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How To Reduce Taxes On Your Bonus Check

If you are fortunate enough to be employed in this sluggish economy, thats good news. If youre even more fortunate to receive a bonus check, then you probably noticed a sizable percentage of that bonus check was lost to taxes.

Uncle Sam wants part of your bonus

The Percentage Method isnt a household name, yet it affects many Americans even if they know nothing about it. Its time to get educated. This is the method by which taxes are withdrawn from your bonus check. Its not necessarily fair or favorable if youre an average taxpayer.

At the federal level, this is a flat tax of 25% thats withheld from your bonus. Its a flat percentage at the state level as well, and the number varies depending on which state you are in. A flat tax is the same, no matter your income level or tax bracket. Even if usually get to keep 90% of your check, this flat tax is applied to your bonus check no matter what.

What can you do?

This flat tax is hard to avoid. We all hear about what happens to those who dont pay their taxes. They are fined or, if the dollar amount is high enough, must serve time in jail.

Is there any way to reduce the taxes on your bonus check? Sometimes you can reduce your taxes, depending on the situation. One way to avoid paying too much in taxes is to plan ahead. If you know that a bonus is in the future, increase your withholding allowances during the year. Withholding allowances during the year will translate into less income tax being withheld from your regular paychecks. This will in turn offset the high tax withholding from your bonus which will result in paying fewer taxes all the way around.

Thats not your only choice. You might also want to raise your withholding allowances after you get the bonus and then fewer taxes are withheld for the rest of the year. Either way, you are paying less in taxes.

Not as easy as it sounds

Most of the time, a bonus check comes at the end of the year. So these are difficult strategies in that you dont want to risk under-withholding unless you are absolutely sure the bonus is coming. Otherwise it could turn into quite a mess.

Another method?

The Aggregate Method might be better for your situation. Allowed in many states, the aggregate method bases the amount of tax withheld on your wages. It also takes into consideration your tax withholding up to the date of your bonus check. The Aggregate Method allows your taxes to be calculated like your bonus is just a regular paycheck.
You will still be paying taxes. The Aggregate Method wont change that. Unfortunately, payroll software doesnt have the ability to recognize that your bonus is simply a single payment. In other words, the payroll software just assumes that your bonus check for $5,000 is a regular payment that will increase your annual income. For just that one bonus, the software thinks that more taxes need to be withheld because it thinks you are now in a completely different and higher tax bracket. So it taxes you at that higher rate. Even with bonuses that are smaller, too many companies never realize there is a method to this madness and as a result, too many incorrect software calculations create bigger bonus problems for employees whod like to keep as much of this extra money as possible.

The problem with bonuses

Even if your employer is on top of things and figures out your bonus correctly, your bonus is probably a higher dollar amount. Its usually higher than your regular paycheck and therefore there will be more taxes withheld. Such taxes are usually magnified. So this leads you to receive a smaller bonus check than you expected.

What else? If you are in a high tax bracket, and your employer uses the percentage method to determine the tax rate, you might end up under-withheld at the end of the year. For example, perhaps your federal tax rate is 35%, and only 25% is withheld. If you believe this could happen, call Human Resources or your Payroll Department and request that more taxes are withheld from your bonus check. Your employer is authorized to withhold more if you ask them. They just wouldnt be able to withhold less.

If you are getting a bonus and want to determine how much of the bonus you will get to keep, check out bonus calculators online. While youre at it, research the many ways you can understand your paychecks. You can learn about different numbers of allowances and how those different scenarios affect your withholding situation. You can find both regular paycheck and bonus calculators as well. Make sure to select your state to get accurate results.

Catherine Durkin Robinson is a contributing writer for BillSavings.com, your information resource and community for money-saving tips and offers so you can shop, compare, and save money on just about everything.

Small Business Accounting

Understanding the Value of Small Business Budgeting Abstract Take the intimidation away from small business budgeting and learn how these simple exercises will benefit many facets of your business. Plan for the future, make more money and control that profit better with budgets. A better, more profitable business is the result. Article Body Although it may seem like a lot of work, budgeting is an essential process for your business. It will help you to plan for the future – this year and over the next decade.

