This is the fourth installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

Although most people understand that mortgage interest is deductible, many people may not be aware that there are certain situations in which it actually creates a greater savings not to claim a deduction as mortgage interest.

Under Treasury Regulation 1.163-10T(o) a taxpayer may elect to treat mortgage debt as not secured by a qualified residence.

Once this election is made, it is effective for all subsequent years and can only be revoked with IRS permission. The advantage of this election is if a taxpayer has allowable mortgage interest that is limited by the $1,000,000 or $100,000 rules on indebtedness.

Let’s say you have a home equity loan that is used for a business. The interest deducted on a business return or “Schedule C”, in most cases, will create a greater tax savings than if the interest was deducted as mortgage interest.

Here’s an example:

A taxpayer takes out a $180,000 home equity loan to start a business. The interest on this loan will be limited to $100,000 in loan value and deducted on schedule A. This may be further limited depending on a taxpayer’s Adjusted Gross Income. If you make the above election, you will be able to deduct the full amount of the interest from business income. This will reduce Adjusted Gross Income, which in turn will reduce any applicable AGI limitation, further adding to the cash savings.

Internal Revenue Code 266 is an annual election made to capitalize carrying cost (i.e. real estate taxes, interest, maintenance cost) into the basis of vacant lots of real estate.

This election is only available for vacant property. If you have real estate that includes any type of structure, you will need to treat this as a rental property or investment property. Therefore, expenses need to be deducted on the appropriate schedule A or E.

This election does not create an immediate tax savings. However, if you are currently caught up in the Alternative Minimum Tax or have no taxable income, then real estate taxes and miscellaneous itemized deduction are of no benefit to you in the current year.

The tax savings will come when the property is sold, as cost basis in the property will be increased by the capitalized expenses.

First Time Homebuyers
If a first time home buyer purchases a home in November or December of a given year, he or she may not generate enough deductible interest and points to exceed their standard deduction. By electing to amortize the points over the life of the loan, the deduction may be small each year. However, it will generate more cash flow than deducting the points in a year that they have no benefit.

By reviewing your option to deduct points paid in the year paid or amortize them over the life of the mortgage, you could create a cash flow savings over time.

Refinancing
One common misunderstanding, when it comes to refinancing a current mortgage, is that all of the interest is deductible. This may not be the case. Any dollar over the existing balance, at time of the refinance, is considered home equity debt unless it is used to improve the existing home. Remember, only $100,000 of home equity debt interest is deductible.

As with most areas of the Tax Code reviewing and planning for interest paid should be an annual conversation you have with your tax professional. As you have read above there are options and planning opportunities for all types of interest.

To discuss mortgage interest in more detail, please come see me at Makara & Associates, a Naples CPA firm. I would be happy to review your situation. We offer many accounting services to meet your needs including; cash flow planning, social security planning, and so much more. As always, if you have any questions, concerns or comments, please feel free to contact me online or give me a call directly at (239) 384-9688. Also, don’t forget to connect with Makara & Associates on Facebook.

- Mark

Starting in 2011, credit and debit card companies will begin reporting payments made to merchants on a new IRS form 1099-K to payees with over 200 sales transactions and over $20,000 in annual sales.  This amount will be reported on a separate line on a taxpayer’s applicable tax return, this will leave cash and check sales reported net of credit card sales on a separate line.

This change is an attempt to reduce underreporting of gross receipts by sellers of goods and services.  If a taxpayer takes cash sales out of the drawer to purchase merchandise and does not record the purchase and sale in its books and records, this change could trip up the IRS for underreporting of income, something to consider as you complete your 2011 tax return.

If your business needs a controller manager, please give me a call at (239) 384-9688 or contact me online.

-Mark
Naples & Fort Myers Accounting

Due to this continued growth, I am happy to announce that we have welcomed two new staff members to our team at Makara & Associates. We would like to introduce you to Stan English and Theresa Cosey. Please feel free to contact them at any time with questions regarding your tax returns or other accounting needs.

As we advance into 2012, the staff at Makara & Associates is continuing to find ways to ensure that you receive unparalleled customer service. In addition to increasing our staff, we have also created online resources which provide you with information and answers to your questions, 24 hours a day, 7 days a week.

