Third Party Bank Access Instructions

Purpose:

It is important to provide bank access to your accountant so they can pull statements and validate transactions without the burden of asking the client for the information. This makes the accountant efficient and effective.

American Express

To give access to a third party to view your American Express business account, you need to set up their account using the Account Manager feature on Amex’s website. Within Account Manager, you can grant limited access to your bank records. You can modify the user privileges by going to My Account then User Administration and clicking on View/Modify. Next select View Only access.

https://www.americanexpress.com/us/credit-cards/features-benefits/account-management/account-manager.html

Bank of America

You can grant third party access to your Bank of America account by upgrading your online banking account to include Account Management. Using this add-on, you can create an individual account access level and allow a third party to view and manage accounts with whatever privileges you grant.

The Account Management feature of Bank of America also allows you to integrate Quickbooks to your account. By integrating, you can synchronize transactions between your bank and your Quickbooks account in real-time.

https://www.bankofamerica.com/smallbusiness/online-banking/account-management/

Capital One

When working with Capital One as your bank, you will need to use their Treasury Management feature to limit your accountant’s viewing access. With this feature, you can adjust the access settings of your authorized users.

Chase Bank

Chase Bank offers the Chase Access & Security Manager. This feature allows you to set up multiple authorized users with their own unique ID and password, which gives them access only to the accounts and services you allow. To access this feature:

• Sign into your account and choose Account Management
• Select Access & Security Manager from the drop-down menu
• You will see the option to add an authorized user by selecting Add New User
• You will need to complete the fields on the page
• Choose the accounts a new user can access. Assign their level of access by choosing Assign access
• Please check the box next to “Third-Party App Access” to allow us to connect bookkeeping software (like Quickbooks, Xero, etc)

https://www.chase.com/digital/customer-service/helpful-tips/business-banking/security/add-users-assign-rights

PNC Bank

PNC Bank gives you the ability to grant “view only” access to a third party with limited access to items such as bank statements, check copies, and ability to connect accounts to QuickBooks Online. To grant “view only” access:

• Log into PNC.com
• Click on the Business Tools tab
• Find the Account Delegation section and click on Add/Edit Sub Users
• Add the required information on the Sub User form and click on Next
• On the next page, be sure to check Accounts under Select the services that will be granted to the Sub User, and click on Next
• Add access to all business accounts by checking the box next to each one, and under each account select access to Online Statements and View images of checks and deposit/withdrawal slips
• Click Save and email us the User ID you created along with the temporary password

U.S. Bank

U.S. Bank allows you to share customized access for business accounts using the “Shared Access” feature. You can select “View Only.” This will allow a third party to view transactions, balances, and other details on selected accounts.

U.S. Bank provides detailed history reports that allow you to keep tabs on Shared Access users as the Shared Access administrator. To activate this feature:

• Login to U.S. Bank online using your business user ID
• Find the I’d Like To menu located on the left side of the page and choose Managed Shared Access
• Or you can click Customer Service and then select Shared Access

https://www.usbank.com/business-banking/business-bank-accounts/business-checking/shared-access.html

Wells Fargo

Wells Fargo has an Account Access Management feature that allows you to can grant an individual online “View Only” access to one or more of your accounts, manage their usernames and passwords, and edit/cancel a guest user’s access anytime.

When you visit the Wells Fargo page, navigate to the small business section. From there, select Account Access Management.  You will see an overview of employees who have been added to your account and the type of access they have.

https://www.wellsfargo.com/biz/online-banking/tour/account-access-management/

Home In Office Credit

Purpose

The Home in Office deduction allows business owners to deduct a portion of the expenses for their home such as rent, mortgage interest, property taxes, utilities, insurance and repairs and maintenance as a business expense, lowering their potential taxes.

Objective

Are you a business owner that uses part of your home as an office and/or place to store inventory for your business? If so, you may be eligible for the home in office credit. Here are key points of the credit-

Eligibility

1. The section of your home used as an office or inventory storage must be used regularly and exclusively for business purposes. This means it can’t be a space that is only used occasionally for business purposes or an area that is also used for personal purposes, such a kitchen table or living room couch.
2. The Home Office must be used as your principal place of business. That means, if you have another physical office outside of your home, most likely, you would not qualify for the deduction.
3. The deduction is only available to business owners, it is not available to non-owner w2 employees.
4. The credit can only be taken when a business has a profit (more sales than expenses). If there are Home Office expenses and the business does not have a profit, the expenses are not deducted that year, they are carried forward into future years until they can be used.

