Frequently Asked Questions

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yield sign with IRS on itMaking a donation using a text message is easy and being increasingly used by charities to reach a wider audience quickly.

For tax deduction purposes you still need to document the contribution to deduct it, so check your phone bill to see if the text message indicates the date, the charity’s name and the amount.

If it does, that should suffice to meet the written documentation standard. If it doesn’t show all three items, you’ll need to contact the charity to get the needed paperwork.

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Category: Taxes

Calculator with text on the display - LossesLosses and Profits from LLCs are usually reported on the owner or owners’ personal tax return Form 1040 Schedule E.

However your ability to deduct the loss against current income is restricted by your “basis” and your “risk of loss” in the business.

It’s a complicated set of rules, so consult a tax advisor to be sure you are eligible to take the deduction or review the regulations on the IRS site.

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Category: Taxes

year-end-tax-planningTwo words: Tax Planning.

Now is the time to take a hard look at your business and personal financial results for the year so far. Profits, losses, contributions to tax advantaged accounts, salary and bonus decisions all need to be made before December 31st.

And that planning shouldn’t be done in a rush as you approach New Year’s Eve. This is particularly important this year since Congress is not at all clear about the changes that will be in effect January 1st.

So review your tax information and see if there are moves you should be making now because those same moves may cost you more if you wait until next year.

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Category: Taxes

Costs Benefits

Points are sometimes paid up front as a way to reduce your mortgage interest rate. They are also known as Discount Points, because they “discount” your mortgage rate.

A Point is 1% of the mortgage loan amount.

So on a $100,000 mortgage loan, one Point would be $1,000. By paying points to the Lender at closing, the Lender will reduce your interest rate on your loan.

Reducing the interest rate saves money over the term of the loan and also may help you to qualify for your loan because the monthly payment is lowered due to the lower interest rate.

In order to know whether or not it is financially advantageous to pay points, you would need to analyze the total savings you realize due to the rate decrease and also estimate how long you expect to live in the property to determine if it is a smart move.

Paying Points increases your cash out of pocket at closing when buying a home, so that is also a consideration.

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Category: Mortgages

mortgage tax deduction limitsYes. Generally, for federal income tax purposes, taxpayers can deduct the interest paid on primary & secondary residence mortgage loans, but only on loan amounts up to $1 million ($500,000 if married, filing separately).

It’s important to note that the deduction is for the interest on a mortgage loan of up to $1 million, not $1 million in actual loan interest.

Interest on loan amounts in excess of $1 million is usually not deductible & the rules vary depending on when you took out your mortgage, the type of loan (primary or home equity) & use of the loan proceeds.

So check with your tax adviser or get IRS Publication 936 to better navigate these regulations.

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Category: Mortgages

Section 179 refers to a section of the IRS tax code. It accelerates the write-off of certain types of capital expenditures, such as, equipment or off the shelf software.

Under the rules, up to $500,000 of the cost can be written off in the first year, rather than taking depreciation expense over 3, 5, 7 or more years. This accelerates the tax benefit of making the capital purchase.

Check with you accountant as this is effective for 2017, but the rules may be subject to change in the future.

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Category: Taxes

mortgage tax deductionMortgage interest is always itemized as a deduction on Schedule A (Itemized Deductions) of the 1040 personal income tax form.

To deduct your mortgage interest, you must itemize.

Be sure to do the calculation to make sure you are not paying more in taxes than you need to if you are eligible to deduct mortgage interest.

You might save on your taxes by itemizing or you might be better off taking the standard deduction. The only way to know which is more advantageous is to do the math.

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Category: Mortgages

depreciation expenseDepreciation is an accounting technique used to spread the cost of an asset purchase (e.g., equipment) over the useful life of the asset.

The idea is that if you make a large capital purchase, such as a building or equipment, the equipment or building isn’t “used up” in one year. You will use the asset to produce income for several or many years to come.

Depreciation matches up the future income produced by having the equipment with the cost of the current purchase. It also acknowledges that equipment wears out over time.

For example, if you buy a piece of manufacturing equipment for $50,000 you’ll presumably use that equipment for a number of years. So instead of taking the full $50,000 cost as an expense this year, you’ll spread it over several years.

Different types of assets have generally agreed upon “useful lives” and these schedules are used to calculate depreciation.

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calculating amortizationAmortization, like depreciation, is a way to write off the expense of an asset over several years.

As examples, Amortization can be applied to intangible items, such as, “Goodwill” on the Balance Sheet or for spreading the costs of tangible expenses related to start-up costs over time.

Different write-off time periods are used for different types of assets.

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