Education Tax Credits and Deductions: Ease up your Higher Education Process

Education Tax Credits and Deductions: Ease up your Higher Education Process

Higher education in the USA is not everyone’s cup of tea. While many people still find it far-fetched due to the vast amount of time and money it takes, some try their luck in higher education. And why won’t they? From the world’s top 100 to Ivy League colleges, all can be found in the USA! These universities have a huge amount of tuition fees and a considerable amount of tax included with it. But does that mean your dreams shall die down? Of Course not!

In such cases, the education tax credit could be your savior. An education credit reduces the amount of tax owing on your tax return, which helps with the cost of higher education. You may be eligible for a refund if the credit lowers your tax to less than zero. The American opportunity tax credit (AOTC) and the lifelong learning credit are the two education credits available (LLC).
But can everyone really claim an education credit? That is why we thought to make an entire article about this!

There are actually three criteria that you must meet before you claim any credit for your education.

1. You are dependent on a third party for your education. This means, if some distant relative runs your education or you are the one working day and night for your college tuition, the education tax credit can help you lessen your burden.

2. You are an eligible student enrolled in an eligible educational institution (a school offering higher education beyond high school).

3. And lastly, the eligible student is yourself, your spouse, or a dependent you list on your tax return.

 

This sheds light on the topic of who is not really part of this criteria. At first, we should all be clear about the fact that this is only for U.S residents. So yes, if you or your spouse who’s studying here but a non-resident of this country, this one’s not for you. Also, you cannot claim this tax credit twice. I mean, reasonably speaking, the government is liable to give you this benefit only at the first attempt of your higher education study. And last but not least, if you are dependent on your parents, you will not be subjected to claim any educational tax benefit, considering your parents’ tax-pay earners, and you have no burden of your education.

Now, if the question comes to your mind that why do these three criteria get special treatment, the answer is quite simple, an education tax credit is for those people who may find it hard to bear their educational expenses. It aims to help the students who are potential enough to have a higher degree but may fall behind due to financial constraints.

However, this entire process of the education tax credit could be a tricky business. The whole procedure could juggle you up, and you may never reach the point of enabling the tax credit. To drag you out of such situations, there are professionals around the corner. They become your consultant, help you out and eventually make sure you enable your education tax credit. They make sure that you know your rights as a taxpayer and become familiar with the obligations and benefits you might have from states.

Hence, if you want to obtain the education tax credit to make your journey to a higher degree even smoother, make sure you consult a very good CPA!

Getting into the details of Medicaid Payment Benefits

Getting into the details of Medicaid Payment Benefits

If you are a resident of the United States of America, you have probably heard about the term Medicaid benefits. But in case you are not familiar with the term, States may provide Medicaid benefits on a fee-for-service (FFS) basis, through managed care plans, or both. The state pays providers directly for each covered service received by a Medicaid beneficiary under the FFS model.

Who can get this benefit?

  • Pregnant women.
  • Children under 19.
  • Parents/Caretaker relatives (people who live with their child, grandchild, or another relative or step-relative, under age 18 or 19 if a full-time student).
  • Childless adults ages 19-64, including disabled individuals who are NOT on Medicare.
  • Those who are on a family planning benefit program.

However, in the financial qualification process States take both income and assets into account. And not all of them qualify into the list of Medicaid. For instance, Medicaid will not pay for: Durable medical equipment replaced through a warranty, provided by another government agency.To qualify for Medicaid in 2021, a single applicant must earn less than $2,382 per month and have up to $2,000 in countable assets. But apart from that, there are other things that come to the list. Check the list below to know more –

  • Wages.
  • Taxable interest.Dividends.
  • Dividends.
  • Unemployment Benefits.
  • Pensions
  • IRA distributions.
  • Alimony
  • Income from self-employment
  • State income tax refunds
  • Rental income
  • Social Security Benefits (this is true even if your benefits are not taxable).

These are a few basics that we need to know about Medicaid payments. Now, what is really new in this story? I mean, why all of a sudden we are talking about this. Well, we have all the right reasons to talk about this now. Because finally, the IRS has excluded Medicare Payments from the gross income.

How does that work?