How Does it Work?

1. The amount of deduction is the percentage of the space used as an office divided by the total square footage of your home.
   1. For example: If your designated space is 200 sqft. and your home is 1,000 sqft. then 200/1,000 = 20% of your home expenses can be used for Home in Office Credit.
2. The IRS does offer a simplified method, which allows business owners to deduct expenses without tracking expenses. This method does allow a deduction up to $1,500 ($5 per square foot)

Changing Tax Filing to an S-Corp

Purpose

Changing the taxation of an LLC to an S-Corporation can be a strategic move for business owners, but it involves several considerations. Here’s a breakdown of the key aspects:

Summary

Typically, the main reason to switch taxation to an S-Corp taxation is tax savings, as the typical tax savings can be 8-15%. However, with the change also comes some negatives. The positives and negatives should be carefully considered before making the switch, as the business must stay an S-Corp for at least 5 years after the switch.

Eligibility Requirements

• Must be a domestic corporation.
• Limited to 100 shareholders.
• All shareholders must be U.S. citizens or residents.
• Only one class of stock is permitted.

Understanding the Structures

• LLC (Limited Liability Company): By default, an LLC is a pass-through entity, meaning income is reported on the owners’ personal tax returns. Owners pay self-employment taxes on all profits.
• S-Corp (S Corporation): Also a pass-through entity, but allows owners to take a salary and potentially reduce self-employment taxes. Only the salary is subject to self-employment taxes, while profits are taxed at the individual level.

Benefits of S-Corp Taxation

• Self-Employment Tax Savings: Income from an S-Corp is not subject to self-employment tax.
• Distributions: Owners can classify part of their income as distributions, which allows the owners to take tax free money out of the business.
• Owner’s Personal Loans: S-Corp owners can pay their owners via payroll, which creates paystubs and w2s, which may allow the owner to obtain a higher loan, such as a mortgage.

Negatives of switching to an S-Corp Taxation

• Extra Tax Return: An S-Corp has its own separate tax return, which typically comes at an extra cost.
• Extra Payroll Costs: S-Corp Owners are required to issue themselves a paycheck. A payroll software is highly recommended for this, which comes at an additional cost.

Mileage vs Actual Vehicle Expenses

Purpose

The IRS allows you to deduct EITHER mileage or actual expense. The mileage deduction is the number of business miles your drive for business times the mileage rate, which was 67 cents per mile in 2024 (this number changes every year). For actual expenses, you can deduct the gas, repairs, insurance, interest expense and depreciation times a business use percentage of the car. The IRS lets you take the higher deduction each year, however, in order to switch back and forth, you MUST take the mileage deduction the first year you have the car. (By taking mileage the first year, the means you can’t take depreciation)

Example

Since the Milage calculation is higher than the actual expenses, we would expense the mileage calculation total.

Reference

GSA Mileage Rate: https://www.gsa.gov/travel/plan-a-trip/transportation-airfare-rates-pov-rates-etc/privately-owned-vehicle-pov-mileage-reimbursement

Employee vs Contractor

Purpose

The difference between employees and contractors primarily revolves around the nature of the work relationship, tax obligations, and legal responsibilities. The determination is based off several factors, and is typically not based on just one. Each determination should be based on the particular facts and circumstances of each case.

Comparison Table

Summary

In essence, employees are integral to a company’s operations and are governed by labor laws, while contractors operate independently, often with a specific scope of work, and have different tax and legal implications. The distinction is crucial for both tax reporting and legal compliance.

Sales and Use Tax

Purpose:

In the United States, there are state laws where consumers are required to pay a tax on goods and services purchased. This is what we call Sales and Use Tax.

NOTE: Tax rates below are subject to change.

Sales Tax

Sales tax is a tax imposed on the sale of goods and services. It is typically a percentage of the purchase price and is added to the final cost of the product or service. The rate of sales tax varies by location, with different states and localities having their own rates.

Here’s a table of state sales tax rates, average local sales tax rates and combined tax rates as of July 1, 2023, including the District of Columbia. Delaware, Montana, New Hampshire and Oregon aren’t included in the table because they don’t have state or local sales taxes.

