How Children Affect Your Taxes

Children are a blessing. Even when they test you (looking at you, teenagers and “threenagers”), you wouldn’t trade them for anything.You know what else kids are? Expensive. From buying thousands of diapers to saving for college, it all adds up. And fast. Even Uncle Sam knows how expensive raising kids can be. That’s why parents are eligible for a slew of tax breaks.

1. Child Tax Credit

For the 2024 tax year (filed in 2025), the child tax credit is $2,000 per child under the age of 17—with an income limit of $400,000 for married couples and $200,000 for individuals.

Here’s how the tax credit works;  Let’s say you have a family of four: Mom, Dad and two kids, Kenny and Jenny. Together, Mom and Dad bring home $100,000, and they plan to take the standard deduction. They would get the standard deduction of $29,200, which would make their adjusted gross income $70,800 ($100,000 - $29,200 = $70,800). Based on fancy tax bracket math, they owe for the year about $8,032 in taxes.6 But the $4,000 child tax credit ($2,000 apiece for Kenny and Jenny) chops their tax bill almost in half—now they only owe $4,032. 

2. Child and Dependent Care Credit

Did you pay someone to care for your child so you could work or look for a job? You could qualify for the child and dependent care credit! This credit can help you claim 20–35% (depending on your taxable income) of some of your childcare costs—up to $3,000 for one child (under the age of 13) or up to $6,000 for two or more. Okay, that’s a lot of numbers—let’s break it down.

Let’s say you have one kid and last year you spent $3,500 on childcare with a taxable income of $50,000. Based on your income, you’d be eligible to claim 20% of the first $3,000 of those costs, leaving you with a pretty nice $600 tax credit. That’s more than just chump change! Qualifying childcare expenses include more than just day care. Don’t forget about nanny services, after-school care and summer day camps. Just make sure you have the name, address and taxpayer identification number for each care provider you’ve used.

3. Adoption Credit and Exclusions

If you adopted a child this year, congratulations on your new addition! Not only did your family grow, there’s also a good chance you’re eligible for the adoption credit.

For 2024, this credit covers up to $16,810 of your expenses per adopted child. According to the IRS, qualified adoption expenses include:

• Adoption fees
• Court costs and attorney fees
• Traveling expenses
• Other costs directly related to your adoption

If the credit is larger than your tax bill, you may not get the whole amount back this year. But you can use the remainder on your future tax bills for up to five years.

4. Single Parent Filing As Head of Household

If you’re a single parent, in most cases you can file as head of household. Not only could that lower your tax rate, it also allows you to take a higher standard deduction. For example, if you file as head of household for 2024, your standard deduction will be $21,900, compared to just $14,600 for a single person. That’s a whopping $7,300 difference! 

But remember that you can only file as head of household as a single parent if you meet the following three requirements. First, you must be single, legally separated or considered unmarried on the last day of the tax year. Second, you need to have a child or other qualifying dependent who lived with you for at least half the year. And finally, you must have paid for more than half of the household costs for your home—that includes utilities, food and the rent or mortgage.

5. American Opportunity Tax Credit

Got kids in college? Help them stay out of student loan debt and catch a break on your taxes with the American opportunity tax credit (AOTC). The credit applies to any qualified education expenses, like:

• Tuition
• School fees
• Required textbooks

The credit covers 100% of education expenses up to $2,000 and 25% of the next $2,000 after that. For all you math majors out there, that means you could get a maximum credit of $2,500. There is an income limit of $80,000 for those filing single and $160,000 for married couples, and above that it starts to phase out. Once you make more than $90,000 filing single or $180,000 as joint filers, you can’t claim the credit.

6. Tax-Advantaged College Savings

While we’re talking college, did you know there are certain types of college savings programs that are tax-exempt? That’s right, you can save for your kids’ college tax-free with an Education Savings Account (ESA) or a 529 plan!

But before you start saving up that college fund, we recommend you do the following:

• Make sure you’re out of debt (except for the mortgage).
• Have an emergency fund of 3–6 months of expenses.
• Contribute 15% of your income toward retirement savings.

If you’re ready to take the first step toward saving for your kids’ education, get in touch with an investment professional to get started.

