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What to do with your Vacation Home after Vacation

Author: Keith Huggett

Vacation time is over and your family is getting ready to return to life in the faster lane.  What do you do with your vacation home? Will you close it up for the rest of the year? Will you rent it out so that others may benefit?  If you choose to rent out your vacation home, there can be tax implications.

Rental Income - Rental income in general is taxable.  If you rent out your vacation home for less than 14 days, the income is tax free.  If your renter stays more than 14 days you need to report the income on your tax return. You can deduct rental expenses, but your deductions are limited because the amount of expenses you can deduct depends on whether the property is a business or a personal residence in the eyes of the IRS. The IRS determines this by calculating the proportion of personal use to the amount of time you rent the property.  If you use your vacation property for less than 14 days or less than 10% of the time you rent the property, the IRS classifies your rental as a business.  If you use your property for longer than the 14 days or 10% of the time it is rented, the IRS will classify your rental as a personal residence.

Deductions - Renting out your property will also incurr some expenses.  Depending upon how the IRS classifies your property will define what you can claim as a deduction. If classified as a business, you have to apportion eligible deductible expenses (i.e., cleaning, repairs, utilities) according to the amount of personal or rental usage. To determine the percentage of expenses you can deduct, divide the number of days rented by the total number of days of used (personal days plus rental days). Once you have that, your expenses can be itemized on your tax return.

If your rental is classified as a personal residence, you are able to deduct things like property tax and mortgage interest along with the itemized expenses.

Record Keeping -  As always, it is important to keep accurate, detailed records.  Items you will want to keep include receipts and invoices, mortgage statements and the like. Keeping a record of all improvements and repairs made to the rental is also of high importance. Having a separate checking account especially for the rental property can make documenting your rental expenses easier.

Audit Proofing Your Rental - Always treat your rental as a business. To keep the IRS uninterested in you, you need to make sure that you look like a business. Keep clean books, have separate bank accounts, and make sure you keep accurate records of repairs. Keep those receipts.  “Audit-proof” your rental property just as you would “baby-proof” your home, it just might keep both you and your property a little bit safer.

If you have any questions regarding renting out your rental property, please contact us.  The specialists at The Tax Office, Inc., can provide you with answers, show you what deductions are available to you and much more.

Will your Teen's Summer Job Affect Your Taxes?

Author: Jenny Shilling

Summer is almost over, and with its end comes the end of summer jobs.  Having received paychecks for the first time was probably very exciting for your teen, until he or she learned just how much they would have to pay in taxes.  How much did your teen earn? Does the summer employment affect whether or not you can claim your teen as a dependent? Are there any child related tax credits you might lose because of their employment?

Many things change when your children start working. Let's look at the tax impact since those are clearer and certainly more readily explainable than other changes with our teenagers.

1. Filing Requirments. There is a minimum filing requirement. Dependent children have to file a tax return if they earned income of more than $6,200.  There are also other filing requirements based on gross income, which include items such as dividends and interest.
2. Do I claim their income? Your teen is required to file his or her own taxes if the child is working or receiving income other than interest and dividends.
3. Teens Owing Taxes? A good rule of thumb for your working child is to claim zero exemptions on their W-4 to ensure they have enough taxes withheld so they don't owe money to the IRS come tax time.
4. Still a Dependent? Your dependent child can have any amount of income and still be claimed as a dependent as long as they do not provide more than half their own support: gifts, entertainment, food, shelter, clothing, purchasing a vehicle, maintaining a vehicle, other forms of transportation and school expenses.  If your child can be claimed as a dependent on your tax return, they cannot claim their own exemption.
5. Child Tax Credit? Each dependent child under the age of 17 can qualify you for the $1,000 per child tax credit. The credit is available to you even if your child is working and paying taxes on their income.

For questions regarding your tax return, or your child filing for the first time, please contact a qualified tax professional.  The specialists at The Tax Office, Inc., are availble to field your questions.  Contact us for a no cost, no obligation discussion of your tax situation.

A Deductions Checklist...

Author: Keith Huggett

Many people, including real estate professionals,  don’t fully appreciate just how much money they can save with tax deductions.  Almost everything you buy for your real estate business is tax deductible as long as it is ordinary and necessary and the cost is reasonable. These deductions can really add up as savings for your business. There are dozens of possible tax deductions for real estate professionals.

• Advertising – The costs of signs and advertisements for the rental property.

• Auto – Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. Keep a mileage log to track your starting location, destination, purpose, and mileage. Using a mileage app on your smart phone can simplify this task.

