Learning Center for Tax and Financial Insights

It’s more enjoyable than paying your bills. Here are three ways to process incoming money from customers.One of the biggest problems small businesses face is maintaining a positive cash flow. It’s a constant battle. How do you keep your income running ahead of your expenses?QuickBooks Online can help. It provides specialized forms and a mobile app that help you record and deposit the payments that are coming in. Do you ever receive payments instantly for some products and/or services? Are you ever out of the office and have to document a sale for both you and the buyer? Do you send invoices for products and/or services and need to make sure that payments get reported accurately when they come in?QuickBooks Online supports all of these situations. It also provides a service that can automate your payments and help you get paid faster.Applying Payments to InvoicesIf you send invoices to customers for products and/or services, you can receive their payments easily using QuickBooks Online. Businesses can record payments manually, but there’s a better way that can help you get paid faster: QuickBooks Payments. This is a merchant account that allows you to accept credit card and bank payments electronically.Using QuickBooks Online’s mobile app, you can check the payment status of an invoice.Once you set this up in QuickBooks Online, your invoices will allow bank cards and electronic checks as integrated payment options. Your invoices will go out with a button that customers can click to provide bank card or check information. You’ll be able to see when invoices are viewed, paid, and deposited, as shown in the image above. You can also get notifications of invoice activity.Of course, you can also check the payment status of the invoices you’ve sent in the browser-based version of QuickBooks Online on your desktop or laptop. Open your list of invoices on the site and click on one to highlight it. A panel will slide out from the right side of the screen displaying the invoice’s timeline.You can also record payments manually. Look at the end of the row for an invoice that hasn’t been paid. You’ll see a Receive Payment link. Click it to open the Receive Payment screen and complete the fields that aren’t already filled in, then save the screen. There’s also a Receive Payment link on the invoice screen itself.

Article Highlights:Non-statutory OptionWage IncomeStatutory (Incentive) OptionsCapital GainsAlternative Minimum Tax Many companies, as an incentive to employees to help grow the companies’ market value, will offer stock options to key employees. The options give the employee the right to buy up to a specified number of shares of the company’s stock at a future date at a specific price. Generally, options are not immediately vested and must be held for a period of time before they can be exercised. Then, at some later date, and assuming the stock price has appreciated to a value higher than the option price of the stock, the employee can excise the options (buy the shares), paying the lower option price for the stock rather than the current market price. This gives the employee the opportunity to participate in the growth of the company through gains from the sale of the stock without the risk of ownership.There are two basic types of employee stock options for tax purposes, a non-statutory option and a statutory option (also referred to as the incentive stock option), and their tax treatment is significantly different. Non-statutory Option – The taxability of a non-statutory option occurs at the time the option is exercised. The gain is considered ordinary income (compensation) and is supposed to be included in the employee’s W-2 for the year of exercise. We say “supposed to be” because it is not uncommon to see smaller firms mishandle the reporting.The employee has the option to sell or hold the stock he or she has just purchased, but regardless of what he or she does with the stock, the gain, which is the difference between the option price and market price of the stock at the time of the exercise, is immediately taxable. Because of the immediate taxation, most employees who have been granted options will, when exercising their options, immediately sell their stock. Under that scenario, the W-2 will reflect the profit and Form 8949 (the tax form used to report sales of stock and other capital assets) may need to be prepared to show the sale, essentially with no gain or loss, so that the gross proceeds of sale reported on the return are matched up with the sale reported to IRS (on Form 1099-B). If there was a sales cost, such as a broker’s commission, then the result would be a reportable loss, albeit usually a small amount. Since the difference between the option price and market price is included in wages, it is also subject to payroll taxes (FICA).If an employee chooses to hold the stock, he or she would have to pay the tax on the difference between the option price and exercise price, plus the FICA tax, from other funds. If the stock subsequently declines in value, the employee is still stuck with the gain reported when the option was exercised. Any loss on the subsequent sale of the stock would be limited to the overall capital loss limitation of $3,000 per year. Statutory (Incentive) Options – What makes the taxation of a statutory option different from a non-statutory option is that no amount of income is included in regular income when the option is exercised. Thus, the employee can continue to hold the stock without any tax liability; and, if he or she holds it long enough, any gain would become a long-term capital gain. To achieve long-term status, the stock must be held for:More than 1 year after the stock option was exercised, and More than 2 years after the option was granted.

Because most of the COVID pandemic-related tax benefits have come to an end, your tax refunds may be smaller this year and substantially smaller for many.

