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

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

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

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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.

Meaning distributions for you and your beneficiaries are tax-free.

This will need to be reviewed with your legal and tax professional(s) as each individual situation will be different.

No required minimum distributions with Roth IRAs’ provide additional assets that can continue to grow tax-free after age 70 ½.

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

- Mark

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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.

…review your 401(k) plan(s), because some will allow distributions while you are still employed.

You can convert a distribution directly from a 401(k) into a Roth IRA, be sure not to overlook this option.

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

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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.

the IRS views them as one pool of assets for tax purposes.

If you elect to do a Roth conversion you must review, with your tax professional, your pre-tax dollars being held in your traditional IRA(s), SEP and SIMPLE plan(s) to reduce your tax liability.

Each conversion will have different outcomes, but ultimately your conversions tax liability will depend on your 8606 (tax form number to report conversions) ratio.

By increasing the percentage of after-tax dollars could lessen your tax liability.

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

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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.

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

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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.

Creating “Roth assets” today, by conversion or yearly contributions, will provide you options in retirement.

In retirement you will be able to manage your taxable income yearly by your options of receiving taxable or non-taxable income from retirement assets.

Keep in mind – this could mean the difference between a 15% tax rate and a 28% tax rate in retirement when extra cash will come in handy!

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.