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What Is a Balance Sheet?

A balance sheet is one of the three primary financial statements used to assess a company’s financial position at a specific point in time. It provides a snapshot of a company’s assets, liabilities, and equity. The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Equity

Here’s a breakdown of the components of a balance sheet:

  1. Assets: Assets represent what the company owns or controls and can include tangible assets (such as cash, inventory, property, plant, and equipment) and intangible assets (such as patents, trademarks, and goodwill). Assets are typically listed in order of liquidity, with the most liquid assets (those that can be readily converted into cash) appearing first.
  2. Liabilities: Liabilities are the company’s obligations or debts to external parties. They can include both current liabilities (debts due within one year, such as accounts payable, short-term loans, and accrued expenses) and long-term liabilities (debts due beyond one year, such as long-term loans and bonds payable).
  3. Equity: Equity, also known as shareholders’ equity or net worth, represents the residual interest in the company’s assets after deducting liabilities. It includes the initial investment by shareholders, retained earnings (profits that have not been distributed as dividends), and other comprehensive income. Equity reflects the ownership stake of shareholders in the company.

The balance sheet is structured to ensure that the accounting equation remains balanced, with total assets always equaling total liabilities plus equity. This balance serves as a fundamental principle of double-entry accounting, where every transaction has equal and opposite effects on both sides of the equation.

The balance sheet provides valuable insights into a company’s financial health, including its liquidity (ability to meet short-term obligations), solvency (ability to meet long-term obligations), and financial leverage (the extent to which it relies on debt financing). Investors, creditors, and other stakeholders use the balance sheet to assess the company’s financial position and make informed decisions.

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Clean vehicle credits can help car buyers pay less at the dealership

Taxpayers who buy a qualifying new or used clean vehicle may be able to transfer their tax credits to the dealer in exchange for a financial benefit – such as a lower cost – starting Jan. 1, 2024.

Benefits of transferring the credit
Taxpayers can now claim tax credits for new and used clean vehicles they buy during the tax year and, starting Jan. 1, 2024, can transfer that credit to the dealership. This means that the taxpayer who is buying the vehicle can exchange their credit for a financial benefit such as reduced final cost. The financial benefit is equal to the amount of the credit, whether in cash, a partial payment or a down payment.

New information about the clean vehicle credit:
The IRS recently issued proposed regulations, Revenue Procedure 2023-33 and frequently asked questions that cover:

  • How taxpayers can transfer clean vehicle credits to eligible dealers.
  • How dealers can register with IRS Energy Credits Online to receive advance payments.
  • How dealers can lose their registration if they don’t comply with the program’s requirements.
  • New details on the timing and submission of seller reports.
  • Updated information for manufacturers on becoming qualified and how qualified manufacturers can submit monthly reports.

Dealers and sellers register by December 1:
Dealers and sellers of clean vehicles should register their organizations immediately using the Energy Credits Online tool. The IRS strongly urges sellers of clean vehicles to register by Dec. 1, 2023, to receive advance payments starting Jan. 1, 2024.

For updated clean vehicle credit frequently asked questions related to new, previously owned and qualified commercial clean vehicles, see Fact Sheet 2023-22.

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Individual retirement accounts can be important tools in retirement planning

It is never too early to begin planning for retirement. Individual retirement accounts provide tax incentives for people to make investments that can provide financial security when they retire. These accounts can be with a bank or other financial institution, a life insurance company, mutual fund or stockbroker.

A traditional IRA is the most common type of individual retirement account. IRAs let earnings grow tax deferred. Individuals pay taxes on investment gains only when they make withdrawals. Depositors may be able to claim a deduction on their individual federal income tax return for the amount they contributed to an IRA.

What to consider before investing in a traditional IRA:

  • A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
  • Generally, the money in a traditional IRA isn’t taxed until it’s withdrawn.
  • There are annual limits to contributions depending on the person’s age and the type of IRA.
  • When planning when to withdraw money from an IRA, taxpayers should know that:
  • They may face a 10% penalty and a tax bill if they withdraw money before age 59½ unless they qualify for an exception.
  • Usually, they must start taking withdrawals from their IRA when they reach age 73 (age 72 if they turned 72 in 2022). For tax years 2019 and earlier, that age was 70½.
  • Special distribution rules apply for IRA beneficiaries.

Differences between a Roth and a traditional IRA:
A Roth IRA is another tax-advantaged personal savings plan with many of the same rules as a traditional IRA, but there are exceptions:

  • A taxpayer can’t deduct contributions to a Roth IRA.
  • Qualified distributions are tax free.
  • Roth IRAs don’t require withdrawals until after the death of the owner.

Other types of IRAs:

  • Simplified Employee Pension – A SEP IRA is set up by an employer. The employer makes contributions directly to an IRA set up for each employee.
  • Savings Incentive Match Plan for Employees – A SIMPLE IRA allows the employer and employees to contribute to an IRA set up for each employee. It is suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
  • Payroll Deduction IRA – Employees set up a traditional or a Roth IRA with a financial institution and authorize a payroll deduction agreement with their employer.
  • Rollover IRA – The IRA owner receives a payment from their retirement plan and deposits it into an IRA within 60 days.
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Builders of new energy efficient homes may qualify for an expanded tax credit

Eligible contractors who build or substantially reconstruct qualified new energy efficient homes may be eligible for a tax credit up to $5,000 per home. The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency and the date when someone buys or leases the home.

Contractors must meet eligibility requirements:

  • Construct or substantially reconstruct a qualified home.
  • Own the home and have a basis in it during construction.
  • Sell or rent it to a person for use as a residence.

To qualify, a home must be:

  • A single-family (including manufactured homes) or multifamily home, as defined under certain Energy Star program requirements.
  • Located in the United States.
  • Purchased or rented for use as a residence.
  • Certified to meet applicable energy saving requirements based on home type and acquisition date.

Requirements and credit amounts for 2023 and after:
For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the standards met, which include:

  • Energy Star program requirements.
  • Zero energy ready home program requirements.
  • Prevailing wage requirements.

Requirements and credit amounts before 2023:
For homes acquired before 2023, the credit amount is $1,000 if the 30% standard is met or $2,000 if the 50% standard is met. The standards include:

  • For the 50% standard, certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% less energy than a comparable home and gets at least 1/5 of its energy savings from building envelope improvements.
  • For the 30% standard, certifying that the home has an annual level of hearing and cooling energy consumption that is at least 30% less energy than a comparable home.
  • Meeting certain federal manufactured home rules.
  • Meeting certain Energy Star requirements.

Properly claiming the credit:
Eligible contractors must meet all requirements before claiming the credit. Eligible contractors should review the Instructions for Form 8908, Energy Efficient Home Credit, for full details about these requirements. They must complete Form 8908, Energy Efficient Home Credit, and submit it with their tax return to claim the credit.

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Tax to-dos for newlyweds to keep in mind

Anyone saying “I do” this summer should review a few tax-related items after the wedding. Big life changes, including a change in marital status, often have tax implications. Here are a few things couples should think about after they tie the knot.

Name and address changes:
People who change their name after marriage should report it to the Social Security Administration as soon as possible. The name on a person’s tax return must match what is on file at the SSA. If it doesn’t, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. The form is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.

If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or by visiting their local post office.

Double-check withholding:
After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4. Taxpayers should review Publication 505, Tax Withholding and Estimated Tax for more information.

Filing status:
Married people can choose to file their federal income taxes jointly or separately each year. For most couples, filing jointly makes the most sense, but each couple should review their own situation. If a couple is married as of December 31, the law says they’re married for the whole year for tax purposes.