your best interests at heart and delivers exceptional and personalized service.

Likewise, you’ll never miss out on hidden tax breaks, like the Child Tax Credit, that will supercharge your tax return.

In Summary: Contact Steven Lissner & Company Today!

In this blog, we’ve discussed how you can save big in 2021 by claiming a variety of tax credits. Believe us when we say: We’ve only just begun to scratch the surface.

Most importantly, however, you’ll be able to maximize your tax return while minimizing all the hassle.

And, your time is invaluably important when you’re a single parent. Extra time means attending dance recitals, PTA meetings, relaxation retreats (because you definitely deserve it), and much more.

To learn more about how you can secure your largest refund yet, contact our industry-leading tax experts today at Steven Lissner & Company.

The Top 7 Tax Breaks for U.S. Veterans

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Active duty service members work overtime to safeguard our freedoms at an incalculable cost to their personal lives. From missed milestones (like first steps and birthdays) to abrupt relocations, military family life has become synonymous with sacrifice.

This sacrifice often takes the form of extended deployments to distant, war-torn regions of the world. Here, the stakes are high; the costs, steep. One unlucky move could result in loss of limb or loss of life.

In recognition of the tremendous sacrifices we call upon our veterans to make, the IRS has responded by awarding the following tax breaks to U.S. veterans. Keep browsing for an easy-to- follow guide on tax savings for U.S. veterans!

1. Tax-Free Pensions for Elderly & Disabled Veterans

Did you know that the Veterans Administration (VA) offers pension plans to elderly and disabled veterans—even if the disabling event occurred outside of active duty?

A pension plan is a work-sponsored retirement program that requires employers to pay monthly support to former workers upon retirement. Once a popular source of retirement income, pension plans are now uncommon in the private sector.

However, the VA awards disability pensions to elderly and disabled veterans who meet the following criteria:

  • Senior status (Age 65 or older)
  • Unemployed or under-employed due to a permanent disability
  •  Completed at least 90 days of active duty, including one day of combat service
  • Residents of nursing facilities
  • Recipients of Social Security Disability Insurance (SSDI) or Supplemental Security
    Income (SSI)

The key takeaway for your taxes? The IRS categorizes disability pensions as untaxable income. Therefore, any income obtained from your pension won’t count as an income source during your federal and state tax returns. Moreover, these funds can amount to hefty savings when you need them the most—during the leaner months of your retirement.

2. VA Disability Compensation for Former Service Members

Now, let’s discuss former service members who suffered permanent disabilities in the line of duty. (This includes individuals with pre-existing conditions that worsened during their service period.)

These individuals may qualify for monthly tax-free disability compensation from the VA. Examples of “service-connected disabilities” covered by these benefits include:

  • Loss of vision or hearing
  • Amputation or limb paralysis
  •  Spinal cord injuries
  • Traumatic brain injuries
  • Third-degree burns
  • Cancers caused by exposure to radioactive or toxic materials
  • Qualifying chronic illnesses
  •  Post-traumatic stress disorder (PTSD)
  •  Severe anxiety or depression
  •  Military sexual trauma
  • Etc.

For a comprehensive list of eligible conditions, please review the disability compensation criteria published by the U.S. Department of Veterans Affairs.

Individuals who qualify will receive a disability rating of 0-100% from the VA. The VA then calculates the amount of monthly disability compensation from this rating and the veteran’s number of dependents.

For example, a 60% disabled veteran with a spouse and child may receive up to $1,328.39 per month in disability compensation. In contrast, a 30% disabled veteran without any dependents may only receive $441.35 in monthly payments. More importantly, however, all of this additional income is considered tax-free.

To more accurately estimate your compensation rates, please visit veteransunited.com.

3. Tax-Exempt Housing Grants for Disabled Veterans

Veterans who qualify for disability compensation may also be entitled to receive a Specially Adapted Housing (SAH) grant. An SAH grant allows individuals with service-connected disabilities to purchase a new (or remodel an existing) home with adaptive modifications.