Raising kids isn’t cheap! But tax breaks can help lighten the load (like, a lot). So, be kind to yourself, and make sure you’re taking advantage of every credit and deduction you can—whether you file yourself or work with a pro. Source

How Latest IRS Layoffs Could Impact Your Tax Return

If you're waiting for your tax refund, you might have to wait longer this year. That's because major layoffs at the Internal Revenue Service could impact returns, experts say. The layoffs of thousands of IRS probationary workers beginning this week could spell disaster for revenue collections, experts say.

The majority of employees shown the door at the federal tax collector are newly hired workers focused on compliance, which includes ensuring that taxpayers are abiding by the tax code and paying delinquent debts, among other duties.

The IRS layoffs, one of the largest purges of probationary workers this year across the government, could hurt customer service and tax return processing during tax season this year, the union representing Treasury Department employees warned Thursday.

Chye-Ching Huang, executive director of NYU’s Tax Law Center, called the layoffs “misguided” and said they "will hurt everyday Americans who pay their taxes and count on the IRS to pay refunds on time while encouraging wealthy people and large businesses to cheat on their taxes.”

Doreen Greenwald, president of the National Treasury Employees Union, said: “In the middle of a tax filing season, when taxpayers expect prompt customer service and smooth processing of their tax returns, the administration has chosen to decimate the whole operation by sending dedicated civil servants to the unemployment lines.”

The upheaval comes less than two months before the tax filing deadline and as the Department of Government Efficiency under Trump adviser Elon Musk seeks to shrink the size of the federal workforce in an effort to radically cut spending and restructure the government’s priorities.

Already filed your tax return and looking to see when you might receive your refund?

According to the Internal Revenue Service, some 140 million people are expected to file their returns by Tax Day, on April 15. When tax season officially opened for filing on Jan. 27, IRS officials said the system had already received "millions of tax returns from across the nation for processing."

While you aren't expected to receive a refund immediately, there are ways to ensure you get it faster. Here's what to know about getting your federal and Illinois refund during tax season, and how long it could take.

Read more on this topic here...

What Is A Chart Of Accounts?

The chart of accounts, or COA, is an organized list of the financial account numbers and names in your company’s general ledger. Typically, a chart of accounts will have four categories: assets, liabilities, income, and expenses.

To better understand the balance sheet and income statement, you need to first understand the components that make up a chart of accounts. Knowing how to keep your company’s chart organized can make it easier for you to access financial information. Within each chart of accounts category, line items distinguish the specific accounts. Each line item represents an account within each category. The main account types for a chart of accounts include asset, liability, income, and expense accounts. 

Let’s look at the key accounts for a chart of accounts: 

Asset accounts

The chart of accounts streamlines various asset accounts by organizing them into line items so that you can track multiple components easily.

Your asset accounts typically include:

• Buildings and land
• Equipment and vehicles
• Inventory
• Bank accounts 
• Accounts receivables

Asset accounts can be confusing because they not only track what you paid for each asset, but they also follow processes like depreciation.

Liability accounts

Liabilities are things you owe. Major liability accounts include things like:

• Accounts payables
• Payroll taxes
• Bank loans
• Credit card balances
• Deferred tax liabilities

Current liabilities are any outstanding payments that are due within the year, while non-current or long-term liabilities are payments due more than a year from the date of the report.

Income accounts

Income is often the category that business owners underutilize the most. Some of the most common types of revenue or income accounts include sales, rental, and dividend income. Consider creating separate line items in your chart of accounts for different types of income. Instead of lumping all your income into one account, assess your various profitable activities and sort them by income type. 

For example, imagine you have a store that sells an array of items, such as food and books. You would create a chart of accounts as follows: 

• On your chart of accounts, you create line items for “income from food sold” and “income from books sold.”
• Then, compare the profit levels and cost of goods sold from each category (which allows you to better determine your financial health).
• When compiling data in your income accounts category, consider anything that brings money into the company, including things like interest income.

Expense accounts

Expense accounts represent any money you spend. For instance, if you rent, the money moves from your cash account to the rent expense account. Expense accounts allow you to keep track of money that you no longer have. 

