Are you filing taxes for the first time this year? Do you feel confused or lost about how to file your taxes? Don’t worry! BaCo Group is here to help. We’ve created a short guide for first-time tax filers so you know what to do for this year’s tax season. Keep reading to find out the best way to go about filing your taxes as a newly claimed independent.   

Choose How to File  

There are a couple of ways to file your taxes. One way is online with tax software. The other way is by hiring a professional like the CPAs at BaCo Group. Tax software is very easy to use, and even if you get stuck, there’s usually a way to contact human preparers. This could be a good option for your first time filing; however, as you get older and your finances get more complex, you might consider hiring a professional to make sure everything is being done correctly. Therefore, it might be a good option to hire a professional the first time so you can continue that relationship as your life and finances change.  

Understand How Taxes are Determined  

Whether you file online or with a professional, you should understand how your taxes are determined. It’s important to be knowledgeable about your finances.   

The government decides your taxes based on a progressive tax system, so your taxable income is divided into chunks called tax brackets, and each chunk is taxed at a corresponding rate. This means that you won’t ever pay one single rate for your entire income. Some will be taxed at a lower rate than other “chunks.”  

Gather Information  

You’ll need tax information whether you’ve hired a professional or you’re filing for yourself using software. It’s important to collect your information as it comes in, so it’s easy to find and keep up with when tax season rolls around. Examples of possible documents and information you’ll need to file taxes include:  

• Social security numbers  

• W-2 forms  
• 1099 forms  
• Retirement account contributions  
• Property taxes and mortgage interest.  
• Charitable donations.  

• State and local taxes you paid.  
• Educational expenses.  
• Unreimbursed medical bills.  
• Last year’s federal and state tax returns.  

If You Owe Taxes 

There are multiple ways to pay taxes to the IRS. These include electronic payments, wire transfers, debit and credit cards, checks, and even cash if you prefer that method. If you can’t pay the amount you owe in full, a payment plan through the IRS might be an option for you as well. There are short-term and long-term payment plans, but no matter which you choose, you’ll typically make monthly payments until you settle what you owe.   

If You’re Receiving a Refund 

There are a few things you can do to make sure you receive your refund as quickly as possible.   

1. Avoid filing by paper. If you file your tax return by paper, it will likely be 6 to 8 weeks before your return is processed. However, when you file online, your return is likely to be processed in about three weeks.   

1. Use direct deposit. Direct deposit is the fastest way to receive your refund. By using this method, the IRS can deposit your refund directly into your bank account instead of waiting for a paper check in the mail.   

1. Use tracking. You can track the status of your IRS refund and your state refund online. This won’t necessarily get your refund to you faster, but at least you’ll know where it is and when it can be expected to arrive.   

If it’s your first time filing taxes this year, contact the BaCo Group! We can refer you to the perfect accountant to help you file your personal tax return for this year’s tax season. We can also answer any additional questions you may have regarding your tax return.

The 2022 tax deadline has passed. It was April 18th this year, but you forgot about it. You missed it, haven't filed your taxes, and are wondering what to do now. Don't worry! We're here to tell you how to fix things if you missed the deadline. There's good news and bad news, which depends on your situation, so we'll start with the bad news.   

If you owe taxes...  

The bad news is if you owe taxes, you still owe them, and you'll be charged with failure-to-file and failure-to-pay penalties. You also can't file an extension at this point, but you still can, and should, file your taxes because the faster you file, the less you'll owe in penalties. "What are the penalties?" you ask. Well, generally, the IRS charges them on a monthly basis, but they can be prorated for a portion of the month. If you still haven't filed and paid after 60 days, you will incur an established minimum penalty that is the lesser of $205 or 100% of the unpaid tax you owe.  

If you're expecting a refund...  

The good news is if you're expecting a refund, there's no penalty for filing late. In fact, you have three years to file a return and get that refund. Believe me; the IRS is happy to hold onto your refund, interest-free, for a little longer. However, if you're reading this article, that means you're concerned about missing the deadline, and this is your reminder to file a return as soon as possible so you can get your refund from 2021, 2020, or 2019. The IRS estimated it had $1.5 billion of unclaimed refunds from 2018, and although you can't get that back now that April 18th has passed, you can get your refund from the past three years.   

