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Procrastination 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:

• Safeguard your deductions.
  •  Ensure you can take deductions by keeping great records throughout the year. You’ll need proof if you want tax breaks for things like childcare expenses, charitable contributions, gambling losses, vehicle costs and travel expenses. So create a system to keep track of these expenses.
• Save more for retirement.
  • You can save more for retirement in 2023 thanks to inflation increasing annual contribution limits. You’ve even got time to increase the amount you set aside over the remainder of 2023. This year you can deposit up to $22,500 in your 401(k) and $6,500 into your IRA (additional catch-up contributions apply if you’re 50 or older). You can also contribute to both a 401(k) and an IRA, though tax deductibility on IRA contributions may be limited depending on your income.
• Be tax-savvy about school savings.
  • If you’re setting aside money in a taxable account to pay for your child’s school expenses, you could realize tax savings by opening a 529 education savings account. The sooner you do this, the sooner your earnings will start growing tax-deferred. Your earnings will also generally be tax-free when withdrawals are used for qualified education expenses.
• Adjust your withholdings and estimated payments.
  • If you haven’t already, update your withholdings and estimated tax payments to reflect any changes needed since last year. Updates may be in order if you experience a big life event, such as marriage, divorce or a new job. Overpaying your 2023 tax reduces the cash you have on hand throughout the year, and underpaying can lead to penalties and interest.

For more in-depth tax planning or if you have questions about tax planning for your 2023 tax return give us a call 832-303-3995.

Summer 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:

• 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.
• 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.
• 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.

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.

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:

• Segregate cash disbursements.
  • Only a designated, trusted manager should sign checks, authorize electronic payments, or perform fund transfers. This control has a dual purpose: management sees how the company is spending its money, and the cash disbursement function is kept separate from bookkeeping and accounting. The opportunity to embezzle is much higher if the same person signs checks, authorizes electronic transactions, and enters disbursement transactions in the accounting records. You can strengthen this function by having solid purchase order policies and having separate functions approving bills. Then the person who signs checks or authorizes transactions can ensure the payment is approved prior to disbursing the cash.
• Segregate control of cash.
  • Have an owner or manager occasionally spot check incoming electronic transactions and tie them to the company bank account. If you receive physical checks, have an owner or manager open the mail before passing it on to accounting. That’s one way to detect unusual transactions before they’re recorded in the company books. Alternatively, you might ask someone separate from accounting to open the mail and prepare a deposit slip, or prepare a daily reconciliation of all transactions.
• Segregate reconciliations.
  • For companies with limited resources, a periodic review of bank reconciliations by someone outside of accounting can provide a mitigating control. Non-accounting personnel performing these reviews will need to be trained. They’ll need to understand the risks involved and the types of unusual or unsupported transactions needing further investigation. Cross training staff also helps to ensure continuity of operations when accounting employees take vacations or leave the company. Or better yet, bring in an outside accounting expert to conduct periodic audits of key functions.

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