For example, a disabled veteran with monoplegia could use these funds to make their home wheelchair or crutch accessible.

For the 2021 tax year, disabled veterans can receive up to $100,896 in SAH funds—all of which are nontaxable.

4. Tax-Free Benefits for Survivors

If you lost a loved one to military service, then you may qualify for a variety of spousal and child support programs. Moreover, many of these services are exempt from federal and state taxes. Examples of tax-free benefits for survivors include:

  • Survivors Pension Benefit: You may qualify for this tax-free form of financial assistance if:
  • You’re the spouse or child of a recently deceased veteran who completed combat service.
  • Your net worth (including your primary residence, car, and assets) falls below the designated threshold. In 2021, the VA has established the net worth limit to qualify for the Survivors Pension at & < $130,773.
  • Death gratuity: This one-time payment of $100,000 relieves the financial burden assumed by family members upon the death of a service member. This covers casualties that occurred during:
  • Active duty
  • Reserve duty
  • ROTC training
  • Authorized travel
  • Tax-free healthcare benefits, including emotional support, dental coverage, and more
  • Tax-free tuition assistance for undergraduate and certificate coursework under the Survivors ‘and Dependents’ Educational Assistance Program
  • Access to Family Survivors’ Group Life Insurance, Basic Allowance for Housing (BAH), burial assistance, and more

5. The Compensated Work Therapy (CWT) Program

Many veterans struggle to reacclimate to civilian life after serving in the military. Consider the following statistics:

  • Although veterans account for 6% of the US population, 8% of homeless individuals identify as veterans.
  • 23% of female veterans report suffering sexual assault during their time of service.
  • In 2008, 13.8% of sampled veterans who served in Afghanistan and Iraq had received an official PTSD diagnosis.
  • 25% of sampled veterans reported abusing alcohol in the 4 months following deployment.

Accordingly, the Compensated Work Therapy (CWT) program counteracts these challenges by equipping veterans with the resources they need to obtain gainful employment. Under the CWT, unemployed veterans belonging to high-risk groups can receive intensive supports, including:

  • Incentive therapy: Guided, non-competitive employment in a therapeutic setting with a case manager and team of support individuals
  • Sheltered workshops: Six months of paid skill-building in an isolated environment with other veterans
  • Transitional work: Supervised non-competitive work at an affiliated employment site, often sponsored by a vocational rehabilitation program
  • Supported employment: Competitive employment with appropriate modifications, such as on-site job training

Not only do these supports allow veterans to break the cycle of unemployment, but the income obtained from these programs is considered non-taxable. When end-of-the-year taxes roll around, this can make a HUGE difference in your refund.

6. Tax-Exempt Education Benefits for Veterans

Even if you’re not in the military, you’ve probably heard of the Post-9/11 GI Bill. The GI Bill enables honorably discharged veterans with at least 90 days of active duty service to pursue higher education.

Wondering how much money you may qualify for? The Post-9/11 GI Bill uses a tiered approach.

Here’s how this works in practice. If you’ve served at least 18 months of active duty service but less than 24 months, you qualify for a 70% reduction in your tuition costs and fees payable. (To review the full table of benefit tiers, click here.) This means that your GI Bill would pay $7000 of a $10,000 tuition bill from an accredited institution!

Moreover, funds received from the GI Bill do not need to be added to your annual income when calculating taxes. This means shaving thousands of dollars off of your taxable income!

7. New Jersey State Tax Exemptions for Veterans

Veterans should be happy to claim the Garden State as their home.

For example:
Were you honorably discharged from the military before the end of the previous tax year? If so, then you may receive a $6,000 exemption on your NJ state income taxes. Likewise, your spouse can also claim this exemption if he or she qualifies as a veteran.

Are you a veteran with a service-connected, 100% disability rating? If so, then the state of New Jersey refrains from assessing real estate taxes on your primary residence. However, in order to claim this state tax exemption, you must first submit the following form.