• Depreciation –  Landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over many years.

• Equipment / Computers / Furniture – These items are only deductible to the extent used for business. These are capitalized and deducted through depreciation over time.

• Home Office – Working from a home office allows you to deduct a portion of your home mortgage interest, homeowner’s insurance, utilities and property taxes toward your rental business. This is true whether you own your home or apartment or are a renter.

• Home Owner’s Association Dues – HOA's often charge association dues.  These dues are used to provide maintenance services for the home owners.  Renting out your property makes these fees deductible for rental activities.

• Interest – You can claim the mortgage interest paid on loans used to acquire or improve rental property and interest paid on credit cards used to purchase goods or services used in a rental activity.

• Insurance – You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

• Lawn Service / Pest Control / Carpet Cleaning – The cost of services not paid for by a tenant are deductible.

• Professional Fees – Any costs you pay to an attorney for eviction, a management company, engineer or CPA, etc. are deductible as they relate to the rental business.

• Repairs – Repairs may be expensed (deductible this year) OR capitalized and depreciated (deducted over many years) depending on the size and nature of the expenditures. There is a difference between making repairs and making improvements on your home.

• Telephone – Only the business portion of your phone usage is deductible.

• Utilities –  If utilities not paid by the tenant, these costs can also be deducted.

Don't Miss Out on These Deductions!

Author: Keith Huggett

Small business owners are usually busy running their businesses and don't have a lot of time to spend worrying about tax strategy. If you're like a lot of do-it-yourself small business owners, you're probably forgetting to take some of these five, often-missed tax deductions:

1. Start-up expenses: The first money you spend on your business is also your first deduction. The IRS lets you write off up to $5,000 in start-up expenses in your first year and lets you amortize anything over that amount over a period of 15 years. The IRS defines start-up expenses relatively liberally and lets you write off not just your DBA filing or the legal costs for your articles of incorporation, but also the cost of market surveys, advertising to announce your business and the like.
2. Education: Money that you spend on education that is directly related to your business can be tax deductible. While you are safe writing off money you spend on legally required continuing education, other work-related training can also be a tax deduction.
3. Depreciation on Home Offices. While home office tax deductions are generally red flags for IRS audits, a legitimate home office deduction can be valuable. When you write off your home office, remember to also deduct depreciation on the portion of your home you use as an office.
4. Cell phones: Your cell phone expenses are deductible. If you split your cell phone between personal and business uses, just write off the proportionate share for your business use.
5. Loss carryback and carryforwards: If your tax deductions add up to so much that your business ends up with a loss, don't worry. The IRS will let you either carry the loss back and apply it to previous profits, or carry it forward for use against future profits.

Year End is Coming, Have You Planned For It?

Author: Keith Huggett 

Back in January, our Congress and President worked together to put into place the American Taxpayer Relief Act of 2012. With it, they extended several tax credits through the end of December 2013.  Unless they act again, many credits will expire at the end of this year.  Are you prepared for how this may affect your tax return?  Some of the expiring credits include:

• Qualified Mortgage Debt- up to $2 million dollars (married filing jointly) or $1 million for married filing separately, could be excluded from income.
• Educator Expenses - Teachers, instructors, counselors, principals and aides for kindergarten through 12th grade, can deduct up to $250 of out-of-pocket costs.
• State & Local Taxes can be deducted in lieu of State Income Tax.
• Fringe benefits for mass transit were made equal to those of parking, allowing you to exclude from your income a certain amount for transportation.
• Making your home more energy efficient and "going green" allowed a credit of 10% of the amount paid for structural improvements to your home.
• If you have hired an employee in 2012 from a specific targeted group, you may qualify for the Work Opportunity Tax Credit (WOTC). 
• Research & Development Credit
• Tuition & Fees - Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
• The 100% exclusion on the gain from the sale of small business stock has been retroactively reinstated and extended through December 31. 2103.
  

Your Personal Home Is Not Necessarily Your Tax Home!

Author: Keith Huggett

Where you live plays a huge role in structuring your tax plan.  It is not necessarily your tax home however.  Your tax home is defined as where you maintain your principal place of work.  This could be 100 miles away from your home.  Another thing you should be aware of is that business travel and business transportation are two different things.  Business travel is when you travel away from your place of business (tax home) overnight or long enough to require sleep. You deduct the cost of business transportation as a cost of going to and from tax deductible business destinations.

