Tax Tips, Current & Expired tax laws

Posted by Evelyn on Aug 3rd, 2010 | no comments

Tax Planning for 2010

The following are tips on how to reduce your tax liability for the 2010 Tax Year. Keep in mind of what you hear is happening in the federal government. This is the term for energy savings! 

The energy credit is big right now!  There are certain levels you need to be aware of:

Residential energy credit (form 5695) includes:

1. Non business energy property credit: Expires 12/31/2010
2. Insulation, energy efficient windows, metal roofing and other energy efficient building property.
3. Residential Energy Efficient property credit  Expires 12/31/2016
   1. This includes just about anything that is solar powered or some other form of alternative energy.

Did you know that the credit also includes energy efficient Heating and AC systems

You won’t see this on the form, but it is specifically stated in an IRS article that came out on November 3.2009

Keep in mind it is 30% of the cost for 2009 and 2010 combined.  The max is $1500 for both years.

Hybrids:   This began with the The Energy Policy Act of 2005.

This expires on 12/31/10 but very likely to be extended.

This credit is a minimum of $750 to $3400.  It is very specific as to the year make and model of vehicle.  So before you buy one, you might want to talk to your CPA (ME:)

On Electric vehicles:  the credit begins in 2010 starting at $2500 up to $7500

These are plug in electric vehicles.  They must be new and four or more wheels. So I guess the ones you see in Austin don’t qualify.!

This also applies to Plug in electric drive conversion kits.—that ends 2011

In summary:  Think “energy efficient” in everything you do!  It will certainly save you money and you just might get a credit for It.!

On retirement contributions:

The 401K retirement plan: If you’re lucky enough to have an employer that provides it for , please take advantage of it.  It,s one of the most valuable tax deductions an individual can take.  Its pre tax. Which means that you do not pay social security or medicare on it.  You pay federal tax on when you reach age 59 ½.  The maximum is  $16,500 for 2010.

The Roth retirement contribution is very popular these days.The $100,000 income limit to convert to a Roth IRA was removed, which means that everyone is now eligible to convert. A conversion is usually reported as income for the tax year the conversion takes place. In 2010 only, you are able to split your conversion amount and report it as income for tax years 2011 and 2012.  You are not taxed on earnings and you only have to carry it for 5 years before you start taking it without a penalty.  You do not get the deduction when you contribute to it but then again you are not taxed when you withdraw after 5 years.  But conversions are a different story.

IRA to Roth IRA conversion. With a Roth, you can benefit through tax free growth, no required minimum distributions and tax free distributions. You would have to pay the tax when you convert and the income from the rollover is taxed with your regular income. The good thing about this is that for 2010 income, you can split the tax over 2011 and 2012. By splitting you can be put in a lower tax bracket and you have two years before the tax is due.

Capital gain rates are now reduced. For 2010, capital gain rates can even be 0% if you are in the 10% income tax bracket and 5% if you are in the 15% bracket. If you have any appreciated stocks, this is definitely the year to sell them for the tax advantages.

Alternative Minimum Tax (AMT) changes. For 2010, the AMT personal exemption levels decrease to $45,000 for MFJ, $33,750 for single and HOH, and $22,500 for MFS. It is likely that the amounts will rise again or change permanently.

What We’re Losing

The following list is a list of things we’re losing with the upcoming 2010 Tax Year. However, Congress still might extend a few as that tends to happen towards the beginning of the year. We’ll keep you posted.

1. IRA to Charity Donations. Say goodbye to that tax break. Congress has not yet extended this.
2. State and local sales tax deduction. This ended in 2009.
3. Property Taxes for Non-Itemizers. In the 2009 Tax Year, taxpayers who did not itemize were allowed to deduct up to $1,000 of property taxes they paid, but that ends in 2010.
4. Tuition and Fees Deduction. 2009 allowed for a deduction of up to $4,000 in college tuition and fees. The amount is back to $2,500.
5. Educators’ Deduction. 2010 will not allow for an educator to deduct up to $250 in classroom supplies like previous years.

That’s it for now:

Health Care Reform Part I 2010

Posted by Evelyn on Jun 15th, 2010 | 9 comments

Health Care… What it Means for you as a Business Owner and a Taxpayer
From the view of a Certified Public Accountant
Did you know that medical unsecured debt is the number one cause of bankruptcy?

Did you know that most people use the emergency room as a way to get medical help that could normally be done in a doctor’s office at a cheaper cost?
However, most doctors expect payment upon services rendered, where most emergency rooms allow you to set up a payment plan and most of those plans are never paid out.

