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Tax Strategy for the Week (October 18th, 2013)

Does it Make Sense to Refinance a Mortgage?
 
Tax Issue

The chance to refinance a mortgage and get a lower interest rate is sure to get a homeowners’s attention. Most people assume that refinancing will put them ahead economically, but that’s not always the case. Any number of situations can arise which will make the decision to refinance unwise. Refinancing a mortgage should be done with just as much care as was put into the decision to obtain the original mortgage. Sometimes a mortgage refinance makes sense. Other times, it is better to stay with the current arrangement.

Applicable Tax Law

Home […]

Tax Strategy for the Week (October 11th, 2013)

Employee Business Expenses – Avoiding Tax Problems
 
Tax Issue

Employees may be able to deduct their unreimbursed work-related expenses as itemized deductions subject to the 2% AGI limitation. Deductible expenses are those that are ordinary and necessary expenses and which are not reimbursed. Various substantiation rules apply depending on the type of deduction that is claimed. Without properly planning ahead of time so that the taxpayer retains the necessary documentation required, the IRS could disallow deductions for unreimbursed employee business expenses.

Applicable Tax Law

Ordinary and necessary expenses which are not reimbursed by an employer are deductible.

1.) Ordinary expense: An expense that is […]

Tax Strategy for the Week (October 4th,2013)

Married Filing Separately Tax Planning

 

Tax Issue

In general, married taxpayers living in the same household usually file joint returns. Tax preparers tend to assume the Married Filing Jointly filing status is best for married taxpayers living together and that the few returns that may save a little bit of tax by Married Filing Separately (MFS) are not worth the extra tax preparation fees that would apply for filing two separate returns.

Applicable Tax Law

Any taxpayer that was married at the end of the tax year can file MFS. A spouse does not need permission from the other spouse to choose to […]

Tax Strategy for the Week (September 20th,2013)

Split Funding an Annuity
 
Tax Issue

Taxpayers often use interest income to supplement earned income or retirement income. Interest income generated by bank savings accounts or certificated of deposit (CD) is subject to ordinary income tax at the taxpayer’s marginal rate.

When interest rates are low, taxpayers look for ways to generate the same amount of income as when interest was higher.

Applicable Tax Law

Earnings on nonqualified annuities are taxed at ordinary income tax rates when withdrawn.
Earnings on nonqualified annuities are tax deferred until withdrawn.
Interest earned from bank savings account and CDs are taxed at the taxpayer’s marginal rate in the year earned.
Taxpayers […]

Tax Strategy for the Week (September 13th,2013)

Nonqualified Annuities – Tax Benefits
 
Tax Issue

Nonqualified annuities offer tax-deffered earnings. However, upon distribution, nonqualified annuity earnings are taxed as ordinary income. Nonqualified annuity withdrawals are treated an income-first, meaning that the earnings are withdrawn before removing the principal. In addition, if the taxpayer is younger than 59 ½, withdrawals of earnings are generally subject to an additional 10% tax.

 

Other investment income, such as stock or mutual fund dividends, is often taxed as qualified dividends at a lower rate than ordinary income. In addition, equity investments help for greater than one year are generally taxed at a lower capital gains […]

Tax Strategy for the Week (September 6, 2013)

Does it Make Sense to Refinance a Mortgage?
 
Tax Issue

The chance to refinance a mortgage and get a lower interest rate is sure to get a homeowners’s attention. Most people assume that refinancing will put them ahead economically, but that’s not always the case. Any number of situations can arise which will make the decision to refinance unwise. Refinancing a mortgage should be done with just as much care as was put into the decision to obtain the original mortgage. Sometimes a mortgage refinance makes sense. Other times, it is better to stay with the current arrangement.

Applicable Tax Law

Home […]

Tax Strategy for the Week (August 30th, 2013)

First Time Homebuyer – Deducting Points
 
Tax Issue

 

Points paid to purchase a home are fully deductible in the year paid if the loan meets certain criteria. However, first-time homebuyers who purchase a residence late in the year often find they do not have enough mortgage interest or property taxes accumulated to benefit from itemizing deductions. The deduction for points paid on the purchase of their home may be lost.

 

Applicable Tax Law

 

For points to be deductible, the loan must be secured by the taxpayer’s main home, paying points must be an established business practice in the area, the points paid most […]

Tax Strategy for the Week (August 22nd,2013)

First Time Homebuyer – Buy or Rent?
 
Tax Issue

Home ownership is a dream of many Americans. Whether it is economically more beneficial to rent or buy depends on many variables, including whether home values are rising or falling, how long the individual plans to stay in one location, and whether or not the individual is willing to take on the responsibility of maintaining the upkeep on a home. However, the tax benefits available to homeowners can provide significant savings. The advantages of owning or renting are different for everyone so each individual’s situation needs to be evaluated before making the […]

Tax Strategy for the Week (August 9th, 2013)

Low Income Housing Tax Credits
 
Tax Issue

Many taxpayers are aware of tax benefits of investing in real estate. Taxpayers can create a tax loss be depreciating the property. However, the loss on rental real estate is limited to $25,000 per year ($12,500 for Married Filing Separately). This loss is then phased out for taxpayers with modified AGI of more than $100,000.

 

The phaseout of the losses can be problematic for taxpayers affected by this. The benefits of investing in real estate are lessened.

 

Applicable Tax Law

 The Department of Treasury issues tax credits to the states for low-income housing developments. State agencies then […]

Tax Strategy for the Week (August 2nd, 2013)

Equipment Leasing Programs
 
Tax Issue

Taxpayers often have the desire to have investments earn high current income while paying little or no income tax on that income. This is especially true for taxpayers with higher income. These investors are also looking to diversify assets to reduce risk.

 

Applicable Tax Law

Equipment leasing programs are usually set up as limited partnerships. Investors have limited liability and the general partner manages the investment.
As a limited partnership, income and losses flow through to the individual investor. Because the investor does not materially participate in the partnership, the deductions of losses of the partnership are limited to […]