Here are more examples of expense accounts your business may use:

• Advertising expense
• Interest expense
• Depreciation expense
• Salaries or wages

It’s also a good idea to break up expenses into separate accounts. For instance, if you ship a lot of products, you may want to track your costs from different shipping carriers separately. Within each line account, you can create sub-categories for the various expenses associated with each carrier.

Tips for organizing your chart of accounts

Once you set up your COA, keeping it organized as you continue to add or adjust accounts is important. The following tips will help you set your chart of accounts up for success:

• Use simple account names: When setting up your line items for the first time, keep it simple. Provide titles for your line items that make sense to you and your accountant. 
• Create sub-accounts: As time goes by, you may want to create a new line item for each transaction. However, doing so could litter your company’s chart and make it confusing to navigate. Instead, take advantage of your accounting software’s sub-accounts.
• Add financial statements: You can add an account statement column to your COA to record which statement you’ll be using for each account—cash flow, balance sheet, or income statement. For example, balance sheets are typically for asset and liability accounts, while income statements are for expense accounts.
• Track account movement: Your chart of accounts is a living document for your business and because of that, accounts will inevitably need to be added or removed. The general rule for adding or removing accounts is to add accounts as they come in but wait until the end of the year or quarter to remove any old ones.

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The Rise Of Virtual Bookkeeping

The rise of virtual bookkeeping has significantly developed the bookkeeping industry. Some of it’s advantages include:

Increased flexibility 

Virtual bookkeeping involves performing bookkeeping tasks remotely, using cloud-based accounting software and other online tools. This has enabled bookkeepers to work from anywhere worldwide, providing greater flexibility and accessibility to their clients.

Increased efficiency

One of the main advantages of virtual bookkeeping is that it eliminates the need for in-person meetings. Instead, bookkeepers can communicate with their clients via email, phone, or video conferencing, making it easier to work with clients in different geographic locations. This also allows bookkeepers to work more efficiently, as they can access financial data in real time and make adjustments as needed.

Increased savings

Virtual bookkeeping also offers cost savings for both bookkeepers and clients. Without physical office space, bookkeepers can offer services at a lower cost than traditional brick-and-mortar firms. Clients also save money, as they do not need to pay for travel expenses or provide office space for the bookkeeper.

Decreased workload

Another advantage of virtual bookkeeping is the ability to integrate with other cloud-based software. This allows bookkeepers to automate many tasks, such as bank reconciliations, invoice processing, and expense tracking, saving time and reducing errors. It also gives clients greater visibility into their financial data, allowing them to make more informed decisions about their business.

However, remember that there are also potential challenges with virtual bookkeeping. One of the main challenges is the need for strong cybersecurity measures to protect sensitive financial data. Bookkeepers must ensure that they have robust security protocols to prevent data breaches and other cyber threats.

But overall, the rise of virtual bookkeeping has provided significant benefits to both bookkeepers and clients, including greater flexibility, cost savings, and automation. Moreover, virtual bookkeeping will become even more prevalent as technology evolves, further transforming the industry. Source

The 21st Century Bookkeeper: How Things Have Evolved

The role of a bookkeeper has undergone significant changes in the 21st century. With advancements in technology, the globalization of markets, and the emergence of new industries, the demands and expectations of bookkeepers have evolved.

The traditional role of bookkeepers

The traditional role of bookkeepers was to keep accurate financial records for businesses and individuals. Bookkeepers recorded financial transactions, such as sales and expenses, and maintained accounting ledgers, balance sheets, and journals. They would also reconcile bank statements, manage receipts, prepare financial reports, and assist with budgeting and forecasting.

Bookkeepers were also responsible for ensuring compliance with financial regulations and laws. They would keep track of tax obligations, file tax returns, and maintain records required by regulatory bodies.

This may sound the same as the role of a 21st-century bookkeeper. But the main difference was that traditional bookkeepers manually recorded financial transactions in physical ledgers, wrote journals using pen and paper or typewriters, and, later, basic accounting software.

Changes in bookkeeping technology

The advent of cloud computing, artificial intelligence (AI), and automation has revolutionized how bookkeepers work. As a result, bookkeepers can now perform tasks more quickly and accurately than ever before.

