Taxes | Ins and outs of interest expenses

Can you deduct interest expenses on your 2016 tax return? It depends. Generally, the tax law requires you to allocate interest payments under a complex set of rules. The tax results vary, based on whether the expense is characterized as mortgage interest, investment interest, business interest, or personal interest.

  • Mortgage interest: This is interest paid on a mortgage used to secure a qualified home (technically called “qualified residence interest”). The home can be your principal residence or one other place, like a vacation home. Generally, your deduction is limited to interest paid on the first $1 million of acquisition debt and up to $100,000 of home equity debt.
  • Investment interest: When you borrow money to invest in say, securities or investment real estate, the interest is deductible up to the amount of your “net investment income” for the year. This includes most income items such as royalties, interest, and annuity payments.
  • Business interest: Interest paid for business purposes, including debts incurred by a self-employed individual, are fully deductible. Unlike the deductions for mortgage interest and investment interest, there are no annual limits. But you can’t write off any personal interest expenses the IRS deems is disguised as business interest.
  • Personal interest: Finally, interest that doesn’t fall into any of the three previous categories is treated as personal interest. In virtually all instances, personal interest is not deductible. This includes amounts paid on most credit card debt and car loans. There is, however, a limited exception for interest paid on up to $2,500 of student loan debt, phased out for upper-income taxpayers.

This is a basic overview on tax treatment of various forms of interest expense. It does not account for variations or special rules such as limits on passive activity interest. When in doubt, seek advice for your personal situation.

  • February 22, 2017
  • Taxes

CPA Helps Business Owner Reach Goals

 A Designer’s Vision: CPA Helps Business Owner Reach Goals

Janet began her interior design business three years ago with a promising idea. The designer planned to work three days a week and help families achieve the home of their dreams by offering them her experience and creativity.

But, as happens often with small business owners, the dream didn’t quite come true. Instead of working three days a week, she found herself balancing a 70 hour work week while looking after her three children.

At the end of the year, Janet met with her CPA to review her accounts and tax position. The good news: she was profitable and had cash in the bank. The bad news: she confided she was becoming more and more unhappy with the business. She even said she thought about selling it.

The CPA talked to her to help align her business and personal goals. Together, they discovered that:

  • Janet’s overriding motivation was to make enough money so that she could spend more time with her children
  • She had taken on all comers and felt obliged to squeeze in more and more clients
  • Her brand in the marketplace was premium, but her pricing did not reflect that
  • By running the numbers together, they found that 23% of Janet’s clients had contributed 82% of her profit the previous year.

Following the session, Janet agreed to work with her CPA redesigning the business to suit her lifestyle goals, by starting with the numbers and going from there.

Not surprisingly, revenue jumped significantly as a result of understanding the numbers. But more importantly, within 12 months, Janet had her life back, meaning she could be with her kids more.

If you’re interested in learning about how to improve your business’s performance, please call Harvey and Caldwell today in Overland Park, KS to schedule an appointment and have a chat.

Source: Panalitix

Being a Parent Can Lower Taxes

If you are a parent, you can lower your tax burden significantly. Eight different tax credits and deductions are out there that can help you dramatically reduce your tax burden:

  • Dependents

    In most instances, a child can be claimed as a dependent in the year they were born. Be sure as a parent to state if your family size has increased this year. If so, you may be able to claim the child as a dependent.

  • Child Tax Credit

    You could take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you could be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and could provide you with a refund even if you don’t owe tax.

  • Child and Dependent Care Credit

    You may be able to claim this credit if you pay someone to care for your child under age 13 while you’re busy at work. Be sure to note your child care expenses so we can claim this credit.

  • Earned Income Tax Credit

    The EITC is a benefit for those who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.

  • Adoption Credit

    You could also take a tax credit for qualifying expenses paid to adopt a child.

  • Coverdell Education Savings Account

    This is a savings account used to pay qualified expenses at an eligible educational institution. Contributions are not deductible, but qualified distributions are usually tax-free.

  • Higher Education Credits

    Education tax credits can help with the cost of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax.

  • Student Loan Interest

    You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.

If you’re interested in learning about ways to save on your taxes, please call Harvey and Caldwell today in Overland Park, KS to schedule an appointment and have a chat.

Two New Tax Filing Resources

Two 2016 Tax Filing Resources to Help You  Now

As CPAs and tax professionals, we know you can get all the help you need when managing your expenses and deductibles. As part of our service to tax-payers, we want to provide two helpful 2016 tax filing resources.

The first item is a Charitable Donation Value Guide. This guide is a list of the average prices of items held at the Salvation Army thrift stores, if the items are in good condition. New or expensive items would be higher and damaged materials less. Please use the list for your guidance only. Items can vary greatly in value depending on conditions such as condition, age, antique value, cleanliness, repair needed and value when new.

