Homeowner Alert! Review Your Tax Forms

 Homeowner Alert! Review Your Tax Forms

New tax rules are creating confusion

Tip Category: Deductions

Because of many home-related tax changes over the years, it can easily confuse taxpayers on what, when and how much can be used to qualify for a home mortgage related deduction. So when your mortgage company reports tax-related information to you and the IRS using Form 1098, it no longer means all the interest and points reported on these statements are tax deductible. Here is what you need to remember:

• Mortgage interest deductions loan amount limits. For mortgages starting on or after Dec. 15, 2017, you can deduct interest on up to $750,000 of the loan (it is $1 million for mortgages initiated before Dec. 15, 2017). If your original mortgage is above the threshold, a calculation will have to be done to determine the deductible amount of interest. You can’t simply deduct the full amount of interest being reported on your Form 1098.
• Proceeds not used to buy a home add complexity. Proceeds from home equity debt that are not used to build, buy, or substantially improve a qualified home are not tax deductible. This includes mortgage or home equity proceeds used to pay for college expenses, debit consolidation, or other purposes. Mortgage companies issuing these loans will still send you a Form 1098, but it’s up to you to prove how you use the funds during the current year and any prior year.
• Mortgage points requires review of settlement statements. Points are paid as a way to obtain a lower interest rate. Generally, points are deductible in the year they are paid, but they have more restrictions than mortgage interest. Points paid to refinance an existing mortgage, for example, may need to be deducted over the life of the loan. If you bought or refinanced a home this past year, a review of your mortgage settlement statement may be required to ensure proper tax treatment of the cost of your points.
• Mortgage insurance premiums are not deductible. If you pay mortgage insurance, your mortgage insurance premiums are not deductible. This on again, off again deduction is now in the off position.

With the rise in interest rates over the past several years, more taxpayers will be itemizing their deductions due to mortgage interest. So for each Form 1098 you receive, make a note on the form to explain what the loan is for to ensure a proper deduction.

Factors that Will Affect the Size of Your Tax Refund

Many people eagerly anticipate tax season. It's a chance to get back some of the hard-earned money you've paid in taxes throughout the year. However, the size of your tax refund can vary significantly from year to year, and it's essential to understand the factors that influence it.

In this blog post, we'll explore some critical factors that can affect the size of your tax refund.

1. Income Level
   One of the most significant factors that will impact the size of your tax refund is your income level. Generally, earning more money will have a higher tax liability, which can result in a smaller refund or even a tax bill. Conversely, if your income is lower, you may be eligible for various tax credits and deductions to increase your refund.
2. Filing Status
   Your filing status is crucial in determining your tax liability and refund amount. There are several filing statuses, including Single, Married Filing Jointly, Head of Household, and more. Your chosen level can affect your tax brackets, standard deductions, and eligibility for certain tax credits. For example, married couples who file jointly often receive more favorable tax treatment than those who file separately.
3. Tax Deductions
   Tax deductions reduce your taxable income, which can result in a larger tax refund. Common deductions include mortgage interest, medical expenses, charitable contributions, and state and local taxes paid. The more deductions you qualify for, the lower your taxable income will be, potentially leading to a larger refund.
4. Tax Credits
   Tax credits directly reduce your tax liability; some are refundable, meaning they can increase your refund even if you have no tax liability. Examples of popular tax credits include the Earned Income Tax Credit (EITC), the Child Tax Credit, and the American Opportunity Credit for education expenses. Eligibility for these credits often depends on factors like income, family size, and education expenses.
5. Withholding Amount
   Your tax refund is the difference between the taxes you owe and the amount you've already paid through withholding or estimated tax payments. If you have too much money withheld from your paycheck throughout the year, you will receive a larger refund. Conversely, if you have too little withheld, you may owe additional taxes or receive a smaller refund.
6. Life Changes
   Life events such as getting married, having children, buying a home, or changing jobs can significantly impact your tax situation. These changes can affect your income, deductions, and credits, leading to variations in your refund from year to year.
7. Changes in Tax Laws
   Tax laws are subject to change, and new legislation can alter the tax landscape. These changes can either increase or decrease your tax liability and refund size. Staying informed about tax law changes and working with a tax professional can help you navigate these shifts effectively.

Various factors influence the size of your tax refund, and understanding these variables is essential for effective tax planning. While controlling every element is impossible, you can make informed decisions to optimize your refund potential.

To ensure you receive the maximum refund you're entitled to, consider consulting a tax professional who can help you navigate the tax code's complexities and identify tax savings opportunities. Ultimately, staying informed and proactive can significantly affect the size of your tax refund each year.

