Saving Cents

Everyone can use a few ideas on how to stretch their dollars and save a few cents. Give these a try and start making the most out of your hard earned money.

1. Replace processed foods with homemade.
2. Cancel or reduce a service.
3. Piggy bank your change.
4. Go camping on your next vacation.
5. DIY your repairs & maintenance.
6. Buy clothing off season.
7. Research online before you make purchases.
8. Unplug…everything.
9. Find cheap gas at gasbuddy.com
10. Time your shopping during Sales Tax Holidays in your state.
11. Check out free Nook/Kindle books.
12. Visit your local library.
13. Make a list & check it twice. Don’t impulse buy!
14. Refer to shopping deals by the month to plan your purchases.
15. Get a programmable thermostat.
16. Teach yourself with DIY videos online.
17. Buy multipack items (3 toothpastes/package) & combine store coupon with manufacturer coupons for each item in package at BJ’s
18. Buy gift cards for local & national restaurants & retail chains at 20% off at Costco
19. Dine at home.
20. Make charitable donations for a tax deduction if you itemize.
21. Increase your retirement savings & reduce your taxable income.
22. Search the internet for coupons before you buy.
23. Have meatless Monday dinners.
24. Use SmartyPig to help you save money.
25. Sell your phone, iPad or Mac on Gazelle for $$$$.
26. Consignment shop online with ThredUP
27. Create a No Spending Day once per month.
28. Buy non-persishable items in bulk.
29. Brew it yourself & skip the coffee shop prices.
30. Consider increasing your insurance deductibles to save on insurance premium costs.
31. Plant a garden.
32. Replace costly cleaning chemicals with the basics of using water, vinegar and baking soda.
33. Hang your laundry up to air-dry.
34. Turn the water off while you brush your teeth.
35. Eat food in season.
36. Never grocery shop when hungry.
37. Pay your bills online and save postage.
38. Towel dry your hair instead of using a hair dryer.
39. Reuse & Recycle.
40. Give up soda.

Happy saving!

Related articles

• Controlling Impulse Purchases to Save (everydayfamily.com)

Value of Donations for Tax Deduction

 When you donate your gently used clothing and household items to charity you can take a charitable tax deduction when you itemize your deductions on Form Schedule A. To help you determine the value of your donated items. use the links from the Salvation Army, Goodwill Industries or DonateGuide.com to determine the value of each item to calculate your tax deduction. Don’t forget to get a receipt from the charity for your donated items and keep it with your tax records.

Salvation Army Donation Guide

Goodwill Industries Donation Guide

DonateGuide.com

Paying it forward with your donations helps those in need which is even more rewarding than a tax deduction!

New Simplified Option for Claiming Home Office Deduction

Just in from the The Internal Revenue Service who announced a simplified option that many owners of home-based businesses and some home-based workers may use to figure their deductions for the business use of their homes. In tax year 2010, nearly 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction). The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

“This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction,” said Acting IRS Commissioner Steven T. Miller. “The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013.” The new option provides eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions.  Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible. Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, posted on IRS.gov. Revenue Procedure 2013-13 is effective for taxable years beginning on or after January 1, 2013, and the IRS welcomes public comment on this new option to improve it for tax year 2014 and later years.

Holt Pros wants to remind you, although the new option provides taxpayers a simple method to claim the home office deduction, it could potentially limit the available tax deduction for many taxpayers. Tax deductions offer a reduction in taxable income, and thus reduce your tax liability. When making your selection, be sure you give consideration on which will offer you the most tax savings.

Related articles

• Claiming a home office deduction is about to get easier (money.cnn.com)
• Deducting Your Home Office (Read: Couch) Just Got A Whole Lot Simpler (forbes.com)

Tax Free Rental Income-Do You Qualify?

The IRS provides a video to learn if you qualify for tax free rental income on your vacation home.

As always, you should document your transactions and save all itemized receipts. 

Thorough records help you receive eligible tax deductions and provide proof you are entitled to tax free rental income.

Consider keeping a calendar record to show the days occupied and by whom to easily count the rental days at year end.

Track days when home repairs are made while you occupied the home to possibly deduct travel expenses.

Welcoming Teachers and Administrators to the New School Year!

At Holt Accounting & Tax Professionals, we appreciate Teachers and School Administrators for their dedication to the educational profession, in their service to our community, and in making a difference in the lives of our children. We value your commitment and recognize the many challenges you face.

We want to offer you some important tips to help you save your hard earned money.

• The educator expense above the line tax deduction expires the end of 2011. In 2012, save your receipts for education expenses you pay personally. You may be eligible to deduct these expenses if you itemize.
•  Save for your retirement with the Teacher’s 403(b) retirement plan contributions. Contributions reduce your federal and state taxable income so you pay less tax now.
•  Donations to the school can be a charitable donation when you itemize your deductions.
• Track mileage for job related travel to deduct the business mileage on your itemized deductions.
• Professional fees and dues can be deducted when you itemize.
• If you have continuing education expenses, you may be eligible under the lifetimelearning credit to deduct up to $2,000.
• Tax planning during the year will help ensure you take all allowable tax deductions, minimize your taxes and maximize the cash in YOUR pocket. Tax planning provides savings opportunity options that are otherwise missed. Don’t miss out! Start your tax planning today!

