Tax Preparation

5 More Things You Can Write Off On Your Taxes

We’ve had two other articles here on expenses you can deduct from your taxes if you’re a business. The first was titled 5 Items You Can Deduct From Your Taxes. The second was called Trip Expenses You Can Deduct For Your Business.

We could go on and on but we like spacing things out some; after all, we don’t want to overwhelm anyone all at once. With that, here are 5 more things you can write off that we haven’t covered yet.

1. Education. If you need continual education to keep a certification, or if you need to go to any types of classes where you’re learning something you can apply to your business, you can deduct those expenses. This includes joining networking groups because often many of them have educational programs you can partake of.

2. Costs of goods sold. Anything you have to buy to create something for a client, to ship something to a client, or in representing your client in any way that the client doesn’t immediately reimburse you back for you can write off. For instance, the client might reimburse you for sales portfolios you create but you might feel silly billing them for the paper or copying charges. If you don’t bill that to them, but if you do you can write things like that off.

3. Services you hire that help you concentrate on your business. If you hire an accountant you can write that off. If you pay for internet services for your business you can write that off. If you want the landscape around your office to look good you can write that off. Even maid services if you work from home can be written off in some fashion. Of course it’s best to talk to an accountant to find out what percentage of it you can take for some of these and other things.

4. Advertising. Anything you spend on advertising, whether you pay someone else to do it or you do it yourself, is allowable. Of course if you’re advertising on Twitter and handling it yourself you can’t write that off, but if you’re paying for a service that sends out occasional tweets promoting your business you get to write that off.

5. Clothing. Of course this one is within reason, but there are clothing items you can write off if they’re part of your business. For instance, lawyers can write off suits and shoes. Plumbers can write off the costs of their uniforms. If you’re on the road and you need to buy new clothes because your baggage got lost and you can’t get reimbursed by anyone, you can write that off, although the airlines might pay you back for some of that. However, if you’re trying to write off a $500 pair of sunglasses… you’ll want to talk to your accountant about that.
 

Finances

3 Housing Upgrades That Could Save And Make You Money

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Every year there are a lot of people selling their homes. Too many of them don’t end up getting what they feel their house is worth. Some have had significant upgrades done to their homes and yet those things don’t seem to matter when they go to sell their homes. Not only that but the money that was laid out doesn’t equate into much more than aesthetics for the homeowner; that’s nice but it’s not enough.

Homes that sell better offer things such as more space, a specialty item like a pool, or upgrades that have been performed that not only protects the house but helps to save money on either utilities or expensive repairs down the line. The suggestions made here will help with the latter; you’re on your own with the pool.

1. Roofing. Homes that have upgraded or repaired a roof within 5 years sell very well. Home buyers know that those are homes that won’t have to worry about leakage, which can damage so many things and can be hard to track. If a new homeowner has to worry about spending an extra $10,000 – $30,000 on a roof repair sometime soon, it encourages them to look elsewhere.

Not only will you get the same benefit while you’re living in the home but it’s possible that you can tie it in with upgrading your insulation while you’re at it. Some states like New York have arrangements with local organizations that will offer free inspections and give you a recommendation for upgraded insulation that will save you a lot of money and offer you a lot of comfort all year round. Imagine being able to tell a prospective buyer that their energy costs will be half of what their neighbors are paying.

2. Windows. A survey came out that had a surprising answer; windows are something many potential homeowners have at the top of their list. It’s not that they’re looking for pretty windows but energy efficient windows, windows that won’t leak air out and that offer protection from the sun’s heat during the day. Any home that heats up drastically in the evening sun also lets out a lot of heat if you have to keep your furnace running all the time.

With that said it has to be mentioned that it’s sometimes hard to find a windows installer you can trust. Estimates can sometimes range from a couple thousand to more than $40,000 for windows; ouch! When one of my clients moved into their new house they were offered a free evaluation that took 4 hours and received an estimate of $36,000. Two weeks later, after not jumping at the offer, the new price was $9,000. Even if that’s a great price would you trust someone who did that?

Still, it’s worth looking into, and the combination of better windows with the changes in roofing and insulation can offer dramatic savings in utility costs.