And, finally, did you know that NJ is one of only 22 states that doesn’t tax military retirement pay? At the end of the year, this can translate into a significant source of tax savings!

Steven Lissner & Company Supports Our Veterans!

As you can see, tax exemptions for veterans are exceedingly complex—and we’ve only just begun to scratch the surface!

To ensure that you receive the full refund that you deserve, enlist the expertise of a certified public accountant who can boast a proven track record of supporting our veterans.

At Steven Lissner &amp; Company, our tax experts offer specialty tax preparation services for veterans and active duty service members. Our accountants will leave no stone unturned when analyzing your finances for hidden opportunities to save BIG on end-of-year taxes.

With 30 years of experience under our belts, we know the tricks of the trade to secure your biggest refund yet.

In the military, stakes are high. The same is true of your taxes. Don’t make a costly mistake by relying on big-name, automated tax services to calculate your refund. Instead, contact one of our tax preparation experts today and enjoy the following benefits:

  • Personalized service and expert up-to-the-minute guidance
  • Discovery of oft-overlooked deductions and credits
  • Meticulous record-keeping and opportunities to plan for the future
  • Avoidance of costly mistakes
  • Audit support and protection
  • Less frustration and wasted time spent googling obscure tax terms
  • Responsive and friendly service that you can access year-round

It’s never too early (or too late) to start maximizing your tax refund. Contact our team of tax specialists today to set up a consultation!

Master HSA Contributions & Nurture Your Retirement Savings

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Health Savings Accounts (HSAs) offer an essential, but often under-utilized opportunity to save BIG on end-of-year taxes. But did you know that you can also leverage your HSA contributions into a robust source of retirement savings?

Before we explain why a sound retirement strategy often involves maintaining an HSA, we’ll review:

  • The triple tax benefits that these savings accounts can confer
  • Key considerations for selecting the perfect HSA for your medical and retirement needs
  •  Annual contribution and catch-up guidelines
  •  Withdrawal protocols before and after age 65 And much more!
  • Stay tuned to master the ins and outs of HSA contributions and mine an unexpected source of retirement earnings!

What is a Health Savings Account (HSA)?

When you signed up for health insurance, did you select a high-deductible health plan (HDHP)?

For 2021, the IRS defines an HDHP as any individual insurance plan with a deductible equal to or greater than $1,400. For families, this deductible threshold doubles to ≥ $2,800.

If you did, then the federal government allows you to open a tax-advantaged account (known as an HSA) to offset your medical expenses.

To discover why this is so important, let’s consider the following scenario:

A family with modest-to-low annual health expenses decides to take advantage of the lower monthly premiums afforded by an HDHP (deductible = $2,800). In the plus column, this means that the family will pay a lower monthly insurance bill. However, as a significant downside, the family must cover their first $2,800 in medical expenses without any financial assistance from their insurance company.

After the family meets this deductible, then the insurance company will start contributing toward these costs. (Although copayments may still be required, the insurance company will typically cover the remaining balance.)

Needless to say, coming up with $2,800 out-of-pocket to fund an emergency appendectomy may present a significant financial hardship. In recognition of this, the federal government allows you to divert a portion of your earnings into a tax-free account, known as an HSA.

You may find yourself asking:

How much of a difference can these tax savings make? As you’ll learn in the next section, the answer is quite a lot.

Three Opportunities to Save BIG on Taxes with HSAs

Let’s start with the basics.

Firstly, when you contribute money to an HSA, the US government doesn’t require you to pay federal taxes on those earnings. (However, New Jersey residents must still pay state taxes on these contributions – but more on that later!)

For example:
You are a married couple, earning $100,000 a year, and intend to file your taxes jointly. Your income tax bracket indicates that you will pay 22% of your earnings in federal taxes. If you place $5,000 of your annual earnings into an HSA, then you will save approximately $1,100 in end-of-year taxes.