Navigating Back Taxes: A Guide to Resolving Them with Expert Help

 

Understanding Back Taxes

Back taxes—those lingering financial ghosts from previous years—can haunt your financial peace of mind. Whether you missed filing a return, underreported income, or miscalculated deductions, dealing with back taxes requires a strategic approach. Fear not! Let’s break it down step by step.

1. Acknowledge the Situation

First, take a deep breath. Facing back taxes head-on is essential. Acknowledge that you owe taxes from prior years and commit to resolving them.

2. Seek Professional Guidance

Enlisting the help of a tax professional is crucial. These experts specialize in navigating the complex tax landscape. Here’s how they can assist:

• Assessment: A tax professional will review your situation, assess the outstanding taxes, and determine the best course of action.
• Options: They’ll explain your options, such as payment plans, offers in compromise, or penalty abatement.
• Advocacy: Your tax pro becomes your advocate, communicating with the IRS on your behalf.

3. Gather Necessary Documents

Before meeting with your tax professional, gather essential documents:

• Prior-Year Returns: Collect any unfiled tax returns.
• Income Records: W-2s, 1099s, and other income-related documents.
• Expense Documentation: Receipts for deductions or credits.

4. Choose a Tax Professional

Select a tax expert based on your needs:

• Certified Public Accountant (CPA): CPAs are licensed professionals with expertise in tax law.
• Enrolled Agent (EA): EAs specialize in tax matters and can represent you before the IRS.
• Tax Attorney: If legal complexities arise, a tax attorney provides legal advice.

5. Collaborate with Your Tax Pro

During your consultation, discuss:

• Filing Past Returns: Your tax professional will guide you through filing back tax returns using the correct forms for each year.
• Payment Options: Explore payment plans or offers in compromise.
• Penalty Abatement: Your tax pro can request penalty relief if you have a valid reason.

6. Take Action

Once you’ve agreed on a strategy, take action:

• File Promptly: Submit your past-due returns promptly.
• Payment Plan: Set up a payment plan if needed.
• Negotiate: If eligible, negotiate an offer in compromise.

7. Stay Compliant Moving Forward

Learn from the past. Stay current with your taxes to avoid future back tax situations.

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Remember, you’re not alone in this journey. Seek professional guidance, address back taxes, and regain your financial footing. Share your experiences or questions in the comments below—I’d love to hear from you! 📝💡

How to File Your Child’s First Income Tax Return

 

Filing an income tax return for your child may not be the first thing that comes to mind when you think about their financial responsibilities. However, it's essential to introduce them to the world of taxation early on. Teaching your child how to file their first income tax return instills financial responsibility and helps them understand the importance of paying taxes and contributing to society.

This blog will walk you through the steps to file your child's first income tax return.

1. Determine the Filing Requirement:
   The first step in filing your child's income tax return is determining whether they must file. Generally, if a child's income exceeds a certain threshold, they must file a tax return. This threshold can vary depending on their age and the source of their income. For example, in the United States, for the tax year 2023, a single dependent under the age of 65 must file a return if their unearned income (such as interest and dividends) is over $1,100 or if their earned income (such as wages from a part-time job) is over $12,550.
2. Gather Necessary Documents:
   Before starting the filing process, you must gather all the necessary documents. This includes income statements, such as W-2 forms from employers or 1099-INT forms for bank interest income. If your child has investments, you'll need statements from brokerage accounts or other financial institutions.
3. Choose the Filing Status:
   Your child's filing status depends on their circumstances. Most likely, they will be considered dependent on your tax return if they are under 19 or under 24 years old and a full-time student. However, if they have substantial income and are financially independent, they may file as independent taxpayers.
4. Choose the Appropriate Tax Form:
   The tax form your child should use depends on their income and filing status. The most common forms for individual taxpayers in the United States are the 1040, 1040A, and 1040EZ. Your child may be eligible to use the simplified 1040EZ form if their income is below a certain threshold and they meet specific criteria.
5. Complete the Tax Return:
   Help your child complete the tax return form accurately. If applicable, they must enter their personal information, income details, deductions, and credits. Be sure to review all the information to avoid errors.
6. File Electronically or by Mail:
   Once the tax return is completed, your child can file electronically using tax software or file it on paper by mailing the forms to the appropriate tax authority. Many people choose to e-file because it's faster and more convenient.
7. Understand Payment or Refund:
   Depending on your child's income, they may owe taxes or be eligible for a refund. If they owe taxes, ensure they understand the payment deadline and how to pay. They can receive a refund by direct deposit or as a paper check if they're owed a refund.
8. Keep Records:
   Please encourage your child to keep copies of their tax return and supporting documents for at least three years. This will be useful in case of any audits or questions from tax authorities.