Have a great school year!

Tax Hike Agenda Snapshot

Tax Hike Agenda Snapshot

As it stands now, with the Supreme Court ruling upholding the health reform and the unknown election results, we are facing hikes in taxes. Here is a quick snapshot of where we are headed as a result of the health reform.

Tax Increases Effective 2013

Singles earning more than $200,000 and couples earning over $250,000 will pay a 9% Medicare surtax.

Deducting medical expenses for those under age 65 will now be subject to a 10% AGI floor.

Flex spending accounts will be capped at $2,500 for the year.

Unearned income will be subject to a 3.8% Medicare surtax for singles with Modified AGI over $200,000 and couples over $250,000.

The Federal subsidized part of drug plan costs for retirees will be nondeductible for employers.

A 2.3% excise tax on medical devices goes into effect in 2013.

Tax Increases Effective 2014

Uninsured individuals will owe at least $95 in tax as a penalty, with a cap at $285 for families. The tax rises the next 2 years with the top tax at $2,085 in 2016. Those with lower or middle incomes will get an income tax credit to help pay for insurance coverage.

Employers with 50 or more full time employees that do not provide adequate health care will owe an excise tax if one of their employees get the income tax credit. The cost of the tax is $2,000 for every employee above 30 workers. If any employee buys coverage through an exchange, the tax rises to $3,000.

What does all this mean? This is just a snapshot and does not provide all the complicated details but the bottom line is…less deductions and more taxes.

Tax Deduction for Home Office

You can deduct home office expenses as a legitimate business expense. As with any tax deduction, there are rules to meet to qualify for the deduction. “Home” is defined as a house, apartment, condominium, mobile home, boat or similar property which provides basic living accommodations. It also includes structures on the property, such as an unattached garage, studio, barn or greenhouse. The picture shown here is actually a shed that was converted to a home office.

Let’s look at some of the basic rules to meet. To qualify for the deduction of the business use of your home, you must use part of your home:

• Exclusively and regularly as your principal place of business. (Exceptions to exclusive use for daycare facilities and areas for storage of inventory or product samples)
• Exclusively and regularly as a place where you meet or deal with patients, clients or customers in the normal course of your trade or business.

You can have more than one business location, including your home, for a single business and still qualify for the home office deduction. If your home office is considered your principal place of business, you qualify. To be considered as a principal place of business, your home office must be:

• Used exclusively and regularly for administrative or management activities of your business.
• You have no other location where you conduct substantial administrative or management activities for your business.

TIP: If your home office qualifies as your principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business.

To determine the business percentage for the home office deduction, divide the area (length multiplied by the width) used for business by the total area of your home. Example:

Your office is 240 square feet (12 feet wide x 20 feet long) and your home is 2,000 total square feet

Your office is 12% (240 divided by 2,000) of the total area of your home so your business use percentage is 12%

Tip: Don’t forget to count closets in square footage if used for business.

Typical expenses for a business home office deduction at the business use percentage are:

• Real Estate Taxes
• Deductible Mortgage Interest (subject to mortgage interest deduction rules)
• Homeowners Insurance
• Repairs (that benefit your entire home such as a furnace repair)
• Security System
• Utilities and Services (electricity, gas, trash removal and cleaning services)
• Rent paid for use of the property you do not own
• Depreciation (if you own your home; does not consider value of land; special rules apply when you sell your home if you claimed a depreciation deduction)

For all tax deductions, documentation and proper records are necessary. Your receipts for home office deductions should include all the monthly itemized invoices or statements for all expenses claimed. Cancelled checks provide proof of payment but are not sufficient in most cases to substantiate deductibility of a business expense. An IRS auditor wants to look at the invoice or statement to see the details of exactly what was purchased.

TIP: Take a photograph of your home office that will reflect exclusive use. Years after your tax return is filed, you may no longer have a home office but you will still need to furnish documentation to substantiate the deduction taken in an earlier year if  audited. Include pictures of clients that visit your home office.

There are extensive rules for claiming a home office deduction. Daycare facilities are treated differently in determining deductions for use of your home for business purposes. This article gives you an overview to educate yourself on some of the basics of taking a home office deduction. If you think you qualify for a home office deduction, I encourage you to research this further. For more details on claiming a home office deduction see Publication 587  at irs.gov or consult an Enrolled Agent who specializes in taxation. You can find an Enrolled Agent at the National Association of Enrolled Agents at www.naea.org. Don’t be afraid to take a legitimate tax deduction if you qualify and can substantiate your claim.

I Can See for Miles and Miles and Miles!

Expecting to take a tax deduction for mileage? Be sure to get your records in order and keep a mileage log in case the IRS questions your deduction. If they select your return for audit, the IRS will expect you to have a mileage log as a record of all mileage you are taking as a tax deduction.