Here’s a full rundown of the math:

$5,000 in HSA contributions * .22 (your household’s income tax rate) = $1,100 in federal tax savings

*Keep in mind – these numbers represent a quick-and-dirty estimate. For complete accuracy regarding your tax situation, you should always consult a certified public accountant.

Secondly, like any other savings account, your HSA earns interest. Interest earned on your everyday savings account is considered taxable. However, this isn’t true of HSA accounts. That interest rate may seem teeny-tiny, but when it comes to gaming your retirement, every little bit counts.

Lastly, you can withdraw funds from your HSA without suffering tax penalties—as long as you use those funds for their intended purpose (i.e., for medical expenses). Other savings accounts that confer tax benefits (e.g., 401(k)s or traditional IRAs) require you to pay taxes if you withdraw funds before you reach a certain age. Again, this is not true of an HSA if the funds are allocated for medical expenses.

In summary, HSAs allow healthcare consumers to save big on taxes whenever the following events occur:

1. You make tax-free contributions to your HSA.
2. Your HSA account earns tax-free interest.
3. You access your tax-free HSA funds to pay for medical expenses.

How to Open a Health Savings Account (HSA)

If your employer offers an HSA, then this is usually a good place to start. Sometimes, as an added perk of the job, an employer will even deposit regular sums into your HSA. Even if your employer doesn’t offer this benefit, the advantages of enrolling in a work-sponsored HSA include the following conveniences:

1. HR typically performs all the heavy lifting when it comes to setting up the account.
2. You can make tax-free contributions directly from your paycheck into your HSA each pay period.

If your employer doesn’t offer an HSA, contact your insurance provider to inquire if they contract with any HSA organizations. Often, HSAs are provided through financial institutions (such as Bank of America or Wells Fargo). Therefore, even if your insurance company doesn’t partner with an HSA supplier, you may find an attractive alternative at your financial institution.

Need more assistance refining your search? Check out HSA Search to explore your possibilities in detail.

Lastly, consider the following factors when selecting an HSA provider:

Do you wish to contribute to your HSA by making online transfers, issuing a personal check or money order, or transferring funds from an existing HSA? Check with your HSA provider to ensure that the type of contribution you intend to make is permitted.

 Be on the lookout for hidden fees. Some HSAs require activation and closeout fees as well as periodic maintenance charges. Examine all of the fine print carefully to ensure that your earnings from HSA interest won’t be wiped out by these fees.

 Lastly, inquire about any special features associated with your account. For example, will you be issued a debit card?

Does your HSA provider offer online banking?

Sometimes, these little conveniences can help you take the final leap when making your decision.

2021 HSA Contributions Limits

Some employers invest a predetermined amount into their employees’ HSAs. Therefore, when we discuss HSA contributions, we are referring to the total amount invested by both the employer and the employee. For 2021, the IRS has set its annual HSA contribution limits to:

  • $3,600 for single individuals with personal high-deductible healthcare plans (HDHPs)
  • $7,200 for families on high-deductible family healthcare plans

These numbers include a slight adjustment from last year to account for inflation. For example, families can now invest an additional $100 in maximum HSA contributions than was previously possible in 2020.

Furthermore, individuals who turn 55 years of age before the end of the tax year can contribute an extra $1,000 in annual HSA contributions. You may hear of this referred to as a “catch-up” contribution. If a husband and wife are both above age 55, then each individual can contribute an extra $1,000 to the family’s HSA. In other words, the family’s maximum annual HSA contribution will rise from $7,200 to $9,200!

At age 65, the rules governing HSA contributions become tricky. If you enroll in any part of Medicare, you will no longer qualify to contribute to your HSA.

Remember: Medicare does not qualify as an HDHP.

This is where careful retirement planning can come into play. Sit down with one of our retirement tax specialists today and learn how you can maximize your HSA funds. With the guidance of an expert, you can avoid costly mistakes and identify hidden HSA benefits that allow you to retire in style.