Filing your child's first income tax return is an excellent opportunity to teach them about financial responsibility and the importance of paying taxes. By following these steps and involving them in the process, you'll help set them on the path to financial literacy and responsible tax management.

Consult with a tax professional or use tax software to ensure accuracy and compliance with current tax laws and regulations.

What Happens If You Don't File a Tax Return?

 

Tax season can be a stressful time of year for many individuals and businesses. Filing your tax return accurately and on time is not just a legal obligation but also essential to avoid potential consequences. However, some might wonder what happens if they don't file a tax return.

In this blog, we'll explore the repercussions of failing to file your taxes and why meeting your tax obligations is crucial.

1. Penalties and Interest
   One of the most immediate consequences of not filing your tax return is the potential for penalties and interest charges. The Internal Revenue Service (IRS) imposes late-filing penalties, which can be substantial. The disadvantage is usually calculated as a percentage of the unpaid taxes you owe, and it increases the longer you delay filing.
   Interest charges also accumulate on any unpaid taxes from the return's original due date until the date you pay them. The combination of penalties and interest can significantly increase the total amount you owe to the IRS over time.
2. Loss of Refunds
   When you fail to file a tax return, you're essentially forfeiting any potential tax refunds you might be entitled to receive. If you had too much money withheld from your paychecks throughout the year or qualified for tax credits, you might be owed a refund. However, the IRS won't issue a refund if you don't file a return to claim it.
   By not filing, you are giving up money that is rightfully yours. This is one of the key reasons to ensure you file your tax return, even if you think you don't owe any taxes.
3. Legal Consequences
   Avoiding your tax obligations can lead to legal consequences. While it's not common for individuals to face criminal charges for failing to file taxes, it can happen in deliberate tax evasion or fraud. Such payments can result in fines and even imprisonment.
   Additionally, the IRS has the authority to levy your bank accounts, garnish your wages, and seize your assets if you owe back taxes and don't address the issue promptly. These actions can have a severe impact on your financial stability and well-being.
4. Reduced Financial Opportunities
   Not filing your taxes can also affect your financial opportunities in the future. For example, if you want to apply for a mortgage, a car loan, or other forms of credit, lenders often review your tax returns as part of their approval process. If you haven't filed your taxes, securing these loans can make it more challenging or result in less favorable terms.
   Moreover, some government benefits and programs, such as federal student aid, may require you to provide tax information. Failing to file could hinder your eligibility for these benefits and opportunities.
5. Audit Risk
   Another potential consequence of not filing your tax return is an increased risk of being audited by the IRS. The IRS has the authority to assess your tax liability based on the information available to them. Without your tax return, they may use their calculations, which can lead to a higher tax assessment than if you had filed your return accurately.
   Filing your taxes and providing accurate information reduces the chances of an audit and ensures that you only pay what you truly owe.

Filing your tax return is not just a legal requirement; it's a financial responsibility with real consequences if neglected. From penalties and interest charges to legal matters and missed refunds, there are numerous downsides to not filing your taxes. It's crucial to meet your tax obligations accurately to avoid these potential problems and maintain your financial health and legal standing.

If you're facing difficulties, consider seeking assistance from a tax professional or the IRS to ensure you fulfill your tax responsibilities.

The Basics of Self-Employed Taxes for Jackson County Freelancers

 

Taylor Swift is everywhere right now. I’m guessing you noticed, too?

This weekend’s Grammy’s saw her fall in league with greats like Frank Sinatra and Stevie Wonder after winning album of the year for the 4th time (and a once-again snubbed Beyonce). The Grammy’s also saw some other dominant female singers snagging awards, too (Miley Cyrus, Billie Eilish).

Why do I bring this up today? Well, primarily because these women didn’t get where they are without lots of planning and strategic decision-making. 

Success in any business — as a singer-songwriter or as an Uber driver — means you have to know what’s required of you to make it succeed and how to navigate those requirements the right way.

That’s what I want to get into today. Because plenty of Kansas City side-gig people who started out small in 2020 are taking things full-time. And when you start doing that, that means knowing the basics of self-employed taxes, which I’ll get into today.