Here are 5 tips for your personal and tax home:

1. Have your personal home within 50 miles of your tax home.
2. When your personal home is within 50 miles of your tax home, claim the home-office deduction under the administrative office rules so you can eliminate commuting to your outside-the-home-office.
3. Deduct overnight business travel when you travel on business outside the area of your tax office.
4. If you have more than one business on which you spend the most time and make the most money is the principal business. It's the location of your tax home. Overnight travel outside the tax-home area of the principal business to a secondary business is deductible.
5. If you have one business with multiple offices in different cities, the office where you spend the most time, do the most important things, and make the most money is your tax home. When you travel away from this office overnight to a secondary office, you are in business travel status.

How Your Smartphone Can Make Your Life a Little Easier at Taxtime

Author: Jenny Shilling 

Keeping track of your mileage is a royal pain. Just like picking up after your dog during your evening walk, but you still do it, right? Yet, there is a way to make keeping track of your mileage much easier. Everyone has one, we never leave the house without it these days. What am I talking about? Your phone. It's either attached to your belt, in your pocket, or in your purse. Children carry them. By installing a simple "app" to your smartphone, you can make keeping your mileage record a breeze.

According to Google and Bing, three of the "best" mileage applications for the iphone are:

1. Tripcubby
2. Milog
3. Triplog

For your Android phone the "best" applications are:

1. Mileage Tracker
2. Trip Master
3. VR Mileage Tracker
4. Mileagetrac
5. Mytracks

The standard mileage rate for business miles driven in 2013 is $0.565 cents per mile. The rate for miles driven for medical or moving services is $0.24 per mile. Lastly, the rate for miles driven in service of charitable organzations is $0.14 per mile.

Transportation expenses that you can deduct include the ordinary and necessary costs of all of the following:

1. Getting from one workplace to another in the course of your business or profession when you are travelling within the general area where you do business.
2. Visiting clients or customers.
3. Going to a business meeting away from your regular workplace.
4. Getting from your home to a temporary workplace when you have one or more regular places of work.

Sadly, you cannot deduct commuting expenses no matter how far your home is from your regular place of work, even if you are working during the commute.  Parking costs at your regular place of work fall under the commuting category too.

So, investing $0.99 to $5.00 on a smartphone application can help take the frustration out of trying to keep track of the miles between Point A and Point B. According to the online reviews, they are "user-friendly" as most phone apps are, and designed to make your life easier. As we all carry the phone with us at all times, and they are always "on", it is one less step you would have to take to keep track of your mileage, unlike the GPS unit in your vehicle.

So when your accountant asks you for your mileage log next April, you will be able to hand him a concise log instead of a handwritten log of numbers that may or may not be correct. Having a GPS handle your mileage can make your life easier, but only if you check it out.  If you have questions about tracking your mileage, tax deductions, or general tax questions, the Specialists at the Tax Office, Inc. are here for you. Contact Us at 916-773-7053916-773-7053, or at #plan4tax, or www.facebook.com/plan4tax.

A Few Tips to Save Money Throughout Your Life

Author: Jenny Shilling 

Throughout your life there are steps you can take that will minimize your taxes and make it easier to achieve financial security. You know the old saying, "A peny saved, is a penny earned." Here are the some of those steps:

