Author: Service2Client

Everything There is to Know About the New Child Tax Credit

3 min read

Child Tax Credit 2020The Child Tax Credit as we know it originated during the Clinton administration, but the recently enacted American Rescue Plan created a new version. The updated version of this tax credit could have a beneficial impact on Americans struggling through the COVID-19 pandemic. There are changes to many aspects of the credit, so let’s look at each one below.

Monthly Payments Versus Once-a-Year Credit

First, the new version of the Child Tax Credit applies only to the year 2021. If a family qualifies, the credits are $3,600 for each child under age 6 and $3,000 for those ages 6 to 17.

The major difference is not the limits, but that in 2021 half of the credit will be paid on a monthly basis in the second half of the year. From July through December, the credit will be paid out at a rate of $300 for each child under age 6 and $250 for each child ages 6 to 17. In prior years, the tax credit was available only when filing an annual tax return. The other half of the credit in 2021 will be reconciled on 2021 income tax returns.

Income Limits and Phase-Outs

Similar to the stimulus checks, the tax credit is based on adjusted gross income. To receive 100 percent of the credit, the AGI limits are $75,000 for single filers, $112,500 for heads of household and $150,000 for those married filing jointly.

The phase-outs start once a taxpayer exceeds these AGI thresholds. Every $1,000 in AGI over the limit reduces the credit by $50 (per dependent child). For example, if a couple filing jointly earned an AGI of $165,000, their credit will be reduced by $750 per child.

Qualification for the Credit

While the tax credit is ultimately based on 2021 income, to facilitate the monthly payments, the new Child Tax Credit will use 2020 income tax returns. For those who haven’t filed yet, the look-back will be to 2019. The monthly payments will be based on these already filed tax returns and then the balance of the credit be reconciled based on 2021 income.

If a taxpayer receives more interim monthly payments on the tax credit than their 2021 AGI entitles them to, they will need to pay back the unqualified portion of the credit.

Unique Situations

In the scenario where a child crosses age thresholds mid-year in 2021, the age for determining the credit will be based on how old the child is on Dec. 31, 2021. For example, a child who turns 6 before the end of the year will qualify for the lower $3,000 credit and not the $3,600 for those under 6.

Existing Child Tax Credit is Still Available

One of the unique features of the new Child Tax Credit is that the old version is still available. This version established under the Tax Cuts and Jobs Act of 2017 has significantly higher AGI thresholds: single taxpayers with an AGI of $200,000 and married filing jointly at $400,000. As a result, many taxpayers will still qualify for this version with its lower credit of $2,000 per child and no monthly payments.

Conclusion – There’s More to Come

As the July 1, 2021 start date approaches, the IRS will release more details on the new Child Tax Credit and what taxpayers can do to take advantage of the changes.

E-Invoicing Presents Opportunities for Businesses to Save

4 min read

E-Invoicing Invoicing is an important process in any business. Unfortunately, it’s also a laborious process that requires accuracy. With technology advances, businesses have tried to use various means to ease the invoicing process. Some outfits send scanned invoices; others might transfer PDFs through email; and some still use manual invoices. In this technology age, businesses are choosing to automate functions in a bid to increase overall business productivity and efficiency. E-invoicing is a technology that promises to help entrepreneurs add value to their businesses.

What is E-Invoicing?

E-invoicing is the exchange of an invoice between a buyer and seller using an integrated electronic format. This allows the buyer to pay online through a card payment, direct debit or other option after receiving the e-invoice.

E-invoicing is not a new technology; it’s already used by large scale businesses and governments. Some governments have already mandated the use of e-invoices from their suppliers and even for taxpayers. These programs have been running onsite, making it expensive for small and medium businesses (SMB) to use. Another challenge for SMBs has been dealing with multiple providers who have different platforms and technologies. This is a challenge because it requires a business to support extra business processes when sending or receiving invoices.

However, the rise of cloud computing and Software as a Service (SaaS) technologies has become an enabler for SMBs to implement e-invoicing.

Making e-invoicing available as SaaS eliminates complicated system installations and integrations that have previously been a challenge to SMBs. The SaaS systems come with features that allow you to automate the invoicing process, send reminders, accept online payments and generate reports, among other things.