Budgeting will assist you in decision making, goal setting and many other types of planning. It also helps to control the actions of your business. Planning and control work together, but are not actually the same thing. To plan in a business involves laying out the direction and goals. Control comes when you’re in the process of working towards those goals.

If the plan is to purchase a large asset in five years with cash reserves, the control comes into the picture when decisions are made that ensure you have enough cash when that time actually rolls around. Small business budgeting is the tool to help you plan well and exercise control. And it’s the key to your business’s financial success. Budgeting can be done in simple, straightforward methods now using computers, spreadsheets and even specialized software. You can create a master budget easily by starting with your long-term sales forecasts. Once you have a realistic idea of future sales you can plug those numbers into a Sales Budget, which also helps with a Purchasing Budget and an Ending Inventory Budget. Inventory can be a tricky thing within every business and the information gathered in these budgets is extremely helpful.

The Sales Budget also helps to create a Budgeted Income Statement. This particular accounting financial statement is helpful for potential investors to assess the likely profitability over the next few years. Long-term sales forecasts are also the first step in creating an Operating Expenses Budget and a Capital Budget. These figures help with day to day business as well as working to ensure a healthy future. When you can budget for capital expenditures based on sales forecasts and then maintain control on the way there, your business will thrive.

The Cash Budget is often the most useful for small business owners. Knowing how much cash you are likely to have at the end of a period is important and planning to keep a -safe amount- on hand for debt repayment or other things is simpler with a cash budget. Using the Sales Budget, the Operating Expenses and the Capitol Budgets, combined with past habits and events, you can create a reasonable Budgeted Income Statement and Balance Sheet. Those are used to bring about the Budget of Cash Flows, an essential tool for small business. Find out what you can realistically afford in the future and keep a handle on your company.

Remember that budgets are a continual exercise and will be updated frequently as new information arises. Small business budgeting is a flex thing and will need regular attention. Participation within the company is important. Involving managers in the planning stages will give them ownership of the goals and help them feel more connected with the end result.

Your business will benefit when more people work together on the budget.

Accounting Enron Scandal

The company had to come up with a new business strategies to generate profits and cash flow in order to survive. Kenneth Lay, CEO, hired McKinsey & Co. to help in developing Enrons survival business strategy. A gas pipeline company climbed it’s way into the worlds largest energy-trader by scamming investors, the accounting Enron scandal was a real systematic manipulation of fiduciary rules to create an illusion of a very successful company. Enron accounting scandal was discovered and proved that they made deliberate attempts to alter its financial statements to make them look more attractive to investors and lenders. Following these manipulations many parties have been affected and will continue to be affected in the future, more specifically, many years. The accounting Enron scandal that lead to the Enron collapse was due in great part in the activities of their C.E.O., Jeffrey Skilling. Not only was he in charge of controlling one of the largest energy companies in the world, he was also in charge of many other side undertakings that may have been in a conflict of interest with his main job as Chief Executive Officer of Enron. The baffling part of this situation was that the other members of the Board of Directors for Enron all voted on this and passed it. There are three specific ways in which the accounting Enron scandal occured by misrepresented figures on its financial statements.