We recommend you file even if the deadline has passed, whether you owe or are expecting money back. If you owe, filing soon will reduce your penalties. If you're expecting money back, you'll get it faster. Either way, filing your taxes is important and should be done in a timely manner. To eliminate this issue next year, we recommend you speak with a CPA, so they can help you plan accordingly for the 2022 deadline on April 15th, 2023. Although BaCo Group doesn't handle 1040 returns anymore, we have a great referral for you, so contact us via our contact form on our website for a 1040 referral. 

We continue our tax Q&A with 6 other frequently asked questions about accounting and tax from small business owners and entrepreneurs.

Q6: How should I prepare for tax season? 

This is a fundamental change that we’re spearheading. Every other CPA firm believes tax season happens between January and April, but we believe the 2021 tax season happens every single day throughout 2020. It’s not because we’re overworked, but because we leverage technology we developed ourselves to automate tax season.  

Oftentimes, CPAs are too busy to talk to you or get back to your emails. They’re not interactive with your books or your life while it happens, but after the fact a year later. By allowing us to connect your books with our system in real-time, we can be interactive with you throughout the year. If things come up in your books that are extraordinary like large, fixed asset purchases or unusual items that will affect your tax liability, we are notified real-time without you having to tell us because our accounting software tells us. This allows you to be prepared for “tax season” day in and day out with less work than you would’ve ever had before.  

Q7: How do I file my small business taxes? 

When you start out as a business, you obtain a federal employer identification number. You'll be asked during the application phase how you want to be treated for tax purposes. If you have an LLC, there are a couple of questions I’d want to ask as your CPA. Is this a single-member LLC that is disregarded for tax purposes? Is this an LLC electing to be a partnership which, if so, we’ll need all the information for the partners as well as any entities that may be a partner in those. Another LLC question is, are you electing to be treated as a corporation? If so, is that a C-Corp or an S-Corp? Was the election properly, entirely made by your previous accountant? Does it make sense to be an S-Corp or a C-Corp? If you’re an S-Corp, are you paying yourself a reasonable salary? These are all questions that may overwhelm someone starting their own business who wants to prepare their own tax return. Doing so incorrectly will raise red flags for you later. The last thing you want to be doing if you’re trying to run your own business and grow your company is have to look backwards with an IRS agent and second-guess everything you’ve done. This is where we come into play. We walk with you with your accounting records and your tax but armed with tax expertise to be able to resolve issues before they happen. We would communicate any issues with you and be interactive with our planning throughout the year. We’re able to do these things through our in-house technology.  

Q8: What can cause the IRS to audit my business? 

One of the things an IRS auditor has told us in the past is that we audit self-prepared tax returns. The complexities around tax return preparation have become quite a challenge, especially because the rules change all the time. For example, in 2021, we with the PPP, the ERC, and the different tax considerations for federal purposes. Additionally, sometimes if you're living in a state that doesn't conform to the federal rules, they will have their own rules on how they treat different things and you need to be on top of that, too, to be able to prepare your tax return. So self-prepared is one of the things IRS looks for.  

Also, schedule C’s. These are your sole proprietors. Sole proprietors are on the IRS’ hotlist which is why we typically advise you to do an S-Corp or a partnership if you’re starting a business.   

Q9: Do I need to create invoices? 

If you’re a small business and you collect sales tax then yes, you need invoices. That will be the number one thing that will be audited in the future. It’s more of a sales tax compliance that surrounds the collection of invoices of sales tax, so if you sell anything, any new tangible personal property, you need to make sure that you have invoices readily available. If you’re on a marketplace like Etsy, that should be sufficient enough.  

If you are a subscription model like we are where you charge on a monthly basis from an annualized fee, then you don’t need to create an invoice and send it out to them each month. Your engagement letter and credit card authorization is the support you’ll need. If you bill by the hour or are a professional service firm, you will have to create invoices and send them out to customers. All in all, the answer is, “It depends.” 

 Q10: What are my sales tax liabilities? 

This is a loaded question. There's a court case in Wayfair that really shook up the sales tax world, which made things are a lot more complex for those who charge sales tax. 

Additionally, there are 1000s of different jurisdictions within the US that will charge sales tax and have different, what we call, Nexus thresholds. 

As a small business, you will have to face sales tax, sooner or later. And each state has its own rules which makes things a lot more complicated when you start serving clients outside of your jurisdiction or you ship out tangible goods to different parts of the country, or even to the world, depending on the company. The timing of your payments can either be monthly, quarterly or annually. There are numerous considerations to think about, especially when it comes to multi-state considerations. For this, please consult a tax advisor. 