Benefits of E-Invoicing

Here are some reasons that businesses are moving to e-invoicing:

  • Eliminates the manual process of sending invoices between a buyer and seller.
  • Prevents human error with the use of a template. The automated e-invoice ensures correct data is used with a validation process. This ensures there is no mistyped information, no data entry errors, no double entry, missed details or wrong data. Therefore, it improves accuracy.
  • Low cost of processing, since it helps to cut down on administration costs and printing invoices. It also saves a business from the task of sending emails back and forth concerning an invoice.
  • Maintains a more predictable cashflow as e-invoicing facilitates the seller receiving payment faster.
  • Enables ease of tracking invoices as you can track and trace the entire document journey. This means better accounting.
  • Enhanced convenience. Businesses create a different number of invoices depending on their transactions. E-invoicing provides a convenient way to store the invoices and easily retrieve them when needed.
  • Saves on time so you can concentrate on other business activities. There is no need to waste time looking for client information and entering data every time you need to send an invoice.
  • Improves the accounting process. When a business integrates e-invoicing with an accounting system, the invoicing function is faster and easier to handle.
  • Enhances invoice security and guaranteed delivery. There is no risk of invoices getting lost in the mail or landing in junk email. Encrypted file transfer and digital signatures are used to enhance security.
  • Real-time processing, which allows one to view the live delivery and processing status of an invoice.
  • Remote handling as SaaS can be accessed from anywhere. This makes it possible to send an invoice anytime and from anywhere as there is no need for printers or scanners.

Conclusion

The business environment is becoming increasingly competitive and the adoption of technology that automates processes can only help. E-invoicing provides an opportunity for business owners to effectively use their time on growing their business instead of spending it on a labor-intensive administration process. This service also helps SMBs align themselves with large corporations.

Finally, as with any technology, business owners should take time to research which e-invoicing service provider will best serve their unique business needs.

Advancing Healthcare Initiatives, Small Business Funding and Protecting the Elderly from Scams

3 min read

Advancing Healthcare Initiatives, Small Business Funding and Protecting the Elderly from ScamsFASTER Act of 2021 (HR 578) – This bill expands the definition of major food allergens for food-labeling purposes to include sesame. It is designed to protect Americans with food allergies and related disorders that could be affected by anaphylaxis, food protein-induced enterocolitis syndrome, and eosinophilic gastrointestinal diseases. It also authorizes the Department of Health and Human Services to report on food allergy research and data collection activities. The bill was introduced by Rep. Tim Scott (R-SC) on March 3. It was passed by Congress on April 14 and is currently awaiting enactment by the president.

Advancing Education on Biosimilars Act of 2021 (S 164) – This bill was introduced by Sen. Margaret Hassan (D-NH) on Feb. 2. The legislation requires the Food and Drug Administration (FDA) to educate and promote awareness about biological products and biosimilars among healthcare providers. The FDA may also host a website to provide educational materials. This bill was passed by Congress on April 14 and is awaiting signature by the president.

TRANSPLANT Act of 2021 (HR 941) – This bill reauthorizes the Stem Cell Therapeutic and Research Act of 2005, which makes genetically matched cord blood stem cells available to patients who need them. The legislation was re-introduced by Rep. Doris Matsui (D-CA) on Feb. 8 and passed in the House on April 15. It is currently under consideration in the Senate.

504 Credit Risk Management Improvement Act of 2021 (HR 1482) – Introduced by Rep. Dan Bishop (R-NC) on March 2, this bill passed in the House on April 16 and goes to the Senate next for consideration. It amends the Small Business Act to require the administrator of the Small Business Administration to issue rules relating to environmental obligations of certified development companies and for other purposes.

504 Modernization and Small Manufacturer Enhancement Act of 2021 (HR 1490) – This bill was introduced by Rep. Angie Craig (D-MN) on March 2 and passed in the House on April 15. It is currently under consideration in the Senate. The bill would amend the Small Business Investment Act of 1958 to improve the loan guaranty program in order to enhance the ability of small manufacturers to access affordable capital. In addition, the bill adds policy goals, such as facilitating reduced costs via energy-efficient products and generating renewable energy, and providing aid to revitalize disaster areas. The bill also would increase the maximum loan amount from $5.5 million to $6.5 million for small manufacturers, and reduce the amount that they must contribute to project costs, among other provisions. The legislation authorizes each SBA district office to engage a resource partner to provide training for small manufacturers.