The accounting Enron scandal case was broadcast on television news for months in 2002. The accounting Enron scandal story was around the news for a period before and after the downfall of the company. Now days, however, one seldom hears about Enron or its top executives ? and the reason is not because they are all lodged safely in a federal prison. Rather, it because (a) the president and the congress gain no longer gain points by grandstanding on the issue, (b) the Department of Justice finds its difficult to put the top brass in the docket, although the Department has pressured some lower-level Enron executives into confessions, and (c) the public appears to be beyond caring. The accounging Enron scandal, however, was and is an important development for American society. The scandal demonstrated just how easily ethical standards can be discarded at the highest corporate levels when the price is right. This paper examines the accounting Enron scandal from a perspective of ethics in management. The phrase ethics in management in management is an unfortunate one.It implies that the set of ethical principles applicable in corporate management may be somewhat different from the application of ethical principles in other societal endeavors. Perceptions of that sort by top managers at Enron may have made it easier for them to pursue the courses of action that landed themselves and the company in the troubles that eventually emerged. . . . es in the trading of energy market was the manipulation of prices to created inflated and unwarranted profits for Enron at the expense of utility companies and utility consumers. Ultimately, however, the inflated profits contributed to the creation of a false representation of Enron’s performance that created financial benefits Enron selected executives at the expense of investors and the public. Similarly, the immediate intent of deceptive accounting practices involving Enron and fictitious business entities was to shield from investor and governmental regulators the fact that Enron was not a profitable company as was being reported publicly. Additionally, however, the deals between the company and fictitious entities diverted large amounts of money from the company to selected high-level executives at Enron. These behaviors were injurious to Enron employees, investors, and consumers (Axtman & Scherer, 2002). One may attempt to assess the behaviors of the offending Enron executives (all at senior levels of the organization) within a framework of business ethics. The term “business ethics” appears to imply that behaviors that are ethically unacceptable in other facets of society may be acceptable in the business realm. The accounting Enron scandal will go down in history as one of the most notorious case for American society.

The Fundamental Concepts Of Accounting

The Federal Election was held in Australia on 21st of August 2010. During the rather boring election campaign there were questions raised by the major parties, and everyone else for that matter, on how the elected government would go about accounting for the very large amounts of money they receive and spend. These people talk in billions of dollars. It is rather mind-boggling but the accounting system they use can also be applied to small business and personal finances.

Most households require some form of accounting to deal with their personal financial matters. You are probably aware of the saying that the only thing that is certain in this life is death and taxes. I think that it is fair to say that accounting affects the lives of everyone in some way in a modern society.

I have always thought of an accountant as someone who processed the financial data I prepared for them and submitted my annual income tax return required by the Australian Taxation Office (ATO). Their value was measured by the amount of money they could magically retrieve from the ATO by minimizing the amount of tax I was required to pay. This view is shared by many who see accountants as nothing more than bookkeepers, ‘number crunchers’ or ‘bean counters’. Unfortunately accountants are not magicians and the reports they prepare must stand up to the scrutiny of the ATO. The accountant should therefore be perceived as a professional who is able to minimize income tax by applying his talent and know-how acquired through years of study and experience

The accountant must abide by the rules. There are no two ways about that. The terms of reference are set out in:
* Income Tax Assessment Act 1936 and 1997.
* Corporation Act 2001.

If the accountant fails to follow the laws made by our society, he/she will be punished. Accounting is a discipline and is extremely important to any financially healthy entity. Inadequate records normally accompanies business failure and in some cases bankruptcy. Accountants provide information to the owners and managers of a business or company so that appropriate decisions can be made on purchases and investments. This is achieved by processing records, interpreting these records and reporting the findings from these records to these decision-makers in monetary terms.

The role of the accountant is always changing due to legislative changes and technological developments. Accountants are spoilt for choice when selecting an area in which to specialize. There are many opportunities in private business, government bodies or institutions. Some examples of the career paths an accountant may choose to pursue include:
* Taxation
* Auditing
* Budgeting
* Cost Accounting
* Management Advisory Services
* Financial Planning
* Forensic Accounting.

There are professional accounting associations available with entry qualifications and the aim of these associations is to keep its members up to date with new developments. In Australia the longest established associations are the:
* Institute of Chartered Accountants (ICA)
* CPA (formerly known as the Australian Society Of Accountants)
* The National Institute of Accountants (NIA) incorporating The Association Of Accounting Technicians (AAT).

These associations have had a significant effect on the development of accounting in Australia. Its members are expected to abide by the pronouncements made by these associations as good accounting practices. Members are also expected to undertake a certain amount of professional development each year as it is vital that accounting keeps pace with the needs of those it serves.

