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

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

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

…when it comes to value received for dollars paid.

However, there are consultants out there who are able to pay for themselves over and over for the small business owner.

So if you’d like to make a good choice when it comes to your small business accounting, a consultant should be the way to go.

Change is never easy, but there is no chance of creating a better work place and running a company as lean as possible if you can’t see the problem(s).

The problems are right in front of you, but because you are seeing them everyday as normal activity, not as problems, you might not be recognizing them.

Hiring the right consultant can be your eyes and ears when it comes to change(s) needed in your company.

Consultants can be the person who identifies things that need change(s) and you the business owner can reap the benefits.

Not all consultants are created equal, so interview a few and ask for references to evaluate prior results and if their experiences match your needs.

Make sure that you find the right consultant for your business.

If you have any questions, comments, or concerns about Small Business Accounting, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- 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.

the 2009′s highest income tax rate was 35%, so:

If your estate was larger than the 2009 exemption amount of $3.5 million you may have been able to save 10% in estate taxes by converting to a Roth IRA.

This is a complex issue and should be reviewed with your legal and tax professional(s) but should not be over-looked when making the Roth conversion calculation decision.

As with any tax law change the financial news publications do a good job of giving the basic’s, however tax law changes always require digging deep into the law change to bring out the additional tax savings and long-term cash flow opportunities.

The Roth conversion is no different; this law change could be the biggest in your life-time.

The options are limitless and require you and your tax professional to stand back and review them all.

Some could affect your family’s finances 70, 80 or even 100 years for a Roth conversion completed in 2010, depending on your age.

Think of the tax-free compounding affect on any assets for that length of time, not to mention the other benefits mentioned above.

If you have any questions, comments or concerns about Roth IRA’s, or think I can help you in any other ways, contact me, or give me a call at (239) 384-9688.

- 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 post 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.

Payroll Tax Forgiveness for Hiring Unemployed Workers:

The HIRE Act provides relief form the employer share of OASDI (a.k.a. social security or FICA tax) taxes on wages paid by a qualified employer with respect to certain covered employment.  Covered employment is limited to service performed by a qualified individual in a trade or business of a qualified employer, or in the furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under Code Sec. 501.  This provision applies to wages paid beginning on the day after enactment and ending on December 31, 2010.

A qualified individual is any individual who:

1.  begins work for a qualified employer after February 3, 2010 and before  January 1, 2011.  Employers will need to review new hires back to February 3, 2010 for eligible employees and obtain signed affidavit.  However, eligible wages are after March 18, 2010 not February 3, 2010.

2.    certifies by signed affidavit (under penalties of perjury) that he or she was employed for a total of 40 hours or less during the 60-day period ending on the date such employment begins.  Affidavit can be found at the IRS.gov, Form W-11.  http://www.irs.gov/pub/irs-pdf/fw11.pdf.

2.    is not employed to replace another employee of the employer unless such employee separated from employment voluntarily or for cause; and

4.    is not a related party.

Employees who qualify for the OASDI forgiveness in the first quarter of 2010 will receive the benefit through a credit toward general second quarter 2010 OASDI liability; they can’t stop paying the 6.2 percent OASDI tax immediately on wages paid to new hires.  After the first quarter, however, the employer does not match the 6.2 percent tax as wages are paid, employer can reduce weekly or semi-weekly deposits.  1.45 percent Medicare tax is not part of the HIRE Act, employers need to continue depositing Medicare tax are required.

A qualified employer may not receive the work opportunity tax credit or FICA tip credit on wages paid to an individual during the one-year period beginning on the hire date for the same wages used to qualify for the forgiveness of payroll tax.  However, an employer may elect out of the payroll tax forgiveness, therefore for each employee hired, all possibly credits will need to be calculated for best possible benefit.

Business Credit for Retention of Certain Newly Hired Individuals:

Under the HIRE Act, an employer’s general business credit is increased by the lesser of $1,000 or 6.2 percent of salary for each retained worker that satisfies a minimum employment period.  Generally, a retained worker is an individual who is a qualified individual as defined for purposes of the provision for payroll tax forgiveness.  However, the credit is available only with respect to such individual, if the individual:

1.    is employed by the employer on any date during the tax year;

2.    continues to be employed by the employer for a period of not less than 52 weeks; and

3.    receives wages for such employment during the last 26 weeks of such period that are at least 80 percent of such wages during the first 26 weeks of such period.

Therefore, an employer will qualify for the full $1,000 credit for each new hire with a salary over the 52 week period of at least $16,129.  An employer that hires some part-time new employees, in addition to full-time employees, is entitled to the full $1,000 credit, if, of course, the part-time or full-time employee decides to stay for 52 weeks.

Because payroll taxes are deductible as an ordinary and necessary business expense, employers may have a correspondingly smaller business expense deduction on their 2010 tax returns.  By combining the benefit of the business credit for new hires with the forgiveness incentive, employers in the highest brackets will realize a net tax benefit of just over 4 percent of wages paid to qualified new employees, up to the $106,800 social security maximum wage base.  Therefore, for the maximum $6,621.60 tax forgiveness for the new hire, a net benefit of approximately $4,504 would be realized.

If you have any questions regarding the hiring incentives under the HIRE Act, please feel free to contact me at (239) 384-9688 or by visiting the Contact page on my web site.

Thank you,
Mark

PS – Complete information, questions and answers are available here on the IRS web site.

————

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.

Should I purchase a tax deduction?

From a cash flow standpoint the answer is NO.

Individuals and business owners need to look at taxes as any other expense.

If it’s not needed then don’t buy it for the tax deduction.

For every $100 spent on non-essential items, approximately $25 is returned in tax savings.

Would you not be better off, cash flow wise, to pay the $25 and keep the $75?

If you have any questions, comments or concerns about tax deductions, or think I can help you in any other way, contact me, or give me a call at (239) 384-9688.

- 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 post 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.

This is the final part in my 7 part series “7 Things Every Small Business Owner Needs To Know”.  You can download this entire series in my eBook on my web site – www.Makara-Assoc.com.

These reimbursements are allowed but are treated differently to the employee whether an accountable or non-accountable plan is in place.

If the employer has an accountable plan the expense is deducted 100% by the employer.

If the employer has a non-accountable plan, the reimbursement is treated a taxable wages to the employee and reported in box 1 of the employees W-2.

The employee then must take any allowable deduction on his or her personal 1040; these expenses would be subject to the 2%-of-AGI limitation on their schedule A.

All business owners should review their plans to insure compliance with an accountable plan to save on the tax burden to the employee and employer when a company is deemed to be using a non-accountable plan.

I’ve worked with business owners across the United States in resolving these questions and improving the accounting function of their businesses.

If you have any questions about travel and uniform reimbursement policies – please give me a call at (239) 384-9688 or visit my web site at: www.Makara-Assoc.com.

- 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 eBook 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.