Fraud and Scam Reduction Act (HR 1215) – This bill would establish an office within the Federal Trade Commission and an outside advisory group for the purpose of preventing fraud that specifically targets the elderly, including mail, telephone and internet scams. Furthermore, the bill would create a Senior Scams Prevention Advisory Group to create educational materials for distribution to employees of retailers, financial services, and wire-transfer companies to help them identify and prevent scams that affect older adults. The FTC also would establish an advisory office within the Bureau of Consumer Protection to monitor scams targeting older adults, educate consumers and receive complaints. The bill was introduced by Rep. Lisa Blunt Rochester (D-DE) on Feb. 23. This bill passed in the House on April 15 and goes to the Senate next for consideration.

Tax-Free Student Loan Forgiveness is Part of the Latest Covid-19 Relief Bill

3 min read

Tax-Free Student Loan ForgivenessThe recently passed American Rescue Plan (ARP) Act of 2021 includes a provision making nearly all student loan forgiveness tax-free, at least temporarily. Before the ARP, student loan forgiveness was tax-free only under special programs. Before we look at the changes to come under the ARP, let’s look back at what the previous law provided.

The Old Rules

Under the earlier measure, student loan forgiveness was tax-free under certain circumstances. These special programs included working in certain public sectors, some types of teachers as well as some programs for nurses, doctors, veterinarians, etc. Essentially, you had to work in a specific field under certain conditions for a minimum length of time and some or all your student loans would be forgiven or discharged. There are also other technical qualifications, such as death and disability, closed school, or false certification discharges, but these aren’t widely applicable.

Because student loans are not dischargeable in bankruptcy, income-driven repayment plans were the other main type of program that could result in forgiveness or discharge. Typically, borrowers repaid an amount indexed to their income over a 20-to 25-year period; whatever was leftover at the end was discharged. The forgiven loan amounts under income-driven repayment programs were considered a discharge of indebtedness and tax as ordinary income (although there are exclusions for insolvent taxpayers).

The New Rules

Under the new law in the ARP, the forgiveness of all federal student and parent loans are tax-free. This includes Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, non-federal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans also qualify.

The essential criteria for the loan discharge to qualify for tax-free treatment is that it must have been made expressly for post-secondary educational expenses and be insured or guaranteed by the federal government (this includes federal agencies).

This all means that the debt discharged under income-driven forgiveness programs will now be tax-free as well, but there’s a catch. The discharge of student loan debt needs to happen within the next five years because the provision expires at the end of 2025. There could be an extension, but that’s uncertain now.

Why this Change May Really Matter

The change in rules making income-driven student loan forgiveness tax-free isn’t a huge deal for most people. The new law really matters because it sets the stage for broader student loan forgiveness. The program currently being floated by President Biden to forgive $10,000 in student loan debt or the even larger $50,000 proposal by some Senate Democrats will qualify for tax-free treatment.

Non-Fungible Tokens and Their Special Taxation

3 min read

Non-Fungible Tokens and Their Special TaxationNon-fungible tokens (NFTs) have exploded in use and popularity in recent months. NFTs have some special tax considerations to be aware of that can be different than fungible tokens, but before we get into that, let’s look at exactly what NFTs are.

What are NFTs 

Economically speaking, fungible assets are those that can be broken down into units and readily interchanged, like cash. For example, you can take a $100 bill and exchange it for five $20 bills nearly anywhere without an issue. Non-fungible assets cannot be exchanged in such as way because they have unique properties that prevent this. Non-fungible assets are things such as houses, a sculpture like Michelangelo’s David or an Andy Warhol painting. There is only one real original.

 NFTs are “one-of-a-kind” digital assets that can be thought of as certificates of ownership for virtual assets. They can be bought or sold like any other piece of property, but do not have a tangible form themselves. Similar to cryptocurrencies, a blockchain ledger keeps track of ownership; these records can’t be forged because the ledger is maintained by thousands of computers around the world. They are most often used to prove ownership of an “original” digital art piece. 