• With your first job, contribute to a tax-advantaged retirement plan. It's never to early to start saving up for your retirement. You can cut your current tax bill and get a head start on building up a nest egg for your retirement. Also, statistics show that only 5 out of every 100 retirees are financially independent.
• Filling out your W-4 correctly is very important. If you withhold correctly you should receive the appropriate amount of money in your paycheck. What you do with these funds is up to you. Getting cash back at tax time is not necessarily the goal. When you have the correct withholdings, you have the opportunity to invest your pay and let it grow.
• While you are young, filing your taxes is fairly straightforward. However, you do have the option to take certain deductions besides the standard deduction. You may be able to deduct moving expenses, student loans or health savings account contributions, if they apply.
• As you mature and family becomes a part of your life, homeownership comes into play.  Mortgage interest and real estate taxes may cause you to start itemizing your deductions. If you don't yet have enough deductions to itemize, you can "bunch" certain deductions together into every other year to increase your tax savings.
• If you work and pay for child care you may be eligible for the child care credit. You may also be eligible for the earned income tax credit. There is also the child tax credit for children under age 17.
• If eduction expenses loom ahead, there are many ways to build a college fund to help pay for college expenses. Speaking with your tax preparer is the best way to decide which one is the best for you.
• Hiring your child to work for you is one of the best ways to save money. The business can take a deduction for the wages paid to your child and the child pays little or no tax on his earnings.
• If you happen to provide care for your parent you may be eligible to claim a dependency exemption. You must provide over half of the support of your parent. 
• Invest to take advantage of lower long-term capital gain tax rates. You can cut your tax bill by holding an appreciated investment long enough to qualify for long-term rather than short-term capital gain tax treatment.
• Plan your capital gain transactions. You may save taxes by indentifying the stock you're selling and choosing the stock with the hiyghest tax basis.
• Consider tax-exempt investments as a means of cutting your income tax. Comparing the yield on tax-exempt investments with taxable alternatives will show you where to invest.
• Maximize your retirement plan contributions. With employer matching, deductible contributions and tax-deferred growth, you should deposit as much as possible. Save as much as you can while you can.
• Swap investment or business property instead of selling it. If you can exchange property for "like-kind" property in a tax-deferred exchange you can delay the tax until you sell the replacement property. This can be a good way to trade up to more valuable property. Speaking with your tax preparer is highly advised before undertaking such a prospect.
• When you borrow money, see if you can set up the loan in such a way as to have the interest be deductible. Business, home mortgage and investment interest is all deductible. 
• Retirement brings about the payout of your retirement plan. You have the option to roll it over into an IRA or to do something else entirely. Speaking with your financial planner or tax advisor is suggested prior to making a decision.

Whenever you make big decisions about financial and tax planning, you should consider speaking with a professional tax specialist. From youth through retirement all of the choices you make can have an affect on your financial future. Consider the suggestions in this article and if you have any questions, please contact us to discuss the tax cutting options most suited to your particular situation.

You May Be Missing More Than You Know

Author: Keith Huggett

Deductions are like finding extra money in your wallet, that you didn't know you had in there. It's always nice to have extra money. When you're filing your taxes, you want to get every deduction you qualify for. The best place to start is with your previous year's tax return.

By looking at last year's return you'll be able to see what deductions you qualified for then, and see if you are still entitled to the same type of deduction this year. If you do not qualify for the deduction, you should make certain that you understand why, Ask your tax preparer if the statute has changed or if your status has changed.

Have you had a prosperous year? This can change deductions for you as well. Did you buy or sell a home? Gain or lose a rental property? Did you make a million on the stock market? All of these things and many more can change what you can write off as a tax deduction as well as change your tax bracket.

When you see your tax preparer, make certain you bring in your documentation. This will help you to defend your deductions. If you have medical expenses that are deductible it helps to have documentation to back it up.

While your qualified and experienced tax preparer should certainly be well ahead of the game in knowing which deductions apply to you, it never hurts to be prepared when you go into the office to get your tax return prepared. A helpful deduction checklist can be downloaded here to help get you started.  Should you have any questions, the Tax Specialists at The Tax Office, Inc., are ready with the answers. Contact us now.

What to Consider When Filing Small-Business Taxes

Author: Keith Huggett

Small-business taxes can be challenging, especially if you are new to it. On the one hand, you don't want to make incorrect claims that will raise red flags and prompt an audit. On the other hand, you don't want to be too cautious and leave money on the table. Learning the basics of small-business tax deductions is a good first step toward understanding how to walk this fine line.

The biggest challenge most business owners face when determining which expenses are eligible for a deduction is distinguishing between personal and business expenses. In many cases the answer is obvious, but these lines are frequently blurred, particularly for small-business owners. 

For purchases, if the item was purchased for business use, it is usually deductible. However, there are some exceptions or special situations such as cars or computers that are used for both business and personal reasons. In these cases, it's best to work with a tax professional to ensure that you make the deduction correctly. You should also consider keeping a usage log for these items in case you need to support your claims in an audit.

Travel expenses can also straddle the line between business and pleasure. The IRS has very specific requirements for defining a business trip, and it is important to understand these when preparing your business taxes. The regulations do change on occasion, so check with your accountant before you make any incorrect assumptions about the tax code. 

Another red flag for the IRS is business between relatives. You can certainly claim legitimate deductions for expenses paid to other businesses, even if they are owned by relatives, but be prepared to justify the deduction; the IRS takes note of these types of transactions.

The Tax Office Inc. is here to help you navigate the sometimes confusing world of business taxes. Whether you need tax help on a monthly, quarterly or annual basis, our trained professionals can save you time and money. Contact us today to learn more.