Tax benefits that make homeowners happy

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Owning a home isn’t for everyone, but there are some great tax benefits for people who do. Building equity is a popular reason why renters decide to become homeowners. Paying a mortgage allows you to build up equity in property that you can realize when you sell. And when you do sell, profits you make from the sale are tax-free up to certain limits. Homeowners may also be able to deduct the cost of mortgage interest and property taxes as itemized deductions.

Owning a home makes sense if you know you are going to be in it for at least several years. Banking on appreciation over a short-term is risky. Plus, selling a home is expensive, so you need enough time to get an appreciated value to cover the commission and other selling expenses.

Everyone’s situation is different. Think long and hard before you decide to buy. Make sure it is the right strategy for you, but rent is expensive. You don’t get any deduction, build any equity and have no asset to show for the outlay of cash.

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Is there a real IRS agent at my doorstep?

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If an IRS agent makes an in-person visit to your home or business and it feels a little off, ask for credentials.

The IRS DOES NOT call you unless you have initiated a conversation with them first and you start communicating on the phone. They don’t email you either without first a letter sent to you and then if you start resolving an issue with them they may email you. But they NEVER initiate a conversation with you by phone or email. Anyone calling you at home or on your cell is a scammer. Be very forceful with them and tell them to stop calling. Tell them that you will report the phone number with the Attorney General and then block their number. If by some weird coincidence they are legit, the will revert to sending written correspondence.

All real IRS agents should carry two forms of identification showing that they’re legit – a personal identity verification card and a pocket commission card. And regardless of how an agent is contacting you, you can always ask for his/her name, badge number and phone number and call the IRS at 1-800-366-4484 to confirm the agent is a true employee.

 

My monthly tweet replacement:

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The third-quarter installment of the 2017 estimated income tax for individuals and corporations is due Sept. 15.

Sept. 15 is the extended tax return filing deadline for S corporations, partnerships and for electing large partnerships.

Keep track of tuition expenses so you can get the most out of education tax breaks on your 2017 income tax return.

Looking for college tuition and fees tax reductions? Check out the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.

If you control when, where and how a contractor works for your business, the IRS may classify him/her as an employee.

Debt collectors are only supposed to contact you during “normal hours,” or between 8 a.m. and 9 p.m. local time.

If you own a service dog, you may be able to deduct the cost of your dog as a medical expense.

One way to lower your insurance cost is to increase your coverage deductibles. Doing this may lower your monthly insurance premium.

You can’t deduct losses from hobby expenses like you can with a business. You can only deduct as much money as your hobby makes.

Creating an annual business plan? Make goals that are defined and measurable from a list of your business’s biggest opportunities.

One of the most successful ways to reach your yearly business goals is to create basic timelines to help you stay on track.

Don’t miss out on tax deductions for online donations. Search your email inbox for keywords like “gift” or “donation” before you file.

Becoming a smarter renter

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It seems everyone has a tale of a bad rental experience. If you rent anything – a home, a piece of equipment, or a car – here are some hints that can make it a positive experience.

Renting an apartment, condo or house; leasing a piece of equipment; renting business property; and leasing a car all involve the common practice of renting something that is owned by someone else. To make sure you always have a good experience, here are some hints to becoming a smarter renter.

Read all agreements. Read the lease agreement thoroughly prior to signing. Ask for clarification of anything you do not understand. Look for clauses in the agreement that might suggest the property owner has problems with its current tenants. If the agreement seems unfriendly, don’t sign it.

Negotiate up front. Be ready to negotiate your lease terms up front. If anything is unclear in the lease, have it clarified and put in writing. Be very clear about security deposits, first and last month’s rent, and services included in the lease.

Follow the terms. Be the tenant that pays a little early, not the one that always pays late. That way if you ever need a little extra time to pay, you have established the necessary trust to do so.

Proactive disclosure. If you think you will need a temporary exception to part of the lease, try to include it in your upfront negotiations. If this is not possible, consider proactively disclosing the exception to your property owner.

Keep the property clean. This is especially important if you have a pet in your rental property. When landlords come into your home, you will build confidence if the place looks like you treat it as if you owned it. The same is true with rental equipment. Always return it cleaner than you received it.

Know the owner and neighbors. Building a relationship with the property owner and your neighbors helps. If your neighbor has a problem with you, wouldn’t you rather have them come to you than to your landlord? Establishing a good working relationship with a landlord will help you when you need help with a problem in your home or with the equipment you rent.