Q11: How can I receive payments on time?  

There are multiple ways you could establish receiving payments on time, but one platform that proves to be extremely useful for easy payments is Honeybook. Honeybook offers online payments services where you can create invoices, clients can make payments, and you can create and send contracts. The best part about Honeybook’s online payment option is clients can set up auto-payment, so they’ll never miss the due date, and you’ll always receive your payments on time. You would never have to worry about on-time payments again if you set up Honeybook and your customers used these convenient features. 

As a small business owner or entrepreneur, you’re new to the business world; therefore, you probably have a lot of questions about how to file your taxes, what documents you need, and much more. So, we sat down with our CEO and CPA Ford Baker to ask him a few of your most popular tax questions. From a tax expert, here is some helpful information that should help you plan for your business from a tax and accounting perspective. 

Q1: How should I structure my business? 

Your business is important. It helps you provide a livelihood for your family. It gives you a sense of purpose and hopefully, satisfaction.  

Having said that, you want to structure your business in a way that protects the people around you and your legacy as well as maximize any potential savings. That’s where we come into play. From a tax perspective, the answer to this question is always, “It depends.” There isn’t a one-size-fits-all answer. From a legal perspective, you’ll want to consult with an attorney to determine what the best legal structure for your business is.  

If I were to sum it up, you want to select a tax structure that maximizes your legal liability while also minimizing your taxes. Feel free to reach out to us if you have any questions.   

Q2: What’s the difference between employees and contractors? 

Employees are those who you employ, as simple as that sounds. From a legal standpoint, the answer can be very convoluted. There are different requirements for what differentiates an employee from a contractor. Here are some of the key differences.  

• Employees, you can control that. You can have them sign agreements where they can’t accept outside work. The people you employ are part of your team, they are the bread and butter for any company.  

• Contractors simply add value. They can take any work from you that you want to get done. You have agreements with them, and you issue a 1099 at the end of the year as opposed to a W-2.  
• If you’re an employee, your employer pays their share of the payroll taxes, and you, the employee, are responsible for your portion of the social security and Medicare taxes. 
• From a contractor's perspective, the contractor is not responsible for any portion of these taxes because they’re not an employee. The employer pays them a lump sum amount and the contractor is responsible for their own taxes.  

Q3: What are my financing options? 

If you’re a small business that’s looking to infuse money into your business, there are two ways you can do that. 

The first way is debt. Debt is money that you will owe somebody in the future. Most of the time, debt comes from banks. Sometimes this starts out with an SBA loan which is a Small Business Administration loan that exists to be able to spur economic activity for businesses that are starting up. Another option for financing includes external loans from third parties. This can be from your friends, family, or private equity investors who are willing to spend money on earning interest from you as your business grows and as you pay them back.  

The second way to infuse money into your business is equity. This is when partners come into your business to help bring in money and raise capital. You want to make sure that all agreements are in place before entering into this type of relationship where someone else puts in money but also takes equity away from you.  

It’s always important to make sure legal agreements are in place no matter what form of financing you’re using. This prevents future issues with financing or other partners you might have in the future. You should consult a legal advisor about these matters as well.  

Q4: What are my tax obligations? 

If you are an employee of a company, your obligations include withholding taxes throughout the year through your W-2 paycheck. You’ll see the exemptions you have when you fill out a W-4 when you first get onboarded to a company. In order to calculate how much withholding there is for federal and state purposes from your payment, check each period.  

If you own entities such as an S-Corp or a C-Corp, then you’re required to pay quarterly tax estimates because the IRS is on a pay-as-you-go system. The tax form that an S-Corp or partnership owner will receive after year-end will show the income that your business made. In order to avoid any estimated underpayment tax penalties, you will have to pay quarterly. There are four quarterly payments. The first is on April 15th, the second is on June 15th, the third is on September 15th, and the fourth is on January 15th of the following year.  

Q5: What is a good way to structure or manage cash flow? 