Withdrawing Funds from Your HSA Before &amp; After Age 65

You can withdraw penalty-free funds from your HSA to pay for qualifying medical expenses at any time. Examples of qualifying medical expenditures and services include:

 Copayments & deductibles
 Certain insurance premiums
 Prescription medication fees
 Routine medical services
 Emergency medical services
 Diagnostic devices
 Surgeries
 Dental and vision care
 Psychiatric and psychoanalytic services

And much, much more.

For a full list of qualifying services, visit the latest version of IRS Publication 502: Medical and Dental Expenses (Including the Health Coverage Tax Credit) to learn more.

However, if you use your HSA funds to pay for non-qualifying or non-medical expenses, then the IRS will assess a 20% penalty on the full withdrawal amount. This penalty lifts when you reach age 65 or meet the qualifications for a disability. These funds can still be taxed as income, but presumably, because you’re now retired, you should fall into a lower income bracket.  This is why HSAs are generally considered an excellent source of retirement savings. Not only do these accounts earn tax-free interest, but you’ll also only pay income taxes on these funds if you use them for non-medical expenditures after you reach age 65.

Chances are, however, that you’re going to need that money precisely for its intended purpose: medical care.

It goes without saying:

The annual costs associated with personal healthcare begin to skyrocket as we age.

By leveraging the triple tax benefits of an HSA, you’ll have beaten the tax system three times when it comes to saving money for your retirement.

Overwhelmed by Retirement Planning? Steven Lissner & Co. Can Help.

Planning your retirement can certainly be tricky. Especially if you live in New Jersey.

New Jersey is one of two states that collects state income tax on HSA contributions. However, this doesn’t mean that opening an HSA isn’t for you. After all, you can make up to half a million dollars and still only pay a 6.37% state income tax rate on your earnings.

What you truly need is for someone you trust to sit down with you and crunch the numbers. A seasoned veteran in the field who has 30+ years of experience in securing maximum returns on retirement investments for his clients. Someone who understands the ever-shifting landscape of tax law…

That someone is Steven Lissner and his industry-leading team of certified public accountants.

Not only will Steven ensure that you secure the maximum refund on your taxes year after year, but he will also help you transform those tax savings into a powerful source of retirement funds.

To take full advantage of the triple tax benefits afforded by an HSA, contact Steven Lissner & Co. today for an expert consultation!

Do I Qualify for the Lifetime Learning Credit?

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Are you saddled with the financial burden of putting yourself or your child through college? Then, you may be able to offset up to $2000 in qualified educational expenses by claiming the Lifetime Learning Credit (LLC).

However, the Lifetime Learning Credit doesn’t apply to just everyone. In fact, there are even certain instances in which claiming the LLC may not be in your best interest.

Needless to say:
With college prices higher now than ever before, you’ll want to make sure that you can save every eligible penny.

At Steven Lissner & Company, we know that your time is valuable. Therefore, our tax experts have condensed the tricky ins and outs of the Lifetime Learning Credit into this easy-to-follow guide. Keep reading below to learn how you can save big on educational expenses…

Every. Single. Tax. Year.

Basic Eligibility Criteria for the Lifetime Learning Credit

First things first, which students qualify for the Lifetime Learning Credit (LLC)? Of all the education tax credits, the LLC has the most permissive criteria.

For example, unlike the American Opportunity Tax Credit (AOTC), all students meeting certain income and enrollment requirements may claim the LLC. This differs markedly from the AOTC, which can be claimed only during the first four years of higher education. (By current definitions, higher education encompasses both postsecondary colleges and universities as well as trade schools.)

This distinction is huge.

As the name implies, it means that the Lifetime Learning Credit services lifetime learners. So, even if you’ve already earned your degree (or maxed out your four years of claiming the AOTC), you can still obtain much-needed financial relief through the LLC.

Our recommendation?

Sit down with us and crunch the numbers. Most likely, we’ll suggest that you enroll in that summer school session you’ve always wanted to take or sign up for those community college classes to hone your professional skills.

After all, you’ll be refunded 20% of up to the first $10,000 you spend on qualified educational expenses. (That’s a maximum value of $2,000 in tax savings!)