Our second resource to help you in the coming months with your 2016 tax filing is the Blank Tax Organizer. Thankfully, this organizer will help you put all those bank statements and receipts into one tidy place so your filing will be much easier.

Of course, both these resources are no substitute for the expertise of a professional CPA.  If you’re looking for more helpful advice to make this tax season less stressful, please call Harvey and Caldwell today in Overland Park, KS to schedule an appointment and have a chat.


IRS Changes for 2017

If you’re a business owner, don’t forget about the date January 31, 2017, the new due date for filing form W-2. Read below about info regarding this change and other IRS changes. 

Under a new law, the Protecting Americans from Tax Hikes (PATH) Act, enacted last December, the new filing deadline for employers to submit forms W-2 to the Social Security Administration is January 31. The new January 31 filing deadline also applies to certain forms 1099-MISC reporting non-employee compensation such as payments to independent contractors.

The January 31 deadline for employers to furnish copies of tax forms to employees is still the same. 

W-2 Changes

The new law will also modify the rules for extending time to file form W-2. As of now, you can only request a one 30-day extension to file form W-2, and it is not automatic. If you, as an employer, need an extension, you must file form 8809, Application for Extension of Time to File Information Returns (downloads as a pdf). The form should be completed as soon as you know an extension is necessary, but no later than January 31.

Before, employers had until the end of February (paper filing), or the end of March (electronic filing), to submit these forms. However, the gap between that due date and the beginning of the filing season made it difficult for the IRS to match up forms W-2 with tax returns requesting refunds, which increased fraud. The new deadline, something the IRS wanted to do for a long time, makes it simpler to verify the legitimacy of tax returns and give refunds.

Having PATH Patience

Other taxpayers could have a different experience. The PATH Act also requires the IRS to delay refunds involving two key refundable tax credits, the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), until at least February 15. This new law requires the IRS to hold the entire refund for any taxpayer claiming either of these credits until February 15, and not just the portion related to the EITC or ACTC.

The IRS states that taxpayers should still file their returns as they always do. However, it advises you to practice some patience. With these changes, a few delays are sure to follow. Normally, the IRS issues more than nine out of ten refunds in less than 21 days. Expect delays as returns are held for further review.

Have more questions about IRS filing dates or other tax questions? Please call Harvey and Caldwell today in Overland Park, KS to schedule an appointment and let us help you make filing taxes easier.

Source: Forbes

New IRS Taxpayer Tool

New IRS Taxpayer Tool

The IRS has announced the introduction of a new online tool to help taxpayers. This new  feature allows taxpayers to view their tax account balance online. The balance includes any amount owed for tax in addition to penalties and interest for each tax year. Once you look at your balance, you can take advantage of online payment options. These include direct pay, pay by debit or credit card and Online Payment Agreement.

But you don’t have to rush. The service won’t disappear overnight. The tool is available Monday through Friday, 6 a.m. to 12:30 a.m. ET; Saturday, 6 a.m. to 10 p.m. ET; and Sunday, 6 p.m. to midnight ET. The balance will update no more than once every 24 hours, usually overnight.

Safety Steps

However, remember, before using this tool, you must authenticate your identity through the Secure Access process. This is a two-step authentication process, which means that returning users must have their info (username and password) plus a security code sent as a text to their mobile phones. Good news: taxpayers who have previously registered using Secure Access for Get Transcript Online or Get an IP PIN can use the same username and password as before.

For taxpayers who are brand new to the system, you will need the following to get started with Secure Access:

  • A readily available (and valid) email address
  • Social Security number
  • Your filing status and address from your last filed tax return
  • Your personal account number from a credit card, home mortgage loan, home equity (second mortgage) loan, home equity line of credit (HELOC), or car loan
  • A readily available mobile phone

As part of the security process to authenticate taxpayers, the IRS will send verification, activation or security codes via both email and text. Remember that the IRS will not (and very rarely does) initiate contact via text or email asking for log-in information or personal data. You won’t be asked to click through links or input additional information with authentication contacts. Those IRS texts and emails will only contain one-time codes.

Please call Harvey and Caldwell today in Overland Park, KS to schedule an appointment and learn about more ways to save money on your taxes.

Source: Forbes

Year-end is a good time for gift planning

Are you ready for the gift-giving season? The time may already have arrived, at least from a tax perspective. Between now and December 31, you can take advantage of this year’s gift tax rules as part of your year-end planning.

Here are two ways to transfer assets.

The annual exclusion. The annual exclusion is the amount you can give to anyone, free of gift tax, each year. For 2016, the annual exclusion is $14,000. You and your spouse can combine your individual annual exclusions and make gifts of up to $28,000 to a single recipient.

Some gifts have special rules. For instance, education and medical expenses that you pay directly to the respective providers do not reduce your annual exclusion.

As the name suggests, the annual exclusion is a use-or-lose tax break that expires on December 31 of each year. For 2017, the annual exclusion remains $14,000.