Cloud-based accounting software such as QuickBooks Online and Xero have become increasingly popular in recent years. These accounting tools enable bookkeepers to manage financial data in real time, collaborate with clients remotely, and provide instant access to financial reports from anywhere with an internet connection. Automation has also had a significant impact on bookkeeping. By automating routine tasks such as data entry and bank reconciliations, bookkeepers can save time and reduce errors.

For instance, AI-powered software like Receipt Bank and Hubdoc (shown below) can automate data entry and reconciliation, reducing the time spent on manual tasks. This has freed up time for bookkeepers to focus on more strategic tasks, such as analyzing financial data and providing insights to business owners.

Bookkeepers can also use AI technology like GPT3 to generate reports like financial statements or automate invoice creation. Data analytics is another area where technology has profoundly impacted bookkeeping. By analyzing financial data, bookkeepers can identify trends and patterns to help business owners make more informed decisions.

For example, a bookkeeper might notice that a business's expenses have been increasing steadily over the past few months. By bringing this to the business owner's attention, the bookkeeper can help identify opportunities to reduce costs and improve profitability.

The evolving role of bookkeepers

The role of a bookkeeper has evolved from a transactional one to a more strategic one. In addition to basic bookkeeping tasks, modern bookkeepers must thoroughly understand financial analysis, budgeting, and forecasting. They are expected to provide business owners with insights to help them make informed decisions and achieve their financial goals. It also helps business owners create a budget or forecast future cash flows to ensure the business stays financially stable.

This means bookkeepers are also expected to be familiar with a broader range of financial software and tools. For example, they may need to be proficient in Excel, QuickBooks, Xero, and other financial software programs commonly used in bookkeeping. This requires ongoing training and professional development to ensure bookkeepers stay up-to-date with the latest tools and technologies.

The impact of globalization on bookkeeping

Globalization has significantly impacted the role of the 21st-century bookkeeper. Some of these include:

Compliance with multiple accounting standards

One of the most significant impacts is the need for businesses to maintain financial records that comply with multiple accounting standards. Many countries have varying accounting standards, such as Generally Accepted Accounting Principles (GAAP) in the US and International Financial Reporting Standards (IFRS) in other parts of the world. Bookkeepers must be able to navigate these different standards and ensure that their client's financials are compliant with all applicable regulations.

Manage multiple currencies 

Another impact of globalization on bookkeeping is the need for businesses to manage foreign currency transactions. Bookkeepers must understand exchange rates and be able to record transactions in multiple currencies accurately. They must also be able to reconcile accounts and manage any discrepancies arising from currency fluctuations.

Increased outsourcing 

Globalization has also led to increased outsourcing and offshoring of bookkeeping services. For example, many businesses now outsource their bookkeeping to accounting firms in other countries with lower labor costs. 

However, this has created new challenges for bookkeepers who must navigate cultural differences and learn how to avoid buzzwords to prevent language barriers. All while ensuring that financial records are accurate and compliant with local regulations.

Rise in competition

Finally, globalization has led to increased competition among bookkeeping firms. Bookkeepers must stay up-to-date with the latest technologies and accounting practices to remain competitive in the global marketplace. They must also be able to offer a wide range of services to meet the diverse needs of their clients.

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Tips for Building an Emergency Fund

An emergency fund serves as a financial “safety net” so you aren’t forced to borrow money when unexpected expenses pop up.

Small changes can pay off big. Use these tips to get your emergency fund going:

• Pay yourself first. Establish an allotment or bank transfer to set aside money each paycheck.
• Consider selling unused household items online or through a garage sale.
• Explore adding another source of income either with a second job (with command approval) or spouse employment.
• Visit the IRS Withholding Estimator to see if you should adjust your withholding to get more money per paycheck.
• Save a portion of your tax refund or bonus.
• Explore the possibility of a one-month deferral on your auto loan payment. Ask your lender about fees or additional interest charges associated with a deferral.
• Save $3 a day! Do this for a year and you will save over $1,000 in your emergency fund.
• Go on a spending fast. Eliminate all impulse and nonessential purchases for a week, month, or until you hit your savings goal.
• Immediately work to replenish your emergency fund if you need to draw from it to cover an unplanned expense.
• Take advantage of military-specific savings opportunities like the Savings Deposit Program.