Did you know that most people that visit the emergency room do not have health insurance?
I think it’s important as individuals we do not become part of the healthcare crisis by incurring unsecured debt especially related to medical. So for the reasons above, we must become responsible by having health insurance.
I’ve briefly stated below what the changes are for current year 2010. Most insurance companies are increasing their rates because of these federal requirements listed below. If this is the case with you, I suggest you shop around and make sure your company is adhering to these principles. I think it’s important that we “police” these policies ourselves.

I don’t see or know of any way that the federal government can enforce these policies.
If you know of any way they can, please share your knowledge and expertise with the rest of us.

From my personal experience, my husband and I are both corporations. On my husband’s business we have set us a health savings account (HSA).It is a high deductible health insurance policy. It has been $467 for him and me and my daughter (age 21) and is now going to $523.This has been the best thing we could have done from a tax planning point of view. As an individual you can contribute up to $5000 and take it as an adjustment to total income.  I have a lot of out of pocket expenses related to my dental and anticipate more.  So this is something I will not change.
Please share with us your policy and the price you pay. I think it would be interesting to see what others are paying. Most times, it helps to shop around.
In my profession, I look at politics as a way to either reduce or raise taxes. The new health care reform bill as a whole is going to be incredibly expensive but is expected to reduce the federal deficit by $143 billion over ten years, this is a rough estimate by the Congressional Budget Office. The bill is hoping to expand health care coverage to 32 million Americans who are not insured.
Some Provisions:
2010—what’s happening now: On the individual level
New plans written in 2010 must offer preventative care with no co-pays or deductibles.
Adults and children previously denied coverage due to pre-existing conditions will be able to access healthcare- I’m sure it will be much higher for these people.
Lifetime limits are a thing of the past. I’m sure this is another reason insurance companies will increase their rates.
Children up to 26 can stay on their parents plan.

Retirees aged 55-64 are offered access to a re-insurance program.
On the business level:
Self-Employed persons would be able to purchase insurance through the state in which they practice in. Within one year from the enactment of the bill funding would be available to states to exchange amongst citizens. Governor Perry has declined this because it would be expensive to run.
Small business offering insurance to their lower income employees can get a 35% tax credit from premiums paid.
There is so much more to know about health care reform, I’ve decided to publish a part II after we really get into a discussion about the provisions above. All kinds of companies are offering us CPA’s continuing education on the subject. I anticipate taking this course and will update you as well, especially on part II.
Keep in mind the information was taken from a www.cnmnewsnetwork.com.
As always I appreciate your comments and experiences.
Evelyn Edwards,CPA PLLC
512-917-2674

Student Loans… A Necessary Evil?

Posted by Evelyn on Feb 2nd, 2010 | 10 comments

The subject of student loans is huge. These days it’s almost required to have a college degree and with that comes a big financial hardship. Not everyone can afford college and it’s only getting worse. Because of the current economic climate parents are forced to cut expenses and simply can’t afford a college education for their kids. Most people do not save for college even though there are tax savings in place to take on your tax return.

Fresh out of high school, students are forced to borrow and borrow and borrow until the funds are exhausted. Most students are coming out of college already in serious debt that will take years to repay. Everyone will argue that student loans are the best debt you can have and they’re right. It’s a great investment but college is only getting more and more expensive and student loans are getting harder to get. If you’re lucky you can qualify for federal student loans but if you’re not you have to get private loans. Private loans are more risky because they have higher interest rates with no cap. Federal loans at least have an interest rate cap. But what’s a student to do? The cost of living is rising and the cost of school is rising along with it. Luckily, the president proposed the new student loan forgiveness program in his recent State of the Union address. But rest assured that there are other options that you have in paying for college.

So, what should you do as a parent?

First off, if you can’t afford it don’t do it. Some parents are dipping into their retirement to pay for their son/daughter’s education and that isn’t a good idea. Have them fill out a Free Application for Federal Student Aid (FAFSA) to see if they can get federal loans or grants. Grants and scholarships are still in arms reach and are possible to get.

Second, look at your options. Look at the differences between federal and student loans, look at interest rates, and figure out how long it will take to pay the loans off. Another possibility is a parent loan; they are more pricey than a regular federal student loan but are better than private loans. In some cases it might help your son or daughter to cosign their loan; having a cosigner with good credit can lower their interest rate and give them a better chance of receiving the loan.

Third, help your kids only as much as you can. If you can’t afford to pay for their school, maybe buy them a week’s supply of groceries or a tank of gas.