NFT Tax Basics

Similar to cryptocurrencies like Ethereum or Bitcoin, NFTs are taxable property. The big difference in taxation depends on if you are the creator or an investor.

Creators are taxed when they sell an NFT. If an artist created NFT art and sold it for 4 Ethereum coins worth $3,000 (they are typically traded in cryptocurrencies), then the artist would claim the $3,000 as ordinary income for tax purposes.

Investors are those who buy and sell NFTs. Similar to other trading activities profits, they are subject to capital gains tax rules.

Investor Example

Let’s look at an example of how taxes work for an NFT investor. Assume Jane bought an NFT valued at $3,500 in February 2021 by exchanging 2 Ethereum coins (ETH) she bought a few years ago when they cost $350. At the time of the acquisition of the NFT, Jane would have a long-term capital gain on the exchange of her ETH of $2,800 ($3,500 value of the NFT less her cost basis in the ETH exchanged of $700). Essentially, the exchange of the cryptocurrency triggers taxation of that asset and a new basis is established in the NFT as it’s not really an exchange but a disposal for tax purposes.

Half a year later in July, Jane sells the NFT for $8,500. Here she realizes a short-term capital gain of $5,000 (sale price of the NFT of $8,500 less her basis of $3,500). As with other short-term capital gains, this would be taxed as ordinary income.

Special Circumstances for High-Income Earners

Certain NFTs can be considered “collectibles,” leading to unfavorable tax treatment for high-income earners and subjecting them to a 28 percent tax rate on collectibles versus a 20 percent tax rate on regular long-term capital gains.

Roth Conversion in 2021?

4 min read

Roth Conversion in 2021?In 2020, a year when all income brackets benefited from lower tax rates, the stock market took a nosedive at the beginning of the pandemic. For investors sharp enough to see the opportunity, this was an ideal time to convert a traditional IRA into a Roth IRA.

When you conduct a Roth conversion, the assets are taxed at ordinary income tax rates in the year of the conversion. So, the best time to do this is when your current income tax rate is low and when your IRA account balance loses money due to declining market performance. Once you convert the account to a Roth, those assets continue to grow tax free and are no longer subject to taxes when withdrawn later.

If you believe those stocks will rebound, you can direct the traditional and new Roth IRA custodians to move the shares as they are, rather than selling them for cash. Or, if you are converting the entire account and choose to remain with the same brokerage, you can simply instruct the custodian to change the account type. This way you can keep the same investments, pay applicable taxes on the account balance at the time of the conversion, and then never have to pay taxes on future gains.

While the stock market did recover in 2020, many market analysts believe equities are currently overpriced and could experience another correction this year. On top of that, with Democrats now in control of the White House and both houses of Congress, many expect legislation that will increase income taxes, at least among wealthier households.

Therefore, in order to avoid higher taxes on a long-accumulated traditional IRA, 2021 might be a good year to conduct a Roth conversion. The key is to try to time that conversion with a market loss. By conducting a conversion before income taxes increase, you’ll pay a lower rate, and all future earnings can grow tax-free and be distributed tax-free. Bear in mind, too, that a Roth does not mandate required minimum distributions at any age. The full account balance of a Roth has the opportunity to continue growing for the rest of the owner’s life.

A Roth conversion is not the best strategy for everyone. Consider the following scenarios that are not ideal for conversion.

  • An investor under age 59½ will be assessed a penalty on newly converted Roth funds withdrawn in less than five years, so this might not work for an early retiree who needs immediate income.
  • If you expect to be in a lower tax bracket during retirement, you should wait until then to pay taxes on distributions of your traditional IRA. Also, if you think you might relocate to a state with lower or no state income tax during retirement, not converting eliminates state taxes on that money entirely.
  • Watch out for a bump in income taxes on a Roth conversion. You might not want to convert if those assets put you in a higher tax bracket during the year of conversion.
  • Also note that if you convert after age 65, higher income reported that year could increase premiums for Medicare Part B benefits, as well as taxes on Social Security benefits.
  • If the non-spousal IRA beneficiary is likely to remain in a lower tax bracket than the owner, he might as well leave the assets in the traditional IRA. Otherwise, the owner will waste more of his estate’s assets to pay taxes on the conversion.
  • If you don’t have available cash outside the traditional IRA to pay the taxes on the conversion, the money will come out of the account and substantially drop the value. Consider whether or not your investment timeline is long enough to make up for that loss.
  • If your goal is to leave that IRA money to a charity, don’t bother to convert. Qualified charities are exempt from taxes on donations.