Some of these resources include a new website, www.Makara-Assoc.com. This website provides you with in-depth information about various services that are available to you through Makara & Associates. It also includes a “Learn More” page, which outlines common questions about accounting practices, payroll, tax planning, controllership, Social Security, Quickbooks, and much more, providing you with comprehensive answers to these questions. In addition, we have also implemented a Blog site, www.cashflowplanningforlife.com, which further provides tips and informational resources about everything to do with accounting and financial stability for you, your family, and your business.

Again, we thank you for your continued loyalty to Makara & Associates, your referrals, and for your help in making the past 5 years a success. We look forward to many more to come!

Wishing you and your loved ones a wonderful Holiday season and a happy, prosperous New Year!

Sincerely,

Mark Makara and the Staff at Makara & Associates

P.S. You can also connect, follow, or like us on:

• LinkedIn
• Twitter
• Facebook

This is the third installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

A student loan is designed to help students pay for university or college. It is a calculated amount that should assist with the cost of tuition, books, and living expenses. This loan may differ from other types of loans in that the interest rate may be substantially lower. In addition, the repayment schedule may be deferred while the student is still in education.

Student loan interest is another form of interest that is deductible, but with limitations. These limitations are as follows:

1. Only the first $2,500 on interest paid is deductible per taxpayer, not per person (family member) on the return.
2. The interest is non-deductible on a married-filing-separate return. For 2010, the deduction is phased out when your modified adjusted gross income is between $60,000 and $75,000 for singles and $120,000 and $150,000 for married filing joint taxpayers.

With low interest rates on student loans and your perceived lack of cash or equity availability, a loan would not be there if cash was available to pay for college. This may be one to leave as-is but should not be overlooked when doing a review of interest that is being paid.

These phaseouts for the deduction will be the same for 2010 and for 2011. The limitations are described in more detail in IRS Publication 970. Your tax adviser will calculate the deductible portion of your student loan interest, or you can use the worksheet found in Publication 970.

Planning Ahead
The deduction for student loan interest will continue to be available to every person who is legally obligated to repay a student loan through the year 2012. However, beginning in the year 2013, the deduction will revert to an older law. According to this law, student loan interest will be deductible only for the first 60 months of repayment.

If you would like to more about student loan interest or if you are in need of a Fort Myers CPA, we are here to help. Makara and Associates are committed to education and cutting edge technologies to offer superior services to you. To learn more check out our list of frequently asked questions, you might find the answer to your question. If you would like to learn more about us or if you are in need of further assistance please contact us online, call (239)384-9688, or follow us on Twitter.

- Mark

This is the second installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

Any loans that fall under the nondeductible category need to be reviewed along with your cash or equity availability. If possible, they also need to be re-characterized to a deductible form of interest.

An example of this would be having availability on a home equity loan (balance after transfer must be below $100,000) and paying off an auto loan or credit card. This will increase cash flow two fold:

1. The interest rate charged on a home equity loan will, in most cases, be lower than the rate charged on an auto loan or a credit card balance.
2. The interest that is paid will be deductible on your personal tax return, saving you money each year when filing your return.

When considering this method of converting non-deductible interest into deductible home equity interest, you should consider the length of time you plan on staying in your current home.

If the home will be sold within the next 12 to 24 months, this may not be in your best interest. This is because you will be forgoing the down payment on your next home purchase. Job changes and other unforeseen circumstances happen without warning, something to consider before pulling the trigger on extending the home equity loan.

A second example of equity availability would be if you are the owner of a business with the availability to extend a shareholder loan.

To discuss these strategies in more detail, please come see us at Makara & Associates, a Naples CPA firm. We would be happy to review your situation. We offer many accounting services to meet your needs including; cash flow planning, benefits of a controllership, social security planning, and so much more. If you have more questions or would like more information contact us online, call (239) 384-9688 in Naples, (239) 768-5008 in Fort Myers, or connect with Makara & Associates on Facebook.

- Mark

This is the first installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

When tax time roles around, you will need to take a look at the various types of loans and credit lines to see which are tax deductible and which are not. These may include:

• A home mortgage
• Credit cards
• Auto loans
• Lines of credit
• Home equity lines of credit
• Margin loans
• Investment properties (vacant land and rental units)
• Personal loan interest

The tax code is very specific in some cases and vague in other cases. This eBook will attempt to explain the differences in loans. It will also give you some ideas on how to generate cash flow when it comes to deducting interest for tax purposes.