And lastly, encourage them to find a good school that doesn’t cost an arm and a leg but respect their decision to go wherever they want.

As a student:

Attend a community college for the first two years of your education.  It’s very likely that you will not have to take out any loans during these two years.  The cost of education at a community college is much cheaper than at a four year institution.  It’s not uncommon that professors at a four year institution teach at the local community college as well.  It’s also possible that most, if not all of the classes are transferrable to a four year university.

Give yourself time. The credit crisis has hit lenders hard and finding money when everyone else is looking for it is extremely difficult. Apply for the loans with plenty of time so if you get turned down for one you’ll be able to look for others. Keep in mind that emergency tuition loans are outrageously expensive!

Pay attention to interest! Be careful of how much you’re borrowing. Don’t borrow more than you absolutely need to, remember you have to pay them back one day and finding a job is difficult.

Work as much as you can without falling back on your studies. Find a part time job at the mall or waiting tables, and use that money as your living money. You shouldn’t take out loans to cover your groceries or other necessities.

Minimize living expenses as much as possible. Live with roommates or find a small studio apartment. Most college town apartments have roommate matching.

Also, be willing to stretch out the period you will attend.  This will allow you to work and still pay for tuition.

Make sure that your loan payments are manageable. Be mindful of payback, student loan debt can’t be erased even with a bankruptcy.

Don’t resort to credit cards. Credit card use is at an all time high among college students; don’t drown yourself in more debt.

Ask family members to help pay for your books.  Most people will agree to this because the cost of books is very manageable compared to tuition.

Research different colleges and universities, $15,000 a semester for that private university may not seem a lot because you’re not paying it right away but think of it in a few years with the interest adding up.

Become a Resident Assistant (RA) at your dorm. RAs are lucky enough to receive free room and board and you can do it up until you graduate.

Participate in a sport that may qualify you for an athletic scholarship.

You can also get a teaching position at the university that will offset your tuition.  And if you have children you can cover their expenses because you’re an employee there.

Take advantage of the education credit.  This could create a refund that you could use to pay for tuition.  Or better yet, if you do get student loans to help pay for tuition you can give this money to a family member that will allow them to take the education credit and then pass on the savings to you.

Living on Less

Posted by Evelyn on Jan 13th, 2010 | 2 comments

Living on Less

 The recession has caused many companies to have to lay off their workers. Employees that once enjoyed great benefits and top pay were forced to give all of that up. The economy has affected nearly everyone in some way. Losing that income has caused health and stress problems. The question today is how to survive on lower income.

1.   Watch what you’re spending.

Financial software such as Quicken can show you exactly how much you’re paying for everything from entertainment to gas. Looking at these figures can help you see where you need to cut. If you don’t have the software make an Excel sheet, compare how much you make to how much you’re spending. This may be a big wake up call.

2.   Create a family budget and stick to it.

Hold a family meeting and discuss how you can cut back on spending. Do you really have to see the new movie in theaters or can you wait until it’s out on Netflix?

3.   Stop using plastic.

Using cash is much better than swiping your debit or credit card. When you use cash there is an emotional trigger, it hurts to break that twenty on a cup of coffee. People are much more likely to swipe a card on an unnecessary item than pay cash for it.

4.   Spend more time at the grocery store.

Store brands are cheaper than name brands. Great Value and HEB brands carry most products but are cheaper than brands with the fancy name. Watch for even the tiniest savings.

5.   Clip coupons.

Coupon clipping has become easier over the past few years thanks to the internet. Websites do all the dirty work for you and all you have to do is press print. It’s a great, easy way to save.

6.   Cut costs.

Do you really want to waste the gas to get your favorite food or can you make something at home? Fast food is both unhealthy and expensive. Make going out a rarity. If you need new clothes for interviews, hit the clearance racks or buy used. Carry a shopping list with you and only buy what’s on it.

7.   Always remember, the best things in life are free!

Focus on friends to give you moral support. Spend time with people you love. Exercise is a great way to make yourself feel better about your circumstances. Going to the park is great for recreation. Austin can help you enjoy the beautiful things in life and it’s free!

 I hope these tips can help you during a difficult time in your life. As always, I’m here to help.

The Benefits of Savings

Posted by Evelyn on Jan 6th, 2010 | no comments

The Benefits of Savings

Saving in a tough economy or when you’re living paycheck to paycheck seems like it would be extremely difficult. Now that the holidays are over and you don’t have to spend more on everyone else, it’s time to focus on you. Saving itself isn’t hard at all; it’s the discipline it takes to save that causes people to worry about the next health problem or the new windshield you might need. Millions of Americans are forced to live paycheck to paycheck but that’s at their own fault. It is possible to save. Even a person working minimum wage can have savings. After careful consideration, I have come up with a few tips and tricks to help you save without changing your lifestyle.