If you’re planning to leave a Roth IRA to your heirs, they also enjoy tax-free distributions as long as that Roth was opened and funded for at least five years before you pass away. This is another reason why it might be better to convert to a Roth IRA sooner rather than later.

3 Best Ways to Save for College

4 min read

Save for CollegeWhat if you could save enough for your child to go to college debt-free? It might sound impossible, but with dedication, hard work, and careful planning, you can do just that. According to Dave Ramsey, American personal finance advisor, here are the top three tax-favored plans to get started.

The Education Savings Account (ESA)

Otherwise known as the Education IRA, this plan allows you to save $2,000 (after tax) per year, per child. Let’s do that math. If you begin saving when your child is born and put away $2,000 a year until they’re 18, you’ll be investing $36,000. Not too shabby. And the good news is that qualified distributions are tax-free, which means you won’t have to pay anything when you withdraw the funds to pay for college. The other upside is, depending on the rate of growth, you’ll earn more than you would in a regular savings account. However, there are some caveats. You can’t contribute if you make more than $110,000 (single) or $220,000 (married filing jointly); the contribution cap is $2,000 a year; and the money must be used by the time your child is 30.

The 529 Plan

If you want to save more for your child’s education or you don’t qualify for the income limits of the ESA, then this might be a better fit because you can contribute up to $300,000, depending on what state you live in. Ramsey recommends you look for a 529 Plan that allows you to choose your investment funds. Also, he says most of the time there aren’t any income restrictions based on your child’s age; however, there are some limits, so choose wisely. This plan also grows tax-free. One thing to note: restrictions may apply if you want to transfer your funds to another child.

The UTMA or UGMA (Uniform Transfer/Gift to Minors Act)

One of the best things about these plans is they’re not just designed to save for education. For example, if your kiddo wants to take a gap year, this can cover living expenses. The account is set up in your child’s name but it’s controlled by a custodian (usually a parent or grandparent). The custodian manages the account until the child is 21 (18 for the UGMA). One of the pluses of this plan is that since the account is owned by the child, the earnings are usually taxed at the child’s rate, which is generally lower than that of the parents. For some people, the savings can be significant. However, there are two important things to know: (1) once your child is of legal age, she can use the funds however she likes (a trip to Europe, a sports car…or college?) and, (2) the beneficiary can’t be changed after selected.

While setting up a college fund is a smart goal, it’s not the only one. Prior to starting down these paths, Ramsey recommends that you consider paying off your mortgage, credit cards, and your own student loans. He also suggests setting up an emergency fund of three to six months and allocating 15 percent of your salary to retirement through a 401(k) and/or a Roth IRA. For more help, he recommends both parents and children read “Debt-Free Degree.” This book walks you through how to go to college without student loans.

Saving for an education might feel completely overwhelming, but if you start early enough, do your homework and create a solid plan, it’s absolutely possible.

Sources

https://www.daveramsey.com/blog/saving-for-college-is-easier-than-you-think

https://www.troweprice.com/personal-investing/accounts/general-investing/ugma-utma.html#:~:text=Because%20money%20placed%20in%20an,this%20savings%20can%20be%20significant.&text=Up%20to%20%241%2C050%20in%20earnings%20tax%2Dfree.&text=Any%20earnings%20over%20%242%2C100%20are%20taxed%20at%20the%20parent’s%20rate

Economic Stimulus, Making the Post Office Solvent Again, Gun Control, Voting Rights and Restricting China’s Influence

4 min read

Gun Control, Voting RightsAmerican Rescue Plan Act of 2021 (HR 1319) – This $1.9 trillion relief bill provides stimulus money to address the continued impact of COVID-19. Provisions include issuing $1,400 checks to taxpayers, increasing the Child Tax Credit up to $3,000 and the dependent care credit to $4,000, and providing funds for schools, small businesses, renters and landlords, increased subsidies for Americans who buy individual health insurance, and $160 billion allocated toward vaccine development and distribution. The bill was introduced by Rep. John Yarmuth (D-KY) on Jan. 15, first passed in the House on Feb. 27 and in the Senate on March 6, and was signed into law by President Biden on March 11.

