December 2021 Tax Tips and More
Tax Tips and More
December 2021
December 2021
Upcoming dates:
Nov 28 - Dec 6
- Hanukkah
December 25
- Christmas Day
December 26
- Kwanzaa begins
January 18
- 4th Quarter Estimated Payments Due
Take final year-end actions
- Deductible gifts
- Capital gains/losses
- Charitable giving
- Dividend income
Please call if you would like to discuss how this information could impact your situation. If you know someone who could benefit from this newsletter, feel free to send it to them.
Five Great Money Tips
Creating a sound financial foundation for you and your family is anything but easy. With low interest rates as an incentive to borrow more and even lower interest rates on savings accounts is it any wonder that it's tough to retain the discipline to save? Here are five thoughts that may help.
Pay yourself first. Treat saving money with the same care you pay your bills. Take a percentage of everything you earn and save it. Using this technique can help build an emergency fund and keep you from living paycheck to paycheck.
Know and use the Rule of 72. You can roughly calculate the number of years compound interest will take to double your money using the Rule of 72. Do this by dividing 72 by your rate of return to estimate how long it takes to double your money. For example, 10% interest will double an investment in 7.2 years; investments with an 8% return will double in nine years. Use this concept to understand the power of saving and investment.
Use savings versus debt for purchases. Unpaid debt is like compound interest but in reverse. For instance, using a 12% interest credit card to pay $1,500 for home appliances costs over $2,000 if paid back over 5 years. The result is that you have to work harder and earn more to pay for the items you purchase. A better idea may be to save and then buy your dream item.
Understand amortization. When a bank loans you money, it gives you a specific interest rate and a set number of years to pay it back. Each payment you make contains interest as well as a reduction of the amount owed, called principal. Most of the interest payments are front-loaded, while the last few payments are virtually all principal. Making additional principal payments at the beginning of the loan’s term will decrease the amount of interest you pay to the bank and help you pay off the loan more quickly.
Taxes are complex and require help. Tax laws are complicated. They are made even more complex when the rules change, often late in the year. Even worse, the IRS is not in the job of telling you when you forget to take a deduction. The best way to stay out of the IRS spotlight AND minimize your taxes is to ask for help.
Surprise Bills: Prepare Your Business for the Unexpected
Getting a bill for an unexpected expense can put a significant dent in your business’s cash flow. Here are some tips your business can use to deal with a surprise bill.
Stick to a reconciliation schedule. The best advice is to be prepared for the unexpected. Do this by knowing how much cash you have in your bank account at any given time. This is done by sticking to a consistent bank reconciliation schedule. Conventional wisdom suggests reconciling your bank account with bills paid and revenue received once a month. But if your business doesn’t have that many transactions, you could reconcile once every two or three months. No matter what time frame works for you, be consistent with your review!
Create a 12-month rolling forecast. This exercise projects cash out twelve months. Then each new month you drop the prior month and add another month one year out. This type of a forecast will reflect the ebbs and flows of cash throughout the year and identify times that you'll need more cash so when a surprise bill shows up, you know exactly how it will impact your ability to pay it.
Build an emergency fund. Getting surprised with an unexpected business expense isn’t a matter of if it will happen, but when. Consider setting money aside each month into an emergency fund to be used only in case of a significant expense. A longer term goal could be to save enough money to cover 3 to 6 months of operating expenses.
Partner with a business advisor. Even small businesses sometime need help keeping their cash flow in line and avoiding unexpected expenses. Please call if you have any questions about organizing your business’s cash flow and preparing for surprise expenses.
Make Payroll Taxes Easy in 2022
Handling employment taxes can be complicated, especially when you’re required to file important tax documents throughout the year. Here’s a quick recap of the most vital payroll tax forms and what you can do to make your payroll life easier heading into 2022.
Important Payroll Tax Forms
Form 941 — Employer's quarterly federal tax return. This form is used to report income tax withheld from employees' pay and both the employer's and employees' share of Social Security and Medicare taxes. Employers generally must deposit Form 941 payroll taxes on either a monthly or semiweekly deposit schedule.
Form 940 — Employer's annual federal unemployment tax return (FUTA). This return is due annually at the end of January. However, FUTA taxes must generally be deposited once a quarter if the accumulated tax exceeds $500.
Form W-2 — Wage and tax statement. Employers are required to send this document to each employee and the IRS at the end of the year. It reports employee annual wages and taxes withheld from paychecks.
Make payroll easier
Remind employees to review withholdings. January is a great time to remind your employees to check their paycheck’s tax withholding amounts. Various life events in the preceding 12 months can potentially lead to one of your employees owing a different amount of taxes in 2022 than they owed in 2021. And no matter how hard you try, employees will ask for your help. So get ahead of the curve with this simple review reminder.
Create a payroll forecast. Be prepared for how much you’ll spend on salaries and wages in 2022 by creating a payroll expense and benefit forecast. In addition to base salaries and wages, include the following in total salary and wage expenses: Your share of an employee’s Social Security and Medicare taxes; health insurance premiums paid on behalf of employees; and any other benefits you provide to employees.
Ask for help. Payroll compliance involves many moving parts at the local, state and federal levels. Please call if you have any questions about your business’s payroll tax compliance, and how to properly account for payroll expenses on your financial statements.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
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