The lifetime exemption. The lifetime exemption is the total amount you can give away during your lifetime without paying gift tax. For 2016, the lifetime exemption is $5,450,000. When you’re married, you can double the exemption, to a maximum of $10,900,000. Note that the lifetime exemption is “unified” with the estate tax exemption. That means the amount you use for gifting will reduce your estate tax exemption.

Gift-giving is a valuable estate planning tool. Please call to schedule an appointment for discussing these or other types of giving, including charitable gifts and gifts made in

What’s New: Avoid phony charities this holiday season

Are you planning to make donations to charitable organizations as part of your holiday celebrations? Be aware of fake charities set up by scam artists. This type of fraud routinely lands on the “Dirty Dozen” list of tax scams prepared each year by the IRS.

Here are two simple tips to protect yourself.

Don’t be fooled by names that sound like established charities but really aren’t. The IRS maintains a searchable list of qualified charities on the official website.

Make donations by check and spell out the full name of the payee instead of using initials. In addition to providing documentation for deducting your contribution, writing a check avoids the need to supply your credit card data, favored information for thieves who want steal your identity.

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Tax Planner Update Dec 2016

As 2016 winds down, a lame-duck Congress is unlikely to take action on tax legislation. The pace of activity may change next year, with a new Administration and ongoing talk of tax reform, and 2017 could bring welcome and needed improvements. Whatever happens, we’re here to keep you updated as events unfold in the tax world.

Until political clarity emerges, however, you’re smart to make the most of established rules in your year-end tax planning. Evaluate your financial situation, select what moves will provide the most savings, and execute your plan in a timely manner. Currently available deductions, credits, and other tax benefits will reduce your 2016 tax burden and put you on track to accommodate new planning opportunities as they arise in the future.

This Letter offers suggestions and strategies to help you achieve your tax-saving plans. Contact us for answers to questions you may have, and to arrange a year-end tax review. As always, feel free to share this Letter with friends or associates who are interested in minimizing taxes.

6 Things Small Business Owners Should Do Now to Reduce Headaches at Tax Time

6 Things Small Business Owners Should Do Now to Reduce Headaches at Tax Time

Guest Post Julie Morris –

A mention of taxes results in a groan from most adults, but few groan louder than small business owners. Often working without the benefit of an in-house accounting department, many small business owners are left to sort out the complexities of tax prep alone. Of course, smart business owners at least outsource the preparation of their actual tax returns, but there’s much work that goes into preparing for tax season long before the looming April 15th deadline.

  1. If you don’t have an accountant, get one.

Professional accounting help costs money, but you’ll save hours of time and possibly hundreds to thousands of dollars in taxes. An accountant or tax prep professional can help you maximize your tax deductions and take advantage of all the credits you qualify for.

  1. Go digital.

Stop letting receipts accumulate in piles, folders, and shoeboxes. It may seem easier to simply save your receipts throughout the year, but using an accounting software solution such as FreshBooks or QuickBooks will make it easy to monitor your cash flow over time and quickly generate profit and loss statements and other reports when you need them. Plus, you don’t have to worry about losing receipts and missing out on deductions when you store everything digitally. Consider tools that streamline the filing process such as W-2 and 1099 software.

  1. Document everything, immediately after it happens.

Once you’ve decided on a software solution for tracking your income and expenses, get into the habit of entering all expenses, payments, and other transactions immediately as they occur. Again, this habit will save you many hours – and many headaches – next tax season when you don’t have to look up your transactions, sort through piles of receipts, and enter everything at one time.

  1. Maximize retirement savings contributions.

Reducing your taxable income is one of the best ways to reduce your tax bill and start building a nest egg for your future at the same time. In most cases, you can contribute thousands of dollars to a retirement savings account such as a 401(k) or an IRA, deferring the payment of taxes on this income until you remove those funds. The contribution limits are subject to change each year and begin to be phased out at higher income levels, so check the IRS website to find out where you stand.

  1. Take advantage of other savings options and donations to charitable causes.

Other options for reducing taxable income include contributions to a qualified college tuition savings plan (such as a state-sponsored 529 college savings plan) or a health savings account (HSA). Finally, keep track of all the contributions you make to charitable causes, including the expenses you incur while doing these good deeds. If you bake cookies for a bake sale raising funds for a qualified charity, for instance, you can deduct the cost of the ingredients as a charitable contribution.

  1. Take a second look at last year’s tax returns.

Looking over your past years’ tax returns will help you remember questions from previous years that you didn’t have time to ask prior to filing those returns, which can help you make better decisions when it’s time to file again. If you’re questioning whether you missed out on deductions or paid too much in taxes, you can always have an accounting professional review prior returns for a second opinion, as well. You can file amendments to tax returns for up to three years.

Tax season isn’t something most people look forward to – even accountants, who often find themselves pulling all-nighters to help clients file last-minute returns – but it’s a necessary evil. By starting to plan today (and all year long) for next tax season, you can take the stress out of filing.