Tax season has begun, which means my calendar gets pretty full. However, I’m always ready to help new business owners get their feet under them with their taxes. And if you’re not new to the freelancing thing, I’m still happy to help you re-evaluate things and make sure you’ve got your tax strategy and mindset in place.

If you want to talk about some of those basics, grab a time here: 

https://www.afitonline.com/appointments

For now, let’s start the conversation here…

The Basics of Self-Employed Taxes for Jackson County Freelancers
“Do not wait until the conditions are perfect to begin. Beginning makes the conditions perfect.” – Alan Cohen

Making some extra money was probably the reason you got into side gig work. But, if you’re like many other freelancers out there, you saw an opportunity to step up your game and take this full-time.

And while that step is really liberating, it’s also a bit daunting when it comes to the logistics of running a business. Especially when you realize that managing taxes is now part of those logistics.

To save you some difficulty down the road and help get you in the right mindset about self-employed taxes, let’s get into some of the basics.

Here’s the deal with self-employed taxes:

Once you choose this route (even if only on the side), you’re now responsible for paying taxes on your income directly to the IRS. This includes both income tax and self-employment tax, which is a combination of Social Security and Medicare taxes. 

As a freelancer, you’ll pay both the employee and employer portions of these taxes, amounting to a total of 15.3% of your net earnings. With that higher tax rate, you’ll especially want to be meticulous in keeping track of expenses and other financial information as well as strategic in planning for your tax obligations. 

Think like a business owner, not an individual taxpayer

Adopting a business owner’s mindset is crucial with both finances and taxes. 

Not only do you have to track income and expenses, you have to think ahead with your business’s finances. One way to do that is by shifting your mindset from quarterly or monthly in your tracking and planning. Set aside money for taxes with each payment you receive. This forward-thinking approach ensures you’re prepared for your tax obligations like estimated payments and helps you take advantage of deductions. 

Self-employed taxes are more than a once-a-year thing

The rhythm of freelancing includes quarterly tax payments — a shift from the once-a-year filing you might be used to. The IRS wants your tax payments evenly distributed throughout the year. To prevent an end-of-year tax bill surprise and to help you avoid underpayment penalties, make sure you’re planning for these.

The 2024 due dates for estimated taxes are: April 15, June 15, September 15, and January 15, 2025. 

And it’s pretty easy to take care of making these payments online. Just go here: https://www.irs.gov/payments. There’s also an IRS app now to make easy payments, and of course, the good old-fashioned mail a check or money order option. 

Choose a business structure that’s right for you

Your choice of business structure, whether it’s sticking with a sole proprietorship or moving to an LLC or S-Corp, directly affects your taxes and personal liability. Each has its own set of tax advantages and protections.

As a sole proprietor, you benefit from simplicity in setup and tax filing, but you’re personally liable for any debts or legal issues your business encounters. An LLC (Limited Liability Company) offers protection against personal liability, meaning your personal assets are safe if your business runs into trouble. 

Electing to be taxed as an S-Corporation could potentially save you money on self-employment taxes by allowing you to split your income between salary and dividends, the latter of which isn’t subject to self-employment taxes. We’re happy to help you think this one through.

Don’t forget about the deductions available to you

Things like health insurance premiums, retirement contributions, and educational expenses can significantly reduce your taxable income. If you haven’t thought about that for this tax season, let’s talk.

As tax season is in full swing, now’s the perfect time to get a jumpstart on these tax basics. 

If you don’t prioritize thinking through these things now, at the start of your business, you’ll likely fall into trouble later down the road.

I’ve seen it happen to a lot of Jackson County freelancers. Don’t let that be you, and we’re here for you if you want guidance in setting up some good systems to take care of these things. 

Helping your freelance business succeed with self-employed taxes,

 

Mike Mead, EA, CTC

Alliance Financial & Income Tax

807  NW Vesper St

Blue Springs, MO. 64015

816-220-2001

AFITonline.com

Schedule an Appointment

Mike Mead, EA, CTC’s Top 2024 Financial Strategies

The official tax season start date has landed—JANUARY 29th. That’s next week.

This is your cue to start gathering everything you need for your tax appointment. 

(Speaking of… have you booked yours with us yet? It’s early, so there are still plenty of spots open, but they do fill up fast, so don’t put it off. 

www.afitonline.com/appointments )

And this is my cue to update you on tax items that could affect you. You know that tax laws change rapidly. It seems like there have been plenty of changes in Washington that have rolled down to Jackson County people like you and me over the past few years. So, we’re staying vigilant in monitoring these changes to help you get access to the best tax benefits and protect you from potential issues.