SAVE LIVES Act (HR 1276) – This bill was introduced by Rep. Mark Takano (D-CA) on Feb. 24. The legislation would authorize the Department of Veterans Affairs (VA) to furnish a COVID-19 vaccine to veterans ineligible for the VA health care system, who live abroad, and family caregivers of veterans, among others. The bill passed in the House on March 9 and in the Senate on March 17. It has been returned to the House for approval of changes.

USPS Fairness Act (HR 695) – This act would repeal the requirement that the U.S. Postal Service annually prepay future retiree benefits, decades in advance. The current mandate, which was signed into law in 2006, has since threatened the viability of the USPS. While the Post Office generates enough revenue to cover its operating costs, this prepayment of pension and retiree healthcare benefits has pushed its bottom line into the red. The bill was introduced by Rep. Peter DeFazio (D-OR) on Feb. 2 and enjoys bipartisan support.

Violence Against Women Reauthorization Act of 2021 (HR 1620) – This is a reauthorization of the Violence Against Women Act of 1994, a popular law that protects and provides resources for victims of domestic abuse and sexual violence. The bill expired at the end of 2018 after Congress failed to act due to partisan disputes over guns and transgender issues. It was re-introduced by Rep. Sheila Jackson Lee (D-TX) on March 8 and passed in the House on March 17. It is currently under consideration in the Senate.

Bipartisan Background Checks Act of 2021 (HR 8) – This bill establishes new background check requirements for every firearm sale. It prohibits a firearm transfer between private parties unless a licensed gun dealer, manufacturer or importer first takes possession of the firearm to conduct a background check. The bill was introduced by Rep. Mike Thompson (D-CA) on March 1 and passed in the House on March 11. This bill is currently under review in the Senate.

For the People Act of 2021 (HR 1) – This bill was introduced by Rep. John Sarbanes (D-MD) on Jan. 4 and passed in the House on March 3. It is currently under consideration in the Senate. The purpose of this legislation is to protect and expand voter rights. Specifically, the bill:

  • Expands voter registration (automatic and same-day registration)
  • Increases voting access (vote-by-mail and early voting)
  • Prohibits removing voters from voter rolls
  • Requires states to establish an independent commission to deploy congressional redistricting
  • Establishes provisions related to election security, including sharing intelligence information with state election officials and supporting states in securing their election systems
  • Prohibits campaign spending by foreign nationals, requires additional disclosure of campaign-related fundraising and spending, mandates additional disclaimers in political advertising, and establishes an alternative campaign funding system for certain federal offices
  • Establishes additional conflict-of-interest and ethics provisions for personnel who work in the three branches of government
  • Requires the president, the vice president, and certain candidates for those offices to disclose 10 years of tax returns

CONFUCIUS Act (S 590) – This bill, also referred to as the Concerns Over Nations Funding University Campus Institutes in the United States Act, is designed to mitigate China’s influence on U.S. post-secondary educational institutions that are directly or indirectly funded by the Chinese government. Specifically, educational institutions contracted with Confucius Institutes that also receive federal funding must include provisions in those agreements that prohibit the application of foreign law on those campuses and grant full control over teaching plans, activities, research grants and employment decisions to the U.S. university. The act was introduced by Sen. John Kennedy (R-LA) on March 4 and passed in the Senate on the same day. It is currently under consideration in the House.

Why Traders Should Consider Making the Section 475 Election Before the Tax Deadline

2 min read

Section 475 ElectionThe deadline has passed to elect Section 475 MTM for tax year 2020, but it’s still possible to do so for 2021. In this article, we’ll cover the basics about when and how to make the election.

Section 475 Basics

Eligible traders have the option to make a Section 475 election, which allows mark-to-market (MTM) accounting and treatment of trading gains and losses on commodities and securities as ordinary income. Without the election, traders use the cash method of accounting and are taxed on capital gains and losses when they are realized, with losses subject to the $3,000 limitation.