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The Stress Of Tax Season Is Real. Here’s How To Cope

Every year from January 1 to April 15, taxpayers throughout the United States collect and record their wages and earnings. And every tax season, the pressure to file for returns by a deadline gives tax preparers and accountants plenty of business while adding enough stress to garner the attention of the medical community. The American Psychological Association’s Annual Stress in America report shows that money has consistently been ranked a top concern for adults since 2007, when the association began the nationwide survey. “When we ask people what it is that is causing stress in their life, it’s about money and uncertainty,” said Vaile Wright, the group’s psychologist and director of research and special projects.

Our body responds to stressful life events, like tax day, through a series of biological responses. Fight or flight is the body’s reaction to perceived threats and stress. After producing hormones, such as adrenaline and cortisol, there are changes throughout the body, such as increased heart rate. While this response can keep us safe, chronic stress results in anxiety, high blood pressure and even heart disease.

There is a healthy amount of stress, however. What’s known among psychologists as the Yerkes-Dodson Law demonstrates that the right amount of anxiety leads to ideal performance. When a person is not stressed enough or is too stressed, performance starts to decrease. “Stress is your body’s way of responding to adverse or challenging circumstances. It can motivate us even, but it’s important to pay attention to how this stress is manifesting,” Wright explained.

There is hope, though. “Really, there’s a lot of work that can be done about financial wellness regarding psychological wellness,” Wright said. “I think people find it hard to talk about money. We need to be having more open conversations about this. These aren’t things that are typically taught in school. We often learn how to manage money by how our parents manage money.”

Lee agrees that for there to be improvement, there needs to be dialogue about financial stability. “I recommend that at a very, very young age, we start teaching our children about how money works. This needs to be a conversation that takes place in the household.”

Through education, the stress that is often experienced during financially demanding events, like tax season, can be alleviated through healthier choices. Wright encourages not avoiding life events that are stressful because this only puts off the inevitable.

“One of the unhealthy behaviors we see is avoidance. We have a tendency to avoid and put off during tax season. What happens is that when we continue to avoid over a long term, we are inadvertently telling ourselves that this task is so hard, we cannot deal with it, and it becomes overwhelming,” Wright said. “I encourage people to do the things to prepare ahead of time. Also, if you have good healthy habits in place, don’t abandon them.”

With education, preparation and support, Lee feels many of the stresses associated with financial instability and debt can be alleviated. “Some people see it as a way of life because they don’t know any better,” Lee said. “I’ve seen people come in that are 60 years old who haven’t even paid a dollar for retirement. A lot of it is people who think it is normal behavior. People are very stressed out about it.”

And professional services can sometimes be worth the cost. “A lot of people just don’t know what to do,” Lee said. “And that’s where we come in to give them solutions.” Source

Don't let tax season stress you out! Contact us today! We would love to assist you during this tax season.

How To File Taxes If You’ve Lived In Two States

Filing taxes is already a headache for most people and often begs the question, ‘do I have to file taxes in two states?’ If you live and work in different states, or you’ve moved to another state, you’ll likely have to file multiple tax returns. On a good note, you won’t have to worry about your federal tax return, which isn’t affected. 

Question: Do I have to file taxes in two states if I live in one State but work in another?

Answer: Yes. If you live and work in different states, there’s a chance you must file taxes in both states. For example, if you live in New Jersey and travel to New York each day for work, you need to file taxes in both states.

Although you must file taxes in both states, you won’t necessarily pay taxes in both states. Usually, taxes will be collected from the state where you work only. Some states have a reciprocal agreement, also known as reciprocity. This agreement between two states means that each state’s residents can request tax exemption in the other, basically saving you the bother of filing multiple tax returns in multiple states.

Question: Do I have to file taxes in two states if my business operates in multiple states?

Answer: Yes. If you receive an income in more than one state, it will be more difficult for you to file your taxes.

Question: Do I have to file taxes in two states if I moved to a new state?

Answer: Yes. If you moved between states in the same year, you would have to file multiple tax forms. There are exceptions to the rule, so check with a professional for advice.

Question: Do I have to file taxes in two states if I have an income-producing property in another state?