First of all, savings should be your first priority. Before bills and other non-necessities, make sure to transfer money into your savings. Savings can protect you from a bankruptcy! The leading cause of bankruptcy are medical bills and with a savings you have at least that to fall back on in case anything were to happen to you or to any of your family members.

Second, save as much or as little as you can. Even the change in your pocket can add up. Saving 50 cents a day can add up to $182 in a year. That is money that could have otherwise gone to McDonalds or to Sonic happy hour.

Third, have a savings account that requires at least 48 hours before you can have access to the money. This extra time forces you to think about big purchases before you regret them later. Do you really need that brand new Coach purse or is the one you have now doing just fine? Is a huge HDTV really necessary or can you see just fine from the old one in your living room?

Fourth, set a goal! Setting a goal can help you be more motivated. A $1,000 goal is a great start. One summer we had our AC break down during the extreme heat of August. We couldn’t use it at all, we were absolutely miserable. It cost us over a thousand dollars to fix. Because we didn’t have a savings we were forced to pay other bills late. From then on, we focused our efforts on building the $1,000 savings. It took about a year, but we did it and continue to keep it. It’s also a great idea to attach your savings to your checking account. Most banks offer complete overdraft protection that can save you hundreds of dollars in NSF fees. It gives you peace of mind and that is priceless!!

And, finally, never stop saving. Life throws out many curve balls and you must be prepared for the worst. Prepare yourself for your retirement as well. The bottom line is that you must always be ready for anything.

10 Things to do Before the End of the Year to Reduce Your Tax Liability

Posted by Evelyn on Dec 28th, 2009 | 4 comments

Ten Things to do Before the End of the Year
 
1. Use up your flexible spending plan funds. Use it now or lose it. If you have an HSA, contribute the max for families ($5100).
2. Pay your January mortgage payment before the end of December. This allows an additional deduction for interest payments.
3. If you’re a teacher plan ahead. Teachers have a $250 deduction for education expenses. Plan ahead for next year and stock up!
4. Make charitable donations. Don’t forget, these also include non-cash donations. Start the new year off right, clean out your closet and donate to Goodwill.
5. Make energy efficient improvements to your home. This credit expires 12/31! Consider attic insulation; it’s less expensive but just as valuable as other improvements.
6. Sell losing stock to offset capital gains.
7. Buy a new car. You can deduct sales and excise tax for a vehicle purchased this year. Ends 12/31!
8. If you haven’t bought a house in the past three years, now is the time! It’s an $8,000 tax credit!!
9. Pay your property taxes before the end of the year instead of the beginning of next year. Take advantage of that deduction now. Or, if your income is down now pay them next year.
10. Make all the retirement contributions you can, this will reduce your taxable income.

Overcoming Fear

Posted by Evelyn on Nov 23rd, 2009 | 2 comments

Hi Everyone!  Happy Thanksgiving!

I have a new topic that I think you’ll be interested in.

“Fear”

I keep having experiences where I’ve had the opportunity to overcome fear.  Most of the time I do.

I heard recently fear is something that we all have in common.  Its the thread that binds us all.  At least it can be in a positive way if we help each other to overcome them.  I’m thinking that there must be someone out there that has overcome the very fear we are experiencing.

As you probably know fear stands for “False Events Appearing Real”. So most of the time its in our thinking that makes it seem so real.

I believe this is the number one way that the “evil one” takes hold of us.  So when it happens, I stop, take note, write about it and call a friend i  trust

And of course, I pray about it.

Here’s a perfect example of how i overcame the fear of not knowing what to do on a clients books.

I met a woman from my website that needed help with bookkeeping and taxes.  I got so excited when i met her i did not take time as to whether i should be afraid or not.  I did think that I had another client that manages inventory and that this would the perfect client to work with next.

Then I remembered that I have avoided clients with inventory because it was a difficult subject in college for me. Yipes!  it was too late to turn around. Ok I have a couple of people in the CPA world that can help me. And I can always call Quickbooks to assist me as well.

Then I made a list of all the situations about this client that were new to me. I don’t know if that was good or bad but i found myself in fear over it. Yuk!  Oftentimes I wake up in fear, so it helps to pray myself out of bed:).

It  always helps to write about my day before bed. It usually has some fear associated with it.  Its a bad idea to go to bed in fear.  The evil one preys on us when we sleep (How cunning!).