Article Highlights: Caring for Disabled Family MembersQualified Medicaid Waiver PaymentsExclusion QualificationsMandatory ExclusionEarned IncomeEarned Income Tax CreditTax Court RulingMany taxpayers prefer to care for ill or disabled family members in their homes as opposed to placing them in nursing homes, but doing this can be expensive, time-consuming, and exhausting. The government also recognizes home care as a means of reducing the government’s costs in terms of caring for individuals who otherwise would be institutionalized (because they require the type of care that is normally provided in a hospital, nursing facility, or intermediate care facility). To promote home care and reduce the government’s institutional care expenses, Medicaid (through state agencies) pays home caregivers a small amount of compensation, referred to as a Medicaid waiver payment, to care for an individual in the care provider’s home. Originally the IRS took the position that these payments were taxable income to the caregiver. Back in 2014, the IRS changed its position and announced that, if the care met certain requirements, the compensation would be excludable and treated in the same manner as excludable difficulty-of-care payments under the foster care payments rule. This is the case even when the caregiver and the individual being cared for are related. The compensation exclusion applies if the following requirements are met:The compensation must be required due to a physical, mental, or emotional handicap with respect to which the State has determined that there is a need for additional compensation. The care must be provided in the care provider’s home. The “provider’s home” may be the care recipient’s home if the care provider resides there and regularly performs the routines of the provider’s private life, such as sharing meals and holidays with family. In contrast a care provider who sleeps at the care recipient’s home several nights a week but on weekends and holidays resides with his or her own family in a separate home would not be providing the care in the care provider’s home and would not qualify to exclude the Medicaid waiver payments received.The payments must be designated as compensation for qualified foster care or difficulty of care.To be excludable, the care payments are limited to a maximum of five individuals aged 19 and older or ten individuals aged 18 and younger.

Article Highlights: Employee CompensationSelf-Employment CompensationParsonage AllowancePrimary ResidenceFair-Market-Value LimitationDesignation by the Employing Organization Business Expenses and Excluded IncomeRetirementVows of PovertySelf-Employment Tax ExemptionMembers of the clergy are taxed on not just their salary but on other fees and contributions that they receive in exchange for performing services such as marriages, baptisms, funerals, and masses. As a result, clerics will generally report their income in two ways:As Employees – As employees, clerics receive from the church W-2 forms that show the amount of their income that is subject to tax, any amount paid as a nontaxable housing allowance (discussed later), and any withholding. As Self-Employed Individuals – Income received by a cleric other than as an employee of a church is reported as self-employment income. Typically, this would include fees received for services provided for baptisms, weddings, funerals, and other religious ceremonies that are not included in the W-2 from the church. This income and any expenses associated with it are reported on Schedule C and are subject to the self-employment tax. Members of the clergy may qualify for two unique tax benefits: a tax-free parsonage allowance and an exemption from the self-employment tax on their ministerial earnings. Here are the details for both.Parsonage/Rental Allowance Exclusion from Income – A member of the clergy can qualify to have a rental allowance excluded from taxable income if that allowance is provided as remuneration for services that are ordinarily the duties of a minister of the gospel. The following are the qualifications and details of the exclusion allowance: The allowance is excludable only to the extent that it is used for expenses related to the minister’s housing (e.g., rent, mortgage payments, utilities, and repairs). The rental allowance is not excludable to the extent that it exceeds reasonable compensation for the minister’s services.The allowance only applies to the minister’s primary residence.The allowance cannot exceed a home’s fair rental value, including furnishings and appurtenances such as garages, plus the cost of utilities. In advance of the payment, the employing organization must designate the allowance by an official action. If a minister is employed by a local congregation, the designation must come from the local church instead of from the church’s national organization.The portion of the minister’s business expenses that is attributable to tax-free income is not deductible. This rule does not apply to home-mortgage interest or to taxes that are deductible in full if the minister itemizes deductions.Retired clerics can exclude a home’s rental value or a rental allowance if it is furnished as compensation for past services and authorized under a convention of a national church organization. However, this exclusion does not extend to the widow or widower of a retired cleric.Although it is not subject to income tax, a parsonage allowance is subject to the self-employment tax unless the minister is exempt (as discussed below).

Receiving a tax refund is happy news to any taxpayer; getting it quickly is even better. Direct deposit is the safest and most convenient way to receive a tax refund. The IRS encourages taxpayers to file when they are ready and choose direct deposit to receive any refund they may be owed.