3. Basement. Many people believe that having a damp basement isn’t such a big deal, but it is. Basement flooding accounts for more damage than any other type of damage within a house outside of a disaster and some insurance won’t cover the costs of repairs or replacement of items down there. You can get mold in basements that will only cost a lot of money to get rid of, but you can be forced out of your house by the authorities and have to live in a hotel for awhile.

A well sealed basement can save both money and protect your health. It also gives you the option of furnishing your basement in some fashion or, when you sell it, offers the buyer the possibility of using the expanded space. That extra space can add thousands of dollars to the sale price of a home while offering you more options such as a media room or workout space.
 

Finances

3 Dangers Of Home Equity Loans

The idea of a home equity loan or line of credit seems like a great idea. After all, you get to tie the payments into your mortgage and since you’re already used to making monthly payments anyway, you feel that adding a little bit more to it wouldn’t be such a bad thing. Now you can take care of that roof or buy new windows and rugs for the house, getting more value out of your house than you presently have. Sounds great, right?

Unfortunately, for most people life isn’t quite that simple. Many find within a few years that the burden isn’t what they were expecting and it can be hard to get out of. Here are 3 things to worry about.

1. You could be approved for way too much money. Remember the first time you got a credit card that approved you for more than $5,000? Remember promising yourself that you would never max that out? How long did it take you to max it out?

The average home equity loan allows you to shoot for anywhere between 50% to 80% of the combined total of what your home is currently appraised for and how much you have left to pay on your home. So, if you owe $50,000 on your home but it’s appraised for $150,000, you could be approved for anywhere between $50,000 to $80,000.

That sounds good until you realize that you now have to pay whatever your normal mortgage is and a separate payment on the home equity as well. Even at a rate of 7% are you ready for large payments like that, especially if you didn’t refinance your home at the same time?

2. In many states, home equity loans are set up with variable interest rates. What this means is that you might start off with a low rate, but it’s always changing based on how the economy is. If you kept up with what caused the housing crisis and saw how many people lost their homes because they couldn’t afford to make payments on suddenly high interest rates then you know what this danger could be.

Suddenly making your regular mortgage payment seems like a great deal. If you’ve spent little on your home equity you’re probably fine, but what if you got one of those large loan amounts and spent a big chunk of it on home improvements, thinking you’d have more time to get the balance down?

3. You could get turned down. I know, you’re thinking so what, at least you don’t have big bills to worry about. Well, it seems credit agencies rank failure to be approved for a home equity loan very high, and it pretty much makes your credit rating and score take a hit. If you were hoping to get a store credit card it’s not happening for awhile, and you’ll have problems even getting a gas credit card.

Lenders have tightened up standards after the financial crises of the previous 4 years so you’d better ask a lot of questions before even considering it if you hope to be approved. However, you also need to know your spending patterns, your limits, and your tolerance for big liabilities.
 

Tax Preparation

Estimating Estimated Quarterly Tax Payments

Something all businesses have to think about is the reality of quarterly estimated tax payments. In essence, this is the government’s way of trying to get you to pay a part of your taxes quarterly based on figuring out how much you believe you’ll owe by the end of the year in total. The IRS has this thing out there that says they can charge an interest rate of around 3% if you are underpaying your taxes quarterly; it’s “around” because they can change the rate each quarter.

That covers the federal taxes, but what if you’re in a state that has an income tax as well? Although the amount will be much lower that you might be requested to make it seems that each state has different rules on whether they’ll penalize you or not and what the rate will be.

If your business income is pretty similar each year, this becomes a fairly easy calculation. All you really have to do is look at what you make the previous year, how much in taxes you had to pay, divide that by 4 and you know how much you should be paying. Nice, clean and simple.

But life isn’t always like that. Consulting businesses, seasonal businesses, and many other home businesses don’t have that kind of regular money coming in. Some are doing very well while other have periods of struggle, sometimes even lasting the entire year. Even if you happen to be incorporated, the normal rules of engagement might not quite fit what your tax liability might be. After all, there are expenses you get to write off that might impede your own ability to know whether you should even have to pay any quarterly taxes. Your accountant can help you if you have major worries about this.