Answer: Yes. If you own a vacation home in a state separate from where you live or a few investment properties, you’ll be required to file a separate tax return.

Form W-4 is required to pay federal taxes on a percentage of your paycheck. State taxes are collected using each state’s own version of Form W-4. To pay state taxes, if you’ve worked in two or more states, you’ll need to file a non-residential tax return.

If you’ve worked in two or more states, check to see if those states have a reciprocal agreement. If they do, you should pay taxes in your home state and not in the state where you work. Be sure to submit an exemption form with your employer. If there is no reciprocity agreement, continue to file taxes as per each state’s requirements. You won’t be taxed twice; you will receive a tax credit from your home state for the tax money paid in your work state.

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Fixed Costs vs Variable Costs

Understanding the difference between fixed and variable costs is critical for individuals and businesses alike. Whether you’re managing your household budget or analyzing company expenses, these two types of costs play a significant role in decision-making, cash flow management, and profitability. 

Knowing the difference between the two helps businesses predict cash flow, determine pricing strategies, and manage expenses effectively.

What are Fixed Costs?

Fixed costs are expenses that remain unchanged, regardless of how much a business produces or sells. These costs are predictable, making them easier to plan and budget for. However, since they don’t fluctuate with production levels, they can strain cash flow during slow periods. 

Examples of Fixed Costs:

Rent or Lease Payments

Imagine a bakery renting a commercial space for $2,000 a month. Whether the barkery produces 10 cakes or 10,000 cakes, the rent remains the same. 

Salaries for Permanent Staff

Fixed salaries are paid consistently to full-time employees, regardless of business activity. For instance, the bakery’s manager earns $4,000 every month, whether it’s peak wedding season or a slow winter month. 

Loan Payments

Suppose the bakery took a loan to buy an industrial oven, with monthly repayments of $1,500. These payments remain constant whether the oven is used for 100 hours or sits idle. 

Depreciation

The cost of fixed assets, such as machinery or vehicles, is spread over time as depreciation. For example, the industrial oven might lose $200 in value every month, irrespective of usage. 

What are Variable Costs?

Variable costs, on the other hand, are expenses that fluctuate with production levels or business activity. If production increases, variable costs rise proportionately. Conversely, if production decreases or halts, variable costs drop. 

Example of Variable Costs:

Raw Materials

Let’s say a bakery produces muffins alongside cakes. Each muffin costs $1.50 in raw materials (flour, sugar, butter, etc.). If the bakery produces 500 muffins, the total raw material cost will be: 500 muffins x $1.50 = $750

Utility Costs

Electricity and gas are critical for running ovens and lights. If the bakery increases production, energy usage rises. Conversely, during downtime, utility costs drop significantly. For example, the bakery might pay $300 for electricity in a busy month and $150 during slower months.

Packaging

Packaging costs scale with production. If each box costs $0.50 and the bakery ships 1,000 cupcakes, packaging costs a total of $500. Fewer orders mean fewer expenses.

Commissions

In businesses with commission-based roles, costs increase with sales. For example, if a salesperson earns a 5% commission on cupcake orders, a $1,000 order costs the bakery $50 in commissions. No sales? No commission cost. 

To maintain healthy cash flow, businesses need to strike a balance between fixed and variable costs:

• Plan for Fixed Costs: Ensure consistent cash reserves to cover fixed obligations during slow periods. Consider negotiating fixed costs like rent or salaries to make them more manageable. 
• Monitor Variable Costs: Keep a close eye on expenses that scale with production. Look for ways to optimize processes, reduce waste, and improve cost efficiency. 
• Forecast Cash Flow: Historical data to predict periods of high and low revenue, and adjust spending accordingly. 

How Can Businesses Reduce Variable Expenses?

Reducing variable expenses requires strategic action to optimize operations without compromising quality. Here are some things businesses can do:

• Identify Cost Drivers: Analyze what factors influence variable costs the most—raw materials, energy usage, or labor.
• Optimize Processes: Implement automation to reduce manual work and increase efficiency.
• Negotiate with Vendors: Work with suppliers to secure long-term contracts, bulk discounts, or better payment terms.
• Monitor Usage and Waste: Track resources like energy, raw materials, and supplies to identify areas of waste.

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