For the longest period, Medicaid payment was included in the gross income which means, the receivers’ had to pay tax even for the benefits they used to get from the states. But under section 131 of the Internal Revenue Code (IRC) exempts foster care payments from gross income, but only when the foster individuals are placed in the caregiver’s home by the state. Despite the statutory language, IRS Notice 2014-7 considers Medicaid waiver payments to be excludable “difficulty of care” foster payments. As a result, taxpayers can deduct these payments from their taxable income.

What is your benefit in this?

Very simple, Medicaid Payment is now non-taxable. This means, now the payment you get for taking care of the elderly, children, or any of your loved ones, is all yours.

Still, having trouble understanding the process? For that, you need an accounting expert who will not only make you understand but will guide you through this process. Ahad & Co, an accounting firm based in Bronx, New York is devoted to making you understand all the pros and cons of taxes. They will not only help you get the refund but will also guide you throughout the process. So yes, if you want to know how Medicaid payments work, Ahad & Co could be your convenient solution.

5 Major Red Flags That Could Trigger IRS

5 Major Red Flags That Could Trigger IRS

IRS is a name that every taxpayer and accountant hears on a daily basis. The IRS reviews a taxpayer’s account and financial information to ensure the rules are followed. The IRS can initiate an audit up to three years after the tax-filing deadline or up to six years if you exclude 25% or more of your income. If you have enough evidence to back you up about your tax deductions, it is one of the easiest processes. But, some common red flags may lead to a tax audit, as well as what you can do to avoid IRS difficulties. And as we move forward with this article, we will discuss five significant red flags that may put you in some not-so-pleasant situations with IRS.

1. You didn’t report all your income received in your bank account

The IRS receives copies of the W-2 forms and 1099s that show your earnings, so you’re not the only one who gets them. Expect to hear from the IRS if the figures are off

2. Exaggerating your expenses and deductions

Many people are hesitant to claim the home office deduction because they are concerned that it would result in an audit. This can be a helpful respite to assist offset the costs of setting up and maintaining a home office. However, not everyone who works from home is qualified; the home office deduction is only available for self-employed workers. You must utilize your house for business frequently. It’s not that you need to have a separate office room, but the least you can do is have a space where you don’t do anything else. It must also be your primary place of business or a location where you meet with clients or patients regularly.

3. Reporting business losses.

You may deduct many expenses when you own a business, but the IRS wants to be sure you didn’t start one merely to take advantage of the deductions. Your firm may have more expenses than income in some years, especially when it’s first starting, but the IRS becomes suspicious if it never earns a profit. Enterprises experiencing net losses year after year, or businesses that appear to be just breaking even, are audit red flags.

4. Having transactions in virtual currency

The IRS just used nearly every tool at its disposal to track down taxpayers who sell, receive, trade, or otherwise deal with bitcoin or other virtual currencies. On page one of the 1040 return, there is now a question about virtual currency activity.

5. Engaging in Cash Transactions

A wide variety of cash transactions above $10,000 must be declared under the Bank Secrecy Act. Otherwise, it will be regarded as an illicit act. Thus, be aware when you make a cash transaction or deposits, or you may face IRS inspection.

The above list isn’t meant to be inclusive; it’s merely meant to make you aware that some acts can result in IRS audits. There could be, in fact, there are more such transactional activities that make you notice to IRS, not so positively. So yes, whatever it is, make sure to be transparent about all your transactions. And you are free from red flags!

What Does a CPA Do?

What Does a CPA Do?

Are you wondering, “what does a CPA do?” We’re here to clarify any questions you have in this guide.

Most people have heard the term CPA but not many know that it stands for Certified Public Accountant. And even fewer people know what a CPA does. So if you are one of the people asking, what does a CPA do, you came to the right place.

Keep reading to learn about the role of a CPA and how they might be able to help you.

What Is a CPA?

A Certified Public Accountant (CPA) is a financial advisor. They help individuals, families, businesses, and other organizations handle everything related to their finances.

CPAs must pass the Uniform Certified Public Accountant Examination to become certified. Some of them have master’s degrees but it is not required to take the exam. Instead, 150 hours of credit hours are required. Most CPAs have experience in accounting, financial planning, or business.

