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Client Update Newsletter: May 2023

It's never too early to start thinking about cutting next year's tax bill. In this month's newsletter, read about several ideas to help lower your 2023 tax obligation. And speaking of taxes, summer work often introduces several tax wrinkles that hit young workers and seasonal workers alike. So included this month are some hints to address taxes and summer employment.

Spring is also graduation season! In addition to all those congratulation cards, why not spend a minute reviewing some classic money basics. It's a great review for both the newly graduated and for the rest of us as a reminder of how we can make our financial lives run a bit more smoothly.

Finally, there's a word or two about managing cash for your business and how the concept of separation of duties is a classic way to head off any problems.

As always, feel free to pass this information on to anyone that may find it useful and call if you have any questions or concerns.

Contents

Calling All Taxpayers: Plan Now or Pay Later

Calling All Taxpayers Plan Now or Pay Later imageProcrastination is easy, especially when it comes to summertime tax planning. But waiting to implement strategies to reduce your 2023 tax obligations could cost you money. Here are some suggestions to help jumpstart your midyear review:

Please call if you have questions about tax planning for your 2023 tax return.


Tax Tips for Your Summer Job

Tax Tips for Your Summer Job imageSummer brings warm weather, fun outdoor activities, and new opportunities to earn some additional income. Taxes on seasonal income, however, need to be handled with care, whether they're related to your child's first job or an extra income opportunity for you. Here are some tips to help manage the taxes on your summer earnings:

  1. Take advantage of tax-free earnings limits. If you anticipate making less than the annual standard deduction ($13,850 for single taxpayers in 2023), none of your earnings are subject to federal taxes! If possible, earn at least that amount each year to maximize your tax-free earnings. Remember, this only applies to earned income like your summer job. These rules do not apply to sources of income such as interest income or dividend income.

    Tip: If your annual earnings will be less than the standard deduction, you can claim EXEMPT on your Form W-4. That prevents federal income taxes from being withheld from your paycheck.

  2. Review the need to make estimated payments. As an independent contractor, you are responsible for paying all the taxes on your earnings. This is done by making quarterly estimated tax payments to the IRS using Form 1040-ES. In addition to income taxes, contractors also need to pay a self-employment tax of 15.3% of earnings at the federal level. You may also need to pay estimated taxes at the state level.

    Tip: Track your expenses and save receipts. By doing this, you can subtract eligible expenses like mileage and supplies from your gross earnings. Use this lower income number to calculate your self-employment tax and correctly estimate your income tax obligation.

  3. Closely monitor tax withholdings. As an employee, your employer withholds taxes based on what you claim on Form W-4. The tax tables used by this form to calculate your withholdings unfortunately do not account for seasonal jobs. This typically results in paycheck withholdings being too low for supplemental income workers and too high for students working during the summer.

    Tip: If you anticipate earnings in excess of the standard deduction, request a revision of your withholdings. Use tools on the IRS web site, review last year's tax return, or ask for help to estimate the correct amount to withhold. From there, ask your employer to increase or decrease your federal and/or state withholdings.

With a little tax planning, you can ensure that your summer job provides the income you are looking for without the disappointment of unexpected taxes. Please call if you have any questions.


Graduation Season: A Great Time to Review Money Basics

With graduation season just around the corner, now it a great time to review five key money basics for both students and the entire family.

The world of money and finance can seem overly complicated. So keep asking questions and seek advice until you fully understand the mechanics of money and how it impacts your situation. You'll be amazed at how powerful that feeling can be.


Safeguarding Your Business's Cash with Segregation of Duties

Fraud and embezzlement don't just happen at large companies. In fact, theft may be more common in small businesses because many lack internal controls that are typically in place at larger organizations. But the good news is that effective internal controls don't have to be complicated or expensive.

Safeguarding Your Businesss Cash with Segregation of Duties image

The best way for small businesses to battle fraud is to create a segregation of duties framework. With segregation of duties, you have one person responsible for each of three different areas: Authorization of cash expenditures, physical custody of cash and reconciliation of cash expenditures.

Here's what you need to know:

Segregation of duties can help your company keep track of cash and help prevent theft by an employee before it happens.



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