Leave with a smile. This is especially true for home and vacation rentals. Before you leave, have the property cleaned and hassle-free for the landlord. Request a reference from the landlord for future rentals.

Give to cut taxes

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If you are in a position to give, making annual gifts can be an excellent strategy for reducing both your estate and income tax liability. Doing your gift-giving during midyear rather than late in the year is especially smart if you are gifting income-producing real estate. By doing so, you may further reduce your 2017 tax liability.

Not everyone is in a position to “gift” income producing property. But if your estate is of a size where your beneficiaries will inherit a significant amount of money or other assets, considering developing an annual gift strategy and gift to them while you are alive so you can experience the joy your gifts will bring to your loved ones. You can gift $14,000 per person per year without causing any gift tax issues.

Know the facts about IPOs

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Do you know anybody who has tripled his or her money investing in the initial public offering (IPO) of a hotshot new company? It can happen.

Yet the truth is, most investors don’t make money playing IPOs. It’s just that people tend not to brag when they lose money. Nonetheless, investors of all kinds are lined up for a chance at the next IPO. So it pays to know the facts before diving in.

First bit of advice: Don’t bet the farm. The problem is that generally IPOs are issued by companies with no track record, inexperienced management, and few assets. And, unfortunately, the underwriters for these IPOs are motivated to complete the transaction, collect their fees, and move on. Their compensation is linked not to the quality of the firms they take public, but rather to the number of deals they sell to the public.

Protect yourself by doing your homework, as you would for any investment. A company planning an IPO writes a prospectus that describes the business, and details management’s plans for what they intend to do with the money, how fast they intend the company to grow, and what profits they expect. The prospectus also discusses the competition and markets, and most importantly, describes the risks of investing in the IPO.

Do the necessary research and be sure you understand the risks before you invest in an IPO.

Tips on tip reporting

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Working in the service industry often means part of your income comes in the form of tips. Keeping records of your tips is a necessary part of reporting this income for tax purposes, but do you have a good system in place to do this?

If you are like millions of taxpayers who work in the service industry, you may receive tips. The tax code is clear; if you receive tips you must report them as income. Some employers have systems to make this easy, while others do not. Here are some suggestions:

 Think 1-2-3

Proper tip reporting has three components.

1. Keeping a daily tip record

2. Reporting your tips to your employer

3. Recording your tips on your income tax return

Recording tip activity

Per the IRS, you can keep your tips by either maintaining a tip diary or by saving documents that show your tips. If your employer does not provide you with an electronic form of a tip diary, you can always create your own. The IRS has one for your use in Form 4070A.

Reporting tips to an employer

You should record daily activity in your diary and then provide a monthly summary to your employer by the 10th of the following month. The report should include the following elements:

·         Your name and address

·         Your social security number

·         Employer name and address

·         Time period

·         Date submitted to employer

·         Your signature

·         Tip information: cash tips received, credit/debit tips received, tips paid out to fellow workers, and net tips received

Paying taxes

With proper tracking and reporting of tip activity to your employer, filing your taxes on this income can be done without too much trouble. Here are some ideas.

Use your employer for reporting. With proper reporting, your employer can help ensure taxes are withheld and sent in for you. This can help you avoid a large tax bill at the end of the year.

Giving your employer funds. If your tips are a high portion of your income, your wages may not be sufficient to cover your taxes. To solve this, you can provide some of your tip income to your employer to pay a proper level of withholdings on your behalf.

Other things to note

Service charge or tip? If your employer adds a set tip amount to a bill (18 percent automatic tip for parties of six or more), this is not a tip, it is a service charge and is treated as wages.

Shared tips. Be careful reporting those tips you share with others. Clearly report your own net tip income to your employer. Do not report gross tips that you share with others on your tax return.

Know the penalty. If you do not report tips to your employer, the potential penalty is 50 percent of the social security and Medicare-related taxes you may owe on the unreported tips.

Allocated tips. Sometimes your employer pays you tips and reports them on your W-2 that are above what you reported to your employer. The good news? You receive additional income above your hourly wages. The bad news? You will owe income taxes AND social security and Medicare taxes on these tips.

Keeping track of tip income can be made manageable by developing a good reporting system. Please ask for help if you need assistance before it gets out of hand.