Not all accountants are also CPAs. So, what can a CPA do that an accountant can’t? Keep reading to find out.

What Does a CPA Do?

CPAs have a number of roles, but primarily they handle tax filing. They collect all necessary documentation from the individual or business and can then file state or federal tax returns.

A CPA can also help with financial planning. They can help a business manage their cashflow or set goals for future earnings and savings. They can serve as a general bookkeeper and offer accounting solutions.

The same principles apply to helping an individual. A CPA can help a person save for retirement or a child’s college fund and they can also help with everyday budgeting. Businesses may also hire a CPA for auditing purposes. This is not the same as being audited by the IRS. When a CPA completes an audit they are looking for anything out of the ordinary that could be an issue for the business. However, in the event that the IRS does get involved, a CPA can still be of service. They can even represent you in conversations with the tax board or IRS. They will help alleviate some of the stress for you and your business.

CPAs can execute audits for publicly traded companies in the United States while accountants or bookkeepers cannot. They are considered the most experienced and knowledgeable form of an accountant.

A CPA is also qualified to help a person or group apply for a business and consult on the best way to structure the company. For example, a CPA may recommend an LLC over applying as an S-Corp or a C-corp.

Consider Hiring a CPA

As you can see, a CPA can perform a number of essential services for individuals and businesses. So, what does a CPA do? Essentially, they alleviate the stress of filing taxes and managing every aspect of your finances.

A CPA can add tremendous value to your company and reduce the risk of any mistakes in your finances. They can also serve as a trusted consultant and bookkeeper.

If you’re looking for a reputable CPA to handle your finances, contact us today for more information.

CARES Act: Small Business Assistance

CARES Act: Small Business Assistance

CARES Act: Small Business Assistance

As part of our series of spreading knowledge and helping businesses out there during this COVID-19 crisis, we have gathered information from the CARES Act. This bill was passed on Friday, March 27. Below are some of the most important benefits we feel businesses can take advantage of.

Our firm is assisting with SBA loans mentioned below therefore please let us know to discuss further.

On a side note for businesses located in NYC, the city’s small business service is offering a 40% payroll grant and a no interest $75K loan for businesses. You can find out more information on their official website here.

This blog post will answer the question: What benefits are there for small businesses in the CARES Act?

1. Economic Injury Disaster Loan (EIDL) Expanded and Improved: The EIDL loan offered directly by the SBA (Treasury Department) has been there since the start of of COVID-19 crisis but the CARES Act has made it significantly easier for more businesses to get it. Business can get working capital to pay bills and operating expense up to $2 million of financial assistance with interest up to 3.75%. The bill makes the following changes: Business can get $10K emergency advance if not approved for the loan. Additionally this $10K will not have to be paid back if used for paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses. A few others improvements: EIDLs that are smaller than $200,000 can be approved without a personal guarantee, EIDLs can be approved by the SBA based solely on an applicant’s credit score. This loan available to Sole Proprietors, Self Employed and Independent Contractors.

2. Paycheck Protection Loan Forgiveness Program: One of the largest sections of the CARES Act is the most important provision for most small businesses. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll through June. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions. The amount of the loan is 2.5x your 2019 average payroll. You will not have to pay this loan back as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.

3. 100% Refundable Tax Credit for Paid, Sick and Family Leave: Employers who pay their employees for leave due to being quarantined because of COVID-19, to take care of a loved one who is affected, or to take care of child due to school being closed, will be reimbursed by the IRS for 2 weeks of pay as a refundable payroll tax credit. The payroll tax credit has some limitations on the amount and varies slightly based on the reason of leave.

4. Net Operating Loss Carryback: Businesses that have net operating losses (NOLs) have some limitations removed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can be now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.

5. Higher Business Interest Deduction: For 2019 and 2020, the amount of interest expense businesses are allowed to deduct on their tax returns is increased to 50% from 30% of taxable income.

6. Defer Payroll Taxes: Businesses and self-employed individuals can delay their payroll tax payments. The employer share of Social Security tax owed for 2020 can instead be deferred and paid over the next two years. However, fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022. (Exception: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)

Please let us know about if you have any further questions or need further clarification. We are here for you during this difficult time, reach out anytime via email and we’ll be happy to get back to you.