1.    The IRS chose to postpone the 1099K reporting that affects receiving digital payments for services or products. It doesn’t mean you don’t have to report the income; you just won’t receive a 1099K from PayPal or your favorite 3rd-party payment platform.

2.    There are some changes/improvements in “green energy” tax credits for homeowners, landlords, and vehicle owners. If you invested money into solar panels, energy-efficient windows or doors, electric vehicle(s), or anything else related to green energy this past year, don’t forget to share the details with us at your tax appointment (what was purchased, date of purchase, and the amount invested).

3.    Student loan repayments can count as 401K contributions for some employees. Check with your Jackson County employer to see if they have a 401K matching policy. If you’re paying back your loans, this could be a great way to get some “free money” into your 401K.

4.    The IRS has more funding to step up enforcement. They are focusing primarily on high-income earners and certain business entities, but that doesn’t mean they won’t look into your situation if you haven’t taken care of things.

I give you these insights so that you’re taking advantage of every opportunity. That kind of insight can be a real game changer in this economy.

Now, last year, our wallets were stretched pretty thin by inflation. Things feel a little better right now for some, but not for everyone.

In a fluctuating economy, you find out just where you’re weakest in your financial situation. Now that we’re diving into a new year and with the realities of the past as a guide, let’s take this opportunity to look at how to make improvements in your situation. 

Mike Mead, EA, CTC’s Top 2024 Financial Strategies

“A nickel ain’t worth a dime anymore..” — Yogi Berra

 

In this climate where the economy and your wallet send mixed signals, the smartest move is to arm yourself with knowledge and strategies that turn any challenges into opportunities. 

You’ve got to figure out how to adjust for the bigger picture things that trickle down to affect your financial state in any year, but especially for this year. 

So, let’s take a dive into some key financial areas that could help you survive financially this year – and even come out thriving(?)

2024 Financial Strategy #1: Debt management in a high-debt climate

We all know our national debt is high and the continued political turmoil means there’s a likelihood of tax policy revisions​​. Those decisions usually have a significant impact on your wallet. As the economy continues to fluctuate, it’ll be crucial for you to figure out how to tackle your own debt so you can find some solid ground financially. 

Deeper insight: Focus on reducing high-interest debts first. Strategies like balance transfer credit cards or debt consolidation loans can be effective. And if tax changes do roll out, you know I’ll be here to keep you updated and offer key insights to keep you from tax debts getting added to your debt balance.

2024 Financial Strategy #2: Savings in a low-disposable-income environment

Even with a squeeze on disposable income, saving remains a critical component of financial health. With interest rates rising, your savings can work harder for you. 

Deeper insight: Embrace automated savings plans. Small, regular contributions to high-yield savings accounts or CDs can lead to significant long-term growth. This approach is particularly effective in preparing for unexpected expenses or long-term financial goals.

2024 Financial Strategy #3: Insurance and tax planning for optimal savings

It’s time to review insurance policies to make sure you’re not paying more for insurance than you should. There could be savings possible if you double-check that your insurance costs are reflective of your current life situation.

The same goes for taxes. When your life situations change, it could mean restructuring or making moves that will actually benefit your tax standing with the IRS. If you don’t, you could be paying more than you should or you could be missing out on real deductions and credits.

Deeper insight: Schedule an insurance review and tax planning appointment and plan to do those on an annual basis. Look for changes in life circumstances that might lower premiums. On taxes, consider strategies to maximize deductions and utilize tax-advantaged accounts. Consulting with a tax professional can help identify opportunities tailored to your specific situation. We’re glad to be that person for you (it’s what we love). 

2024 Financial Strategy #4: Preparing for a recession

While the talk of recession has receded somewhat, the possibility does still loom in the background. If it does rear its ugly head, you obviously want to be financially prepared to face it. 

Deeper insight: Prioritize building a robust emergency fund this year. Aim to save enough to cover several months of living expenses. This fund acts as a buffer against unexpected financial shocks. 

Additionally, focus on budgeting effectively and continue reducing debts to strengthen your financial position. 

This year, understanding and acting on these key 2024 financial strategies can make a big difference in the stability of your financial world. As we head into an election year and continue to navigate the complexities of tax law changes, changing interest rates, and other financial factors, staying focused on improving things for you will be more critical than ever. 

And remember, we’ll always work to keep you informed. If you want help from a reliable Blue Springs professional with your situation, my team and I are here and ready to help.

Getting you on solid financial ground this year,

 

Mike Mead, EA, CTC