MTM accounting allows traders to offset losses against every type of income, including wages; in years where they have heavy losses, they are not subject to the loss limitations. MTM accounting also works the other way, so if you have large unrealized gains in your positions, then you’ll have to recognize those even though you haven’t liquidated those positions. Another benefit is that it exempts securities trades from wash sale loss adjustments. 

Making the election is generally a good idea at the outset of operations or for existing taxpayers who have new losses from trading year-to-date up to the election deadline, giving ordinary loss treatment to these transactions. You can revoke the election in future years subject to certain rules.

Making the Election

Existing individual taxpayers need to file a Section 475 election statement with their return or extension by April 15, 2021. Then a Form 3115 needs to be filed with the 2021 tax return.

Conclusion

The Section 475 election can be a great benefit for active traders; however, the rules are complex so it’s best to consult with your CPA if are considering the election.

How Cloud Accounting Helps Small Businesses Gain Competitive Edge

4 min read

Cloud AccountingIn a continuously changing business environment, small businesses have a challenge to keep up. It’s especially expensive to keep pace with ever changing technology. Luckily, with affordable cloud accounting solutions, small businesses can maintain a competitive edge.

What is Cloud Accounting

Cloud accounting involves moving your business books online. Unlike desktop accounting systems, cloud accounting permits you to access accounting software from a web browser without the need to install it on your personal computer.

Companies that offer cloud computing provide their services on remote servers and applications. For a fee, you gain remote access to the services that fit your business needs.

Cloud Accounting Benefits for a Small Business

Here are benefits offered by cloud accounting that enable small businesses to gain a competitive edge:

  • No need to invest in expensive software and hardware
    With cloud accounting, you need only subscribe to a company offering cloud accounting services. This removes the need to purchase the actual software and necessary hardware. It also means there are no extra costs for maintenance, allowing a business to focus on core business activities. 
  • Save on upgrade costs
    Software keeps changing and needs frequent patches and upgrades. This is expensive for a small business running a traditional accounting software, and most end up using outdated software.

    Subscribing to cloud accounting means the service provider takes care of the upgrades, and you have access to new features instantly.

  • No need to hire an in-house accountant or bookkeeper
    If your business is small and running on a tight budget, subscribing to a cloud accounting solution will save you the cost of hiring a person for manual accounting and other bookkeeping processes. By connecting the system with your bank account, the transactions will be updated automatically, thereby saving you time and ensuring accuracy.
  • Easy to scale
    With cloud-based services, you can easily scale your business as it grows by adding to the services you subscribe to. At the same time, if your business is experiencing a slowdown and you need to reduce expenses, you can scale down by reducing the number of subscribed services.
  • Data accessibility
    You can easily access your financial status at any time, unlike when you run a traditional desktop accounting system. This is possible from any device that has an internet connection.
  • Access to various functions, features and support
    Cloud accounting enables a small business to have access to different accounting features and functions, such as project estimates, finance, billing, invoicing, tax summary, and stocks, among others. This is because of the ability to select services depending on the needs of your business and your budget.
  • Enables remote working and collaboration
    Cloud accounting allows for remote working, which is especially important with the ongoing COVID-19 pandemic and recommendations to work from home. This enhances collaboration with your team and financial advisor because you can all work on the same system at the same time, regardless of your location. The accountant also needs not go through the trouble of importing client data.
  • Financial reports
    Cloud accounting allows for access to regular reports that include insights about the financial state of your business. This enables a business owner to have an up-to-date picture of how the business is performing anytime, whether at home, at work or on the go.
  • Data security
    Data on the cloud is more secure than data stored on a hard drive, which can be accessed if it is stolen. In the case of a natural disaster, your business productivity is not greatly affected because you can still access your data. This is because it’s the responsibility of the cloud provider to ensure data security, make regular backups, scan servers for vulnerabilities and use the latest technology.

Final Words

Cloud accounting enables small businesses to enjoy business efficiency and increased productivity while reducing costs. Businesses of all sizes, even small ones, have to keep up with changing technology. Any business that wants to maintain a competitive edge has the option to do away with traditional accounting desktop software.