*Based on data organized by The Tax Foundation’s report: State and Local Sales Tax Rates, Midyear 2023

5 States With The Highest Sales Tax

These five states have the highest average state sales tax:

• California (7.25%)
• Indiana (7.00%)
• Mississippi (7.00%)
• Rhode Island (7.00%)
• Tennessee (7.00%)

5 States With The Lowest Sales Tax

Of the states that charge state sales tax, Colorado’s is 2.9%, the lowest state sales tax rate in the U.S. There’s a five-way tie between these states at 4%:

• Alaska
• Georgia
• Hawaii
• New York
• Wyoming

5 States With The Highest Average Combined State And Local Sales Tax Rates

These five states have the highest average combined state and local sales tax:

• Tennessee (9.55%)
• Louisiana (9.55%)
• Arkansas (9.44%)
• Washington (9.40%)
• Alabama (9.24%)

5 States Without Sales Tax

These four states don’t have sales taxes:

• Delaware
• Montana
• New Hampshire
• Oregon
• District of Columbia

Use Tax

Use tax is a tax imposed when sales tax was not imposed but should have been. For example, if a tangible item is purchased off the internet, and sales tax was not charged when it should have been, the purchaser is required to consider the sales tax what they should have paid in sales tax, and submit that to their state on a regular basis, typically monthly or quarterly.

Nexus

In some cases, a business is not responsible for collecting sales tax in a state because they do not have nexus in a state. Nexus is created by having a physical presence in the state, such as employees or buildings and is also created when certain sales thresholds have been obtained. If a business meets the nexus based on the aforementioned requirements, they are required to charge and submit the sales tax to the state.

Payroll Taxes

Purpose

United States payroll taxes are taxes that employers withhold from employees’ paychecks, as well as taxes that employers pay themselves. These taxes primarily fund Social Security and Medicare, which provide benefits for retirees, the disabled, and certain survivors. Here’s a breakdown:

Social Security Tax

• Employee Contribution: Employees pay 6.2% of their gross wages up to a certain wage limit, which is adjusted annually (e.g., $160,200 for 2023).
• Employer Contribution: Employers also pay 6.2%, matching the employee’s contribution.

Medicare Tax

• Employee Contribution: Employees pay 1.45% of their gross wages, with no wage limit.
• Employer Contribution: Employers match this with an additional 1.45%.

Federal Unemployment Tax Act (FUTA)

• Employer Contribution: Employers pay 6.0% on the first $7,000 of each employee’s wages.

State Unemployment Taxes (SUTA)

• States impose their own unemployment taxes, which vary by state. These taxes are typically paid only by employers and fund state unemployment benefits.

Other Deductions

• Employers may also withhold for other programs like state disability insurance or local taxes (such as DC’s Paid Family Leave), depending on the jurisdiction.

Garnishment

• Some people are not so good about paying their child support or other government bills. Sometimes the government can force the employer to take funds out of an employee’s pay check to cover past due assessments.

Summary

Both employers and employees contribute to payroll taxes, and the amounts vary based on income employee location and local regulations.

Income Taxes

Purpose

U.S. income taxes are taxes imposed by the federal government and most state governments on the income earned by individuals and businesses. Here’s a breakdown of how they work:

Types of Income Tax

• Federal Income Tax: This is a progressive tax levied by the Internal Revenue Service (IRS). The more you earn, the higher your tax rate. Tax rates are divided into brackets.
• State Income Tax: Most states also levy their own income taxes, which can be flat or progressive. A few states have no income tax at all. Some states charge a “flat rate” tax, which is when all of your income is taxed at the same rate. Other states use a bracket system, similar to the IRS.
• Local Taxes: Some cities and localities impose additional income taxes.

Filing Status

• Individuals file taxes based on their status, which can affect rates and deductions. Common statuses include single, married filing jointly, married filing separately, head of household, and qualifying widow(er).

Taxable Income

• Taxable income is generally your gross income minus any deductions or exemptions. Gross income includes wages, dividends, capital gains, and other income sources. This is the number that is used to look up your tax in the brackets.

Deductions and Credits

• Standard Deduction: A fixed deduction amount set by the IRS that reduces taxable income.
• Itemized Deductions: Taxpayers can choose to itemize deductions (like mortgage interest, state taxes, medical expenses) instead of taking the standard deduction if it results in a lower taxable income.
• Other Deductions: There are many other deductions, as the student loan interest deduction, IRA deduction, and self-employment health insurance.
• Tax Credits: Directly reduce the amount of tax owed and can be more beneficial than deductions. Examples include the Earned Income Tax Credit and Child Tax Credit.

Tax Rates

• The federal income tax system has several brackets ranging from 10% to 37% (as of 2024). Each bracket applies to a specific range of income. Most people are taxed at several brackets, meaning different ranges of their income at taxed at different rates.