The increase in the size of organizations means that it is impossible for a manager to keep in touch with all that is going on. This is the reason for the development of the role of an accountant in a management team. The growth of collective ownership rather than individual ownership has meant that the function of the accountant has been extended to preparing financial reports for shareholders and people outside of the businesses they are involved in. Fortunately, computer technology has enabled the saving of a lot of time and energy and the production of more accurate and detailed information.

Accounting is continually affected by legislation, technology, economic conditions and professional associations. It is these changes that has molded this profession into the sometimes nerve racking but essentially rewarding profession it is today.

Self Employed Accounting Software Review And Importance

The best choice is often dependent upon the size of the business and the employment of full time accountants, accounting staff, bookkeepers or management of the accounting records by the proprietor. Every business needs to choose the most appropriate accounts package according to both the requirements of the business and the capabilities of the person or people who will operate the accounting solution.

Many small businesses do not benefit from sophisticated accounting software if the technical requirements of that software exceed the abilities of the users to produce efficient financial records and use the full capabilities of the accounting software to maintain a high level of financial control.

Alternatively a simple bookkeeping package may not offer the degree of financial control over such financial matters as debtors and credit control, creditors and cash flow liquidity that may be required. Financial control and cash flow is of supreme significance and importance when credit is tight.

Every business needs to maintain a set of books and accounts to satisfy the legal obligations to calculate the net taxable profit which has to be both declared to the taxation authority and provide sufficient financial records to support that calculation.

Up until the mid twentieth century it was common practise to produce accounts handwritten on paper, Typing being reserved for the final set of accounts for publication as required. Handwritten accounting records are largely obsolete for medium and larger businesses although still used by many small business organisations.

With the advent of computers accounting software has become the norm and there are many simple bookkeeping packages that can be easy to understand and offer sufficient levels of financial control for even the smallest business.

In essence each small business has a choice between preparing a handwritten set of accounts, using a simple bookkeeping package which could be based upon spreadsheets or a more sophisticated accounting software package that almost invariably use a data entry system into a database which can then be queried to produce the required financial control.

Choosing handwritten accounts would only be applicable to the smallest business where the proprietor had no employees, limited numbers of transactions and had full financial control without the need for written information. Such handwritten accounts would not be suitable for any business that required control over debtors and creditors or that needed to produce a balance sheet.

For those businesses that could suffice with handwritten accounts there are better options available such as using computer spreadsheets. Minimal knowledge would be required and the benefits substantial compared with being handwritten.

An accounting package based upon computer spreadsheets is suitable for most small business as it can be no more difficult than maintaining handwritten accounts but in an organised format. The sophistication of the format would be according to the ability of the designer of the accounting solution or the bookkeeping knowledge of the person preparing the accounts.

Accounting software written on computer spreadsheets have advantages in that they can save time in data entry, improve accuracy, can be changed to correct errors, highly visible and provide all the basic bookkeeping needs of a small business. Accounting solutions written on spreadsheets are normally limited in relation to financial control and medium sized businesses that require additional control over debtors and creditors may be more suited to a database accounting software system.

Generally if a business is large enough to employ a full time bookkeeper or accountant then that business potentially has the accounting knowledge and skills within the accounting function to use a database accounting system and achieve the additional financial control elements which become available.

Accounting software that uses a database has the facility to produce regular financial and tax reports, debtors reports and statements, creditors reports and statements, cash flow statements and a set of monthly and final accounting reports such as profit and loss accounts and balance sheets.

The disadvantage of such accounting solutions is that to get the most and best out of the system you also need to understand how the package works and how technically to obtain from it the benefits of increased financial control that are available.

The main priority in choosing any accounting package is to first determine the final requirements you need from that administrative system. If detailed financial control, particularly over individual supplier or client accounts is essential and the business is large enough to employ office based staff including an accountant or full time bookkeeper then a database system may be the appropriate choice.

If the business is smaller and requires detailed accounting records to support the year end financial statements while financial control is already sufficient to be in the hands of the business owner then accounting software based upon spreadsheets would probably be adequate. The degree of adequacy being dependent upon the level of expertise contained and automated within the accounts program.

Handwritten books would be the lowest choice. Adequate for some small businesses but only suitable if a computer based option was impossible.

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