Dreaming of my future career as an accountant
Dreaming of my future career as an accountant
If you are getting a divorce, taxes are probably not highest on your list of concerns. Still, you should consider a number of tax-related issues.
Dividing property in connection with a divorce generally has no immediate consequences for either spouse. However, if the spouse who receives property in the divorce settlement later sells it, there may be a gain to report for tax purposes. So, potential taxes should be a consideration in deciding which spouse will receive which property.
Note that a spouse who receives property in a divorce figures any gain on a subsequent sale of the property using the transferring spouse’s basis (e.g., cost), not the property’s value when it was received.
For example: Michelle receives 10 acres of unimproved land in her divorce settlement. Her ex-husband bought the land for $25,000. It’s now worth $100,000. If Michelle sells the land for $100,000, she will have to report a taxable gain of $75,000 (the difference between the $100,000 selling price and the $25,000 cost basis).
If a divorcing couple sells their home while they are still married, they are entitled to exclude up to $500,000 of gain from their taxable income if otherwise eligible for the exclusion. If the ownership of the home is simply transferred to one spouse as part of the divorce settlement, there is no taxable gain or loss at the time of transfer. However, should that spouse later sell the house while he or she is unmarried, only a $250,000 exclusion would be available.
A divorce settlement often determines how retirement plan benefits will be divided. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a qualified domestic relations order (QDRO). The benefits are taxable to the former spouse who receives them pursuant to a QDRO.
The Tax Cuts and Jobs Act of 2017 suspended the deduction for dependency exemptions for 2018 through 2025. But after 2025, the deduction will apply (unless additional changes are made). While the spouse who has legal custody of a child is generally entitled to claim the dependency exemption, this tax advantage is negotiable and can change from year to year. The custodial spouse can waive his or her right to the exemption, allowing the noncustodial spouse to claim it.
Other Tax Benefits
Having a child qualify as a dependent may impact other tax benefits. For example, there is a potential child tax credit of up to $2,000 annually for each qualifying dependent child under age 17.
Alimony vs. Child Support
For 2018, payments that qualify as alimony under the tax law are deductible by the paying spouse and are considered taxable income to the recipient spouse. Child support payments, on the other hand, are not deductible by the paying spouse and are not included in the recipient spouse’s income. The IRS characterizes payments that are linked to an event or date relating to a child — such as high school graduation or a 21st birthday — as child support rather than alimony.
Note that the tax treatment of alimony will be different for taxpayers who divorce after 2018. Under the Tax Cuts and Jobs Act of 2017, no deduction is available for alimony payments made under post-2018 divorce or separation agreements and recipients are not required to include the payments in income.
These are just some of the tax planning issues that could be important in a divorce situation. Be sure to consult your tax and legal advisors to discuss how these general rules pertain to your personal situation.
When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.
This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased.
You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.
Limited Liability Company
If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). Usually, income is taxed to the owners individually, and earnings are subject to self-employment taxes.
Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.
A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed.
If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.
In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.
Assessing finance charges is a complicated process. But if you have a lot of late payments coming in, you may want to consider it.
There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.
Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.
You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly – or you’ll risk angering customers and creating problems with your accounts receivable.
Setting the Rules
Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.
Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.
Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences.
What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. To, high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?
You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’s Other Income.
The next decision, whether to Assess finance charges on overdue finance charges, needs consideration – and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.
When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?
Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.
Applying the Rules
QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations. Open the Customers menu and select Assess Finance Charges to open this window:
Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.
Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations. Being even a day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balance from the original invoice, as well as the Finance Charge it has calculated.
Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.
When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.
We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.
Just sharing this CUTENESS OVERLOAD!
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Name a better duo, I’ll wait.