Tax Returns

• Individuals and some businesses must file an annual tax return, typically by April 15. This document reports income, deductions, and credits to determine tax liability.
• Most businesses must file an annual tax return, typically by March 15. This document reports income, deductions and credits.

Withholding

• Employers typically withhold taxes from employees’ paychecks based on information provided on Form W-4. This withholding acts as a prepayment of the employee’s income tax.

Estimated Taxes

• Typically, self-employed individuals or those with significant non-wage income may need to make quarterly estimated tax payments to avoid penalties.

Penalties and Audits

• Failure to file or pay taxes on time can result in penalties. The IRS and states also conducts audits to ensure compliance with tax laws.

Summary

Understanding the structure, rates, and available deductions or credits can help individuals and businesses effectively manage their tax obligations.

Bonus Depreciation

In the accounting world, when something is purchased that is expected to be used for more than one year and has a significant value, this thing is called an asset. Some examples of assets are computers, vehicles, furniture, machines, etc.

Since these items are to be used for more than one year the deduction for purchasing these items is spread out over the expected life of the asset (also called the useful life). This deduction is called depreciation. Typically, the useful life is divided by value to get the depreciation taken each year.

For example, if you purchase a $20,000 vehicle, and the vehicle has a useful life of 5 years, the depreciation taken each year would be $4,000 ($20,000/5)

Bonus depreciation is a tax incentive provided by the IRS that allows businesses to accelerate the depreciation of certain qualifying assets. This means that rather than spreading the depreciation deduction over the useful life of the asset, businesses can take a larger deduction in the year the asset is placed in service. Here’s a detailed breakdown of how bonus depreciation works, the rationale behind it, and examples to illustrate its application.

Understanding Bonus Depreciation

1. What It Is: Bonus depreciation permits businesses to deduct a significant percentage (up to 100% some tax years) of the cost of qualifying property in the year it is purchased and placed in service. This can significantly reduce taxable income for that year.
2. Qualifying Assets: To benefit from bonus depreciation, the asset must meet specific criteria:

• • It must be new or used property that is acquired and placed in service.
  • The property must have an useful life of 20 years or less, which includes machinery, equipment, furniture, and certain qualified improvement property.

How to Claim Bonus Depreciation

1. Determine Eligibility: First, assess whether the asset you’ve acquired qualifies for bonus depreciation. Review the asset type and its useful life to ensure it fits the criteria.
2. Record the Asset: Maintain detailed records of the asset purchase, including invoices, contracts, and any documentation that supports your acquisition date. This documentation is critical for substantiating your claim during tax reporting.

Rationale Behind Bonus Depreciation

The rationale for allowing bonus depreciation is multifaceted:

• Stimulate Investment: By enabling businesses to take a larger upfront deduction, the IRS encourages capital investment. This can stimulate economic growth, as businesses may be more likely to purchase new equipment and improve their operations.
• Cash Flow Benefits: Immediate tax deductions enhance cash flow, providing businesses with more capital to reinvest in their operations, hire additional staff, or expand their services.
• Simplified Tax Planning: Bonus depreciation can simplify tax planning for businesses, allowing them to make more predictable financial decisions when it comes to investments.

Examples to Illustrate

1. Manufacturing Equipment: Suppose a manufacturing company purchases a new machine for $200,000. If this machine qualifies for 80% bonus depreciation, the company can deduct $160,000 (80% times $200,000) in the year it was placed in service, rather than spreading it out over several years.
2. Office Furniture: A small business acquires new office furniture for $30,000. If the furniture qualifies, the business can again deduct the full $30,000 immediately. This provides a significant tax break that can be reinvested into the business.

Conclusion

In summary, bonus depreciation is a powerful tool for businesses looking to reduce their taxable income and encourage investment in new assets. By understanding how to navigate the eligibility requirements and the claiming process, businesses can make informed decisions that enhance their financial health. Staying updated on changing laws and regulations surrounding bonus depreciation is vital for maximizing tax benefits and ensuring compliance with IRS guidelines.

Settlements Taxability

If you receive proceeds from settlement of a lawsuit, you may have questions about whether you must include the proceeds in your income. This publication provides information about whether you must include the proceeds of certain kinds of settlements in your income. Whether you must include the settlement proceeds in your income depends on all the facts and circumstances in your case.