But, wait. There’s some even better news:

Thanks to the Consolidated Appropriations Act of 2020, the new cap for the Lifetime Learning Credit will rise to $2,500 in savings for the 2021 tax year.

Just make sure that the following statements from the IRS apply to you:
– You’re enrolled in an accredited post-secondary institution, such as an undergraduate, graduate, or vocational school.
– You intend to use your enrollment period to earn a degree or eligible credential and/or enhance your professional development.
– You’ll be completing at least one academic session as defined by your institution. (Sessions often include semesters or even shorter units, such as quarters or summer school terms.)
– You meet the basic income requirements outlined below.

Income Requirements for the Lifetime Learning Credit

To determine if you qualify for the Lifetime Learning Credit, you must calculate your Modified Adjusted Gross Income (MAGI).

But, here’s the (not-so-) fun part. The IRS defines your MAGI differently based on the specific tax credit that you’re examining. That’s because your MAGI not only includes your household income, but also adds certain key deductions back in. Needless to say, complex calculations can be a bit daunting.

If you truly want to calculate your MAGI for the 2020 Lifetime Learning Credit, then you must use Worksheet 3-1 from IRS Publication 970.

But, we recommend a much easier alternative. Let one of our experienced tax accountants perform the difficult legwork for you. After all, we calculate MAGIs pretty much every single day…

For the 2020 tax year, the following individuals are eligible for the full Lifetime Learning Credit:
– Single/head of household individuals with MAGIs less than $59,000
– Couples who are married and filing jointly with MAGIs less than $118,000.

Beyond these income levels, we enter into what is known as a phase-out limit. For example, single/head-of-household individuals earning MAGIs between $59,000 – $69,000 can still earn a portion of the Lifetime Learning Tax Credit. But, it won’t be the full amount. Likewise, married and filing jointly couples earning MAGIs between $118,000 and $138,000 are also eligible for a reduced LLC.

After these income thresholds have been passed, filers become ineligible…  That is, until the 2021 tax year.

Remember the Consolidated Appropriations Act that we mentioned previously? It expanded the phase-out limits significantly in your favor. In 2021, the new phase-out MAGIs for the LLC will rise to:
– $80,000-$90,000 for single/head-of-house filers
– $160,000 – $180,000 for married and filing jointly individuals

That’s a GIGANTIC shift!

Qualifying Expenses Under the Lifetime Learning Credit

Under the Lifetime Learning Credit, you can claim up to $10,000 in eligible expenses (of which you will receive a tax break for up to $2000 – $2500 depending on the tax year).

But, how exactly does the IRS define a “qualifying” expense?

First and foremost, the Lifetime Learning Credit allows you to claim tuition costs and this is true regardless of whether you attend an in-state or out-of-state institution.

Next, you can claim expenses related to essential materials that you were required to purchase for your classes. This includes those outrageously priced textbooks from the student bookstore, as well as required equipment and supplies.

This is where consulting a trusted tax accountant can come in handy. It’s easy to overlook equipment and supplies that fall off your radar.

The following list includes some commonly overlooked items that you may wish to claim:

– Laptops, computers, and related hardware
– Software programs
– Internet access
– Calculators
– Essential lab equipment (e.g. safety gogles)
– Supplies required for art classes for art majors
– And more!

Lastly, the IRS also allows you to claim required student-activity fees that your institution may have bundled up in its tuition expenses. This can be a huge tax break, as studies have shown that these fees can account for up to 16% of total expenses for in-state students!

Where do these fees go exactly? Unfortunately, there isn’t a lot of transparency. So, if you were forced to pay mysterious student-activity fees that went… somewhere… here is your chance to recoup them.

Expenses that Don’t Qualify for the Lifetime Learning Credit

If you’ve attended a higher education institution, then you know that there are a ton of hidden costs involved. Unfortunately, the IRS doesn’t recognize many of these under the Lifetime Learning Credit.