The best way to structure and manage cash flow is to always have a steady flow of cash coming in. This could be every week, every two weeks, or every month. As a business owner, you can fret about not having as much money in the bank or having value sit in accounts receivable waiting to be transformed into cash. If the vendors just paid it, you wouldn’t have that issue, but that’s not what CPA firms have done in the past which is part of the problem. CPAs believe their work needs to be billed by the hour and we need to receive value after the work is completed, but if we keep doing the same thing repeatedly for our clients and get paid the same amount every year, why not just split up their annual fee into monthly payments? Clients can sign an authorization to debit their credit card each month. That’s exactly what we’ve done, and it’s allowed us to have a steady flow of cash and be able to pay our employees a steady paycheck. Switching to what’s notoriously named as a subscription pricing model allows you to manage cash flow in a steady stream rather than sporadic payments throughout the year. You can accelerate payments and transform value. 

Those without subscription pricing models will want to defer expenses when possible to structure and manage cash flow. This means if you get a bill that’s due in 30 days, you wait 30 days to pay it. But with accounting technology, we can automate those payments for future dates, so when you receive the bill, you can take action now by setting up an automated payment for 30 days down the road. This strategy allows you to hold on to the cash as long as you can and provides you options to plan out cash flow rather than react to it.  

Working from home full-time wasn’t something I loved when it first started, but eventually I was worn out from the same routine. Now that some things have settled, I am a hybrid employee, so I work in the office 3 days a week and work from home 2 days. This has helped me a lot with my work life but working from home can still be difficult. I’ve come up with a few tips and tricks that help me when I work from home and I hope they will be useful to you and allow you to work from home well, efficiently, and healthily.  

Take Breaks and Have a Schedule 

Microsoft conducted a study on brain waves and found that our brains do, in fact, need breaks during the day. Jumping on back-to-back meetings, sending emails, and constantly working is exhausting for sure. I get worn out after 2 meetings, but I know it’s so easy to get caught up in your workflow that you don’t want to stop, but you should. Block off some time like 15 minutes to get up and away from your desk, move around, drink some water, and prepare for your next meeting. Blocking off time for lunch is helpful as well because it gives you a mental break that’s longer than your 15-minute breaks. Don’t schedule meetings during lunch and put your computer to sleep. Unplug from work. 90% of employees report that taking a lunch break makes them feel refreshed and ready to get back to work. These breaks are important if you want to have a productive workday. When I say have a schedule, I mean have a hard start and stop time that you work from. For example, I start at 9 am and do my best to stop by 5. This helps you separate work and life and keeps you from being glued to your desk day-in and day-out.  

Go for a Walk and Breathe 

Being stagnant during your workday at home will make you feel overwhelmed and unhappy with the work you’re doing. Getting your body moving throughout the day will change this. Taking walks during your lunch and before you start work in the morning are the perfect times to get your blood and brain moving and prepare you emotionally for the work ahead. Walks after work are great too because they can act as your decompression period just as your drive home from the office would. It’s almost like a cool down after a workout. Moving helps your brain reset between tasks and it helps break up your workday. I also like to incorporate breathing exercises in my workday because it’s another thing that helps me destress throughout the day. This could be helpful for you as well. I learned this method in yoga and it consists of breathing in for 3 seconds, holding it for 3 seconds, breathing out for 3, holding it for 3, and repeating that for a few minutes. Breathing is another way for your brain to reset before beginning work again.  

Change Locations 

Even when I take walks and decompress for a short time, I find it difficult to sit at my desk all day. If you feel this way too, change up your environment! I like to work at my desk, in my bedroom, and outside on our patio. Sometimes, I’ll even drive to a local coffee shop if I don’t have any meetings scheduled. This gives me a change of scenery even if it’s from my desk to my backyard and it gives me a boost of productivity.  

Make Plans 

Giving yourself something to look forward to at the end of the day or the next morning gives you a boost when you’re feeling fatigued. I like to go to yoga or cook dinner with my friends. This not only makes it easier for me to quit working and invest time in my hobbies, but it also motivates me throughout the day. Make plans with yourself, your family, or your friends and you’ll see a difference in how you feel working from home.  

Set the Tone for Work 

The final tip I have for you is to set the tone for work before you begin. Stressing about all that you have to do today will not make you feel any better about walking to your desk and logging on. So, you should set the tone by doing something like grabbing a blanket and some coffee and having some “me” time before 9 am hits. This lets you relax and prepares you for the day ahead instead of starting each day the same, exhausted and/or stressed.  

If you want to see a change in your work-from-home life, I encourage you to implement these small changes into your routine. You’ll be amazed at what a short walk or cup of coffee can do for your productivity.