Individuals who itemize are eligible to take a mileage deduction for charity, medical, moving and business related mileage at the standard mileage rate which is adjusted by the IRS annually or when a rate adjustment is needed due to increased costs of operating a vehicle. The standard mileage rates beginning January 1, 2012 are:

• 55.5 cents per mile for business miles driven (as an employee but not reimbursed by employer)
• 23 cents per mile for medical purposes (primarily for and essential to medical care)
• 23 cents per mile for moving purposes (if related to new job at least 50 miles farther from former home)
• 14 cents per mile driven in service of charitable organizations

Your mileage record should include the following information for each trip:

• Date
• Total Mileage
• Destination
• Purpose

To assist you with your record-keeping, click on the link for a sample template for your mileage log.   Mileage Log Template  For those of you who prefer pen and paper, use the template as a guide for your hand written mileage log. Of course, many of you are tied to your cell phones and I am sure “there is an app for that” to use your phone for tracking your mileage. No matter which method you determine works best for you, be sure to keep accurate and complete records if you want to take the mileage deduction. Without a mileage log, the IRS may disallow your deduction if you are audited. Keep track as you go!

Related articles

• TurboTax – Driving Down Taxes: Auto-Related Tax Deductions (turbotax.intuit.com)
• MyMove™ – What Moving Expenses the IRS Lets You Deduct (mymove.com)
• TurboTax – Federal Tax Laws on Mileage Reimbursement (turbotax.intuit.com)

Today’s Challenge – Rent or Buy Your Home

With today’s economy it is often difficult to determine the best course of action for your finances. Home ownership is one of those difficult decisions. Do you take advantage of the low interest rates and purchase a home while it is a buyer’s market? Do you wait until the economy is more stable before you commit to a large long-term loan obligation? Kiplinger supplies you with a guide to determine what might be best for your unique financial situation and the market conditions of your area. Follow the link to read their article, Should You Buy or Rent Your Home? – Kiplinger.

There are tax advantages to owning a home over renting. Typically the combination of your mortgage interest and real estate property taxes added to state taxes, charitable donations and miscellaneous deductions will give you enough deductions to itemize rather than taking the lower standard deduction. This effectively lowers your taxable income and reduces your overall tax liability. While this is a great tax advantage, I recommend you do not include this in your assessment of your personal finances when determining if home ownership is right for you. If your assessment of your personal financial situation determines home ownership is the best move for you, let the tax savings be an added benefit to be used to increase your savings. There are far too many unknowns in the future as to what tax deductions may be eliminated or reduced, to enter into a long term obligation, dependent upon a tax deduction that is available today. Assess your finances without consideration of the possible tax savings based on current tax law and you will be in a far stronger financial situation no matter what changes are made in the future.

Planning is the key to financial success. Weigh your options carefully before choosing. Each individual must make a true assessment of their personal financial situation in relationship to their short-term and long-term goals. Separate your emotions from the numbers. What do the numbers tell you? Let the numbers guide you.

Related articles

• Why renters should consider buying a home (cbsnews.com)
• A 30- or a 15-year mortgage, which is right for you? (freedommortgage.com)
• TurboTax – Tax Deduction Wisdom – Should You Itemize? (turbotax.intuit.com)
• 9 New Reasons to Rent Instead of Buy (rentersinsurance.com)

Waving Red Flags to the IRS?

“Worried about an IRS audit? Avoid what’s called a red flag. That’s something the IRS always looks for. For example, say you have some money left in your bank account after paying taxes. That’s a red flag.” – Jay Leno

Jay Leno’s definition of red flags differs from most tax professionals. The professionals at Kiplinger have a video that explains three red flags from their complete list. Find the complete list on their website.

Red Flags for IRS Auditors Video

Red flag items indicate these are areas the IRS watches for deductions they can potentially disallow. It is important to understand the rules for eligibility for these deductions to ensure you qualify to take the deduction. Equally important, you must retain your receipts for these deductions. Even if you are eligible to take the deduction, without receipts, you may be disallowed the deduction during an audit.

If your tax return includes red flag items, I advise you to consult with a tax professional. Understanding tax law, your rights as a taxpayer and how best to apply these to your personal tax situation, requires a seasoned professional who stays current on developments with the ever-changing laws. Fear of audit should not dissuade you from taking a legitimate tax deduction, but being prepared will help ensure you are allowed the deductions during an audit. Contact a tax professional to discuss your personal tax situation to maximize your deductions and minimize your tax liability.

Related articles

• What’s the Difference Between an Audit, Correspondence Audit, and an Adjustment Letter? (turbotax.intuit.com)
• Tax Audit Red Flags: 11 Things That May Get the IRS to Pick You (dailyfinance.com)
• TurboTax – Handling Notices from the IRS (turbotax.intuit.com)
• TurboTax – Top Five Ways to Avoid a Tax Audit (turbotax.intuit.com)