Don’t make the mistake of attempting to claim the following:
– Room and board
– Meals or meal plan fees
– Transportation costs (such as bus fares) to attend classes
– Student health insurance or medical expenditures
– Childcare expenses (You can deduct these elsewhere.)
– Classes or program fees that involve hobbies (e.g. bowling, gaming, sports, etc.)
– Classes that don’t confer any credits

In addition, make sure that you don’t claim any eligible expenses (outlined in the previous section) in more than one credit or deduction. If money is tight—as it often is for new grads—you don’t want to receive a costly bill from the IRS at a later date.

Take our word for it: We’ve assisted many well-intentioned clients through tax audits who made the simple error of double-dipping on tax credits/deductions when filing through automated tax services instead of consulting a qualified CPA.

Yikes!

Claiming the AOTC vs. the LLC

But, there is one catch. You can’t claim the American Opportunity Tax Credit (AOTC) in the same tax year that you claim the Lifetime Learning Credit (LLC).

So, which tax credit should you claim first?

Always claim the AOTC credit when you can—particularly, for the 2020 tax year. Remember: The AOTC only applies during the first four years of your post-secondary education. After that point, you can only qualify for the Lifetime Learning Credit.

This reason aside, the maximum AOTC credit for the 2020 tax year is $2,500 compared to the $2,000 maximum tax credit offered under the Lifetime Learning Credit. Likewise, the phase-out thresholds for the AOTC are much higher than those for the LLC:

We’re talking nearly $20,000 higher for individuals and nearly $40,000 higher for couples who are married and filing jointly.

Of course, these differences will evaporate during the 2021 tax year. The Consolidated Appropriations Act bumped up the tax reimbursement and phase-out limits for the LLC to match the current levels of the AOTC.

Despite this, we still recommend that you take the AOTC first—even in 2021. Only time will tell how the tax laws will change, but you’re only eligible for the AOTC during the first four years of your higher education. If you choose not to claim the AOTC in a given year, unfortunately, those eligible years don’t roll over. You’ve simply missed out on an opportunity to use it.

And, just in case you were wondering: Yes! Multiple eligible individuals in the same household (e.g. you, your spouse, and all of your dependents) can each claim one tax credit during a given year. Simply multiply your savings by the number of eligible individuals for each tax credit!

Why All of This Matters

To put it simply, higher education costs aren’t going to go down anytime soon.

Consider this:

The average annual cost to attend college during the 2000-2001 school year was $15,381 for in-state students. In the 2018-2019 school year, that value rose to $32,782. Adjusting for inflation, that’s still a whopping 46% increase.

Although there has been a recent movement in the US government to dismiss student loan debt, a divided Congress makes this reality unlikely. In the meantime, we at least still have the AOTC and LLC to fall back on.

Save BIG by Hiring a CPA to Review Your Education Expenses

We’ve already presented some pretty good reasons why you should hire a certified public account to evaluate your educational expenses:

-Modified Adjustable Gross Incomes (MAGIs) are difficult to calculate.
– You don’t want to overlook any hidden savings that fall outside of mainstream internet and word-of-mouth knowledge.
– You want to avoid a costly audit that could lead to the IRS breathing down your neck.

But, we still haven’t mentioned the best reason of all:

To put it bluntly, filing taxes is tedious. You simply don’t want to be cooped up inside, scratching your head and pouring over the numbers on a gorgeous weekend.

Your time is your most valuable asset. At Steven Lissner & Company, our accounting experts give that back to you. We perform all the monotonous legwork so that you can enjoy a stress- free tax season. With over 30 years of experience under our belts, you can rest assured that your biggest tax refund yet awaits you.

To uncover more hidden savings, contact one of our devoted tax specialists today!

333 Route 46 West Suite 206
Mountain Lakes, NJ 07046

(973) 917-4080

info@slnjcpa.com

Contact Us

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333 Route 46 West Suite 206
Mountain Lakes, NJ 07046

(973) 917-4080

info@slnjcpa.com

Contact Us

Client Login