A settlement payment may consist of multiple elements that have been allocated by the parties. For example, an agreement may include allocations to back pay, emotional distress, and attorneys’ fees. Generally, the IRS will not disturb an allocation if it is consistent with the substance of the settled claims.

Personal physical injuries or physical sickness

If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.

BUT

If you receive a settlement for personal physical injuries or physical sickness, you must include in

income that portion of the settlement that is for medical expenses you deducted in any prior year(s) to

the extent the deduction(s) provided a tax benefit. If part of the proceeds is for medical expenses you

paid in more than one year, you must allocate on a pro rata basis the part of the proceeds for medical

expenses to each of the years you paid medical expenses. See Recoveries in Publication 525,

Taxable and Nontaxable Income, for details on how to calculate the amount to report. The tax benefit

amount should be reported as “Other Income” on line 8z of Form 1040, Schedule 1, Additional

Income and Adjustments to Income.

Emotional distress or mental anguish

The proceeds you receive for emotional distress or mental anguish attributable to a personal physical injury or physical sickness are treated the same as proceeds received for Personal physical injuries or physical sickness above.

BUT

If the proceeds you receive for emotional distress or mental anguish do not originate from a personal physical injury or physical sickness, you must include them in your income. However, the amount you must include is reduced by: (1) amounts paid for medical expenses attributable to emotional distress or mental anguish not previously deducted and (2) previously deducted medical expenses for such distress and anguish that did not provide a tax benefit. Attach to your return a statement showing the entire settlement amount less related medical costs not previously deducted and medical costs deducted for which there was no tax benefit. The net taxable amount should be reported as “Other Income” on line 8z of Form 1040, Schedule 1, Additional Income and Adjustments to Income.

Lost wages or lost profits

If you receive a settlement in an employment-related lawsuit; for example, for unlawful discrimination or involuntary termination, the portion of the proceeds that is for lost wages (i.e., severance pay, back pay, front pay) is taxable wages and subject to the social security wage base and social security and Medicare tax rates in effect in the year paid. These proceeds are subject to employment tax withholding by the payer and should be reported by you as wages on Line 1a of Form 1040, U.S.

Individual Income Tax Return.

If you receive a settlement for lost profits from your trade or business, the portion of the proceeds attributable to the carrying on of your trade or business is net earnings subject to self-employment tax. These proceeds are taxable and should be included in your “Business income” reported on line 3 of Form 1040, Schedule 1, Additional Income and Adjustments to Income. These proceeds are also included on line 2 of Form 1040, Schedule SE, Self Employment Tax, when figuring self-employment tax. For more information about reporting self-employment income and paying self-employment tax, see Publication 334, Tax Guide for Small Business (For Individuals Who Use Schedule C).

Loss-in-value of property

Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement.

If the property settlement exceeds your adjusted basis in the property, the excess is income. For more information, see the Instructions for Form 1040, Schedule D, Capital Gains and Losses and the Instructions for Form 4797, Sales of Business Property.

• Interest: Interest on any settlement is generally taxable as “Interest Income” and should be reported on
  line 2b of Form 1040, U.S. Individual Income Tax Return.
• Punitive Damages: Punitive damages are taxable and should be reported as “Other Income” on line 8zof Form 1040, Schedule 1, Additional Income and Adjustments to Income, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness.
• Estimated Payments: Some settlement recipients may need to make estimated tax payments if they expect their tax to be $1,000 or more after subtracting credits & withholding. Information on estimated taxes can be found in IRS Publication 505, Tax Withholding and Estimated Tax, and in Form 1040-ES, Estimated Tax for Individuals.
• For additional information, see Publication 525, Taxable and Nontaxable Income, visit our website at www.irs.gov, or call toll-free at 1-800-829-1040.

Important Note about Health Insurance Coverage. If you, your spouse, or your dependent enrolled in health insurance coverage through the Health Insurance Marketplace and advance payments of the premium tax credit were made to the insurance company, let the Marketplace know if you have a change in circumstances such as a taxable settlement resulting in an increase in your income. Reporting changes allows the Marketplace to adjust the amount of your advance credit payments, which helps prevent large differences between your advance credit payments and the premium tax credit you are allowed. Find out more about the tax-related provisions of the health care law at irs.gov/affordablecare-act. See IRS Publication 5152, Report changes to the Marketplace as they happen.

All of the forms and publications referenced in this publication are available from the IRS at www.irs.gov.

Publication 4345 (Rev. 9-2023) Catalog Number 38586D Department of the Treasury Internal Revenue Service www.irs.gov