First, let’s define what is NOT tax deductible…Personal interest. This includes credit cards, auto loans, personal loans, and interest incurred on tax debt.

Some interest is tax deductible. However, there are certain limitations. These include:

• A home mortgage
• Home equity lines of credit
• Investment and stock margin loans
• Student loan interest

IRS publication 17 and 936 explains, through flow charts, how and where interest is deductible.

To maximize cash flow when it comes to deducting interest, you may be better off changing the characteristic of the interest or capitalizing the interest into the cost of vacant property.

If you are interested in learning more about tax deductions or if you are in need of a Fort Myers CPA, we are here to help. Makara and Associates is committed to education and cutting edge technologies to offer superior services to you. To learn more, check out our list of frequently asked questions. You may find the answer to your question. If you would like further assistance please contact us online, call (239) 384-9688, or follow us on Twitter.

- Mark

If so, you have until October 17, 2011 to undo the conversion and recover any tax paid.  You should review your converted ROTH account and compare the balance with the converted amount, if the balance has declined, returning the dollars back to your IRA can save  tax dollars.  If your 2010 return has already been filed, use form 1040X to file for a refund.

For more helpful information, download my free ebook Roth IRA – 8 Quick Helpful Tips or contact me online.

-Mark
Fort Myers & Naples Accountant

Finish up those small business tax strategies for 2011 and you can start the new year ready to go!

October:

• Monday Oct. 17th – Employers should remember that your September 2011 payroll tax deposit is due if you’re not on a semiweekly deposit schedule.
• Monday Oct. 31st – Employers should file Form 941 (payroll tax) for the 3rd quarter of 2011 and deposit unpaid taxes as well as deposit unemployment tax (for the 3rd quarter) if you own more than $500 FUTA for the year.

November:

• During November, ask your employees whose with-holding allowances will change in 2012 to fill out a new Form W-4.
• Also, ask each eligible employee who wants to receive advance payments of the earned income credit during 20ll to fill out a Form W-5.
• Tuesday, Nov. 15th – October 2011 payroll tax deposit is due if you’re not on a semiweekly deposit schedule.

December:

• Thursday, Dec. 15th – Corporations should pay the 4th installment of your 2011 estimated income tax.
• Remember that November 2011 payroll tax deposit is due if you’re not on a semiweekly deposit schedule.
• During December or prior to your last payroll process, calcualte employees personal use of auto inclusion amount. Also for S-Corps, calculate amount of health insurance paid for greater than 2% owners

That’s it, 2011 is almost over and all of your small business taxes should be taken care of!

If you have any questions about tax planning, small business tax planning or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688. You may also download one of my FREE eBooks.

- Mark

This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.

LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.

No one likes being audited by the IRS. In fact, last year, approximately 1.4 million taxpayers were audited, and I can’t imagine a single person enjoyed the experience. But when you learn how to properly take advantage of itemized deductions on your tax returns, suddenly tax accounting isn’t quite so stressful.

I don’t want any of you to face the stresses that come along with being audited which is why I wrote a new eBook that you can download for free, called…

…Tax Deductions & You: What You Need to Know.

In this eBook you will learn about various loans and lines of credit that are deductible and those that are not and how to take advantage of itemized deductions such as:

• Home equity loan interest
• Student loan interest
• Mortgage interest

You can download this eBook (did we mention it’s free?) at any time or simply stay tuned to cashflowplanningforlife.com. Over the next few months, I will be sharing the tips from the eBook with you, here on this blog.

If you’d like to learn more about itemized deductions and you’re in need of an experienced Naples CPA to assist you with all of your income tax needs, please contact me online or call (239)384-9688 in Naples or (239) 768-5008 in Fort Myers. It would also be great if you’d LIKE Makara & Associates on Facebook too.

I hope to hear from you soon!

- Mark

According to the DC district court the answer is no.  The court’s decision was based on the facts that the plan administrator didn’t intentionally misclassify the workers and the 401(k) and cafeteria plan documents specified that anyone reclassified as an employee by a court or the IRS wouldn’t receive benefits.  Based on the case it would be wise to review your plan documents with legal counsel to insure being tripped up by this in the future.

Here are 3 more tips to help you sit pretty in retirement. If you need additional assistance with your retirement planning please contact me online or call (239) 384-9688.

-Mark
Naples & Fort Myers CPA