So, as I started to work with this client, I noticed that its problems were not associated with inventory but bank reconciliations,tax returns and IRS representation. Those areas I am very qualified in.

Also, as I was already hired on,IRS came knocking at their door.  They were terrified but I was excited.  I knew I could help them and they would be willing to pay me top dollar.  They did and its going very well.

I have more examples and exercises I use to overcome fear.  I’d like to share these with you. And by all means, share you successes with us.

Next topic:Valuable exercise to over come fear

How to get out of living Paycheck to Paycheck Part II

Posted by Evelyn on Nov 11th, 2009 | no comments

If you haven’t already, read:  Living paycheck to paycheck Part I

How Did I Get Out of it?

1. I recorded all of my expenses for a month. This helped me really see where our money was going. However, it was not extravagant. There wasn’t enough. We were a one-income family and had gotten into debt for various reasons. I was a stay at home mother and my husband was struggling to keep our family afloat. We could barely cover the basics.

2. I was looking for various ways to cut back. But instead found out that we were not spending money where it needed to be spent.

3. I learned to be okay just where we were. When times were rough we used credit cards to help get us through. That made the situation worse. We couldn’t make the debt repayments.

4. I learned to prioritize our spending.

Groceries, gas, car payment, housing, utilities, clothing, education, recreation and then debt repayment.

The credit companies worked with us. We are at a place where we can make the payments now.

What Else did we do?

1. I applied the personal financial planning percentages. We were pretty close.

2. We started making the house payment on the first instead of the 15^th. This was hard. We had to really cut back for a while. My husband had the opportunity to make a little more money with his auto business. This made all the difference in the world. When it came time to make the house payment, we concentrated all of our efforts on that. Which meant for us, to start saving for about a week or two in advance. This meant we could not pay the debts off- the credit cards. Thereafter, we started making the other bills on time too.

3. We still did not have an emergency fund. This came about when I started working. I worked part-time doing different things until I finally settled on what I was meant to do. It’s so true what they say, do what you love and the money will come! Well, it did.

4. Get good on what little you have and God will give you more. You can live well on less.

5. So now that I am making more money we don’t need to spend more. All of our basic needs are met. That doesn’t change. And now that living expenses in the U.S. are at an all time high, we are not affected by it.

This can happen for you too.

How to Get Out of Living Paycheck to Paycheck Part I

Posted by Evelyn on Nov 4th, 2009 | one comment

The Next Paycheck:

• The problem is you’re totally dependent on the next paycheck.. You have no savings.

• It means you have days where you have no cash to hold you over until the next paycheck.

• You find another way to get that money which only makes it worse- for example: using credit cards, floating checks, do without basic essentials like groceries, clothing, pawn items,etc.

• When you do finally receive your next paycheck, you hurry to catch up on the expenses you weren’t able to cover from the last paycheck.  The worse part is you’re spending your money before you have it.  This creates a vicious cycle as you struggle trying to keep up with your finances.

You Lack the Funds You Need for the Basic Essentials—Which Can Lead to Financial Disaster.

For example, two clients of mine, a husband and wife, were struggling financially and having a hard time prioritizing their money. They decided not to put the wife on the husband’s insurance because they could not afford another $60 a month. Unfortunately, she began to have major health problems.

She went to a doctor and he suggested surgery. They decided not to go through with it even though she was suffering tremendously. Then she was in unbearable pain and forced to go to the emergency room, which costs much more. Soon, the medical bills begin to pile up which made the situation much worse.  Since originally writing this article, she did end up in the hospital for emergency surgery.  They went to a indigent hospital and still owde thousands of dollars all because of $60.

I had another client who was self-employed. He didn’t have insurance, not even basic hospitalization. Sadly, his spouse had to have emergency surgery. It ended up costing them their house—Thank Goodness they were able to find another one in the same neighborhood that was smaller and more affordable.

Live Within Your means

I had a client that came to me to teach her how to manage her finances. She never had to take on this responsibility since her husband was a famous musician, and made over six figures a year. Eventually, they got to a point where they could not pay their bills. So, they hired a CPA to do everything for them. Well, that person was having trouble living paycheck to paycheck as well and it affected them. They also just had a house fire. Their insurance company gave them 10K right away. They chose to live in a country club hotel for a few months until their house was repaired. They didn’t know how to live within their means.

In fact, this concept of living within your means is imperative to getting out of living paycheck to paycheck. You must learn how to do this. I prayed incessantly to learn how to do this. Finally, I learned and have been prosperous ever since.

The solution: see Part II