Here are some tips to help you along, with a caveat that you follow these tips at your own risk because there’s no way we can know everything about your particular situation. It’s a place to get started though, based on research and track records, that might help guide you in some fashion.

First, if you believe your tax liability will be less than $1,000 for the year as an individual or $500 for a corporation, you don’t have to think about quarterly taxes at all. You probably won’t have to deal with any taxes at all, but it depends on your expenses and other things associated with your business.

As a point of clarification, this isn’t saying if you make less than $1,000 or $500. You know the withholding booklet you look at after you’ve calculated your income to see how much tax it says you should have paid for the year? It’s all based off that, and after you’ve estimated your expenses. Thus, if you look at the withholding booklet after you’ve done a calculation and your tax liability is under those numbers, you’re probably good.

You need to remember to look at this as if it’s your yearly income if that’s possible, or else you’ll run into the same problem some people have in not making sure they have enough money taken out for state taxes if they work part time jobs. And you have to also remember to base your calculation off your normal tax filing status; the amount if you’re married will be different than if you’re single.

Second, what if you want a quick down-and-dirty figure to go off? Based off research, there are 4 recommendations:

1. If your gross income is more than $10,000 and your state has income taxes, pay at least half of your state’s rate. Therefore, if your state’s income rate is 4%, pay at least 2%. That’s not much overall so if you want to err on the side of caution go ahead and pay a bit more.

2. If your gross income is between $10,000 and $20,000, pay at least 10% in estimated federal taxes. The withholding book for married would show $446.30 plus 15% of any amount over $6,538, so the figures will be close.

3. For any amount between $20,000 and $40,000, start your thinking from 15% and go up from there. Thus, if you believe your yearly gross will end up being $20,000, think of paying at least $3,000, which quarterly would be $750. For every $5,000 increase add 1-2% to your payment. Now, if you believe your liability will be closer to that $20,000 figure you can probably think of lowering your payment some and still get a refund; if it’s closer to the $40,000 be ready to pay more.

4. If your gross income gets to being at least $57,000 a year, that’s when you have serious thoughts on paying more in estimated taxes. At a minimum your income tax liability will be around $12,500, and you’ll want to continue looking at that 1-2% estimated increase per $5,000.

This is just the down and dirty. There are ways to bring your liabilities down that, if you use a tax professional or accountant, can help to save you money on your taxes. If you’re in a business where you might have to deal with estimated tax payments, obtaining the services of a professional is worth the trouble.
 

Accounting

The Difference Between Bookkeeping And Accounting

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To some people, the role of bookkeepers and accountants are pretty much the same. People in both professions can track the way individuals and businesses spend their money. They can both tell you whether you’re in the black or the red. Those are pretty simple functions though. Once you need more than that, an accountant is the way to go.

One thing and accountant can do is tell you about your taxes. An accountant can tell you whether you need to make quarterly payments and how much. An accountant will find ways to minimize your tax liability if possible. It’s possible you can get that from a highly trained bookkeeper, but it would be uncommon.

An accountant can consult you on business purchases and other taxable expenses that you can save on. Bookkeepers might know some of that, but there’s no way they would know as much as an accountant will know since it’s their job to know that. If you needed to spend a particular amount of money to offset your income, an accountant can tell you that. If there are certain trips that you take which you can write off on your taxes, an accountant will know that as well.

This is not to negate bookkeepers by any means. A good bookkeeper can help you figure out how to budget your money so that you can get your bills paid. A good bookkeeper will know how to categorize your spending and your income so that your records are clean when you have to give them to an accountant to do your taxes. There should be a great symbiotic relationship between bookkeepers and accountants, while realizing that an accountant’s skills and knowledge have to go beyond those of a bookkeeper. It’s like the relationship between a doctor and a registered nurse. Registered nurses know a lot about medicine, but doctors have to know more and spend more time learning it.

T. L. Wall Accounting works with both companies and their bookkeepers when it’s tax time. Bookkeepers understand how to keep expenses as well as receipts in a proper format so that accountants don’t have to spend more time than necessary getting taxes completed. Of course it doesn’t hurt having an accounting firm that does your taxes also handle your books, but this decisions should always come down to the comfort level of the consumer.
 

Accounting & Financial Advice from the Syracuse NY area