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Do You Need to Fill out Schedules C & E?

Posted on January 4th, 2019

Schedule C is a form that reports income for any self-employed individual. If you are the sole proprietor of your business (even if it is a single-member LLC) or an independent contractor, you need to fill this form out. Sadly, since you won’t have a boss that writes your own checks, you don’t have the opportunity to have taxes taken out for you; you have to pay the full taxes of your income. That being said, claiming any and all genuine business expenses on your Schedule C will reduce the amount of income that is taxable. Make sure that you gather as many receipts for your business expenses as you can.


Schedule E is the form for certain types of supplemental income: income from rental properties you own, any royalties you earn, and income reported on a Schedule K-1 (from partnerships or S corporations) are some of the more common examples. If, however, income from multiple rental properties is your primary form of income, you may have to use a Schedule C for your sole proprietorship instead. In addition to income, a Schedule E is also used to report business losses (paying for an apartment’s carpet replacement, for example) and helps prevent you from paying too much in taxes. This only applies to “at risk” situations, which is not necessarily the same thing as the total money lost.


When it comes to taxes, honesty is always the best policy; if you run your own business or rent a room to someone, and that income is at least the minimum taxable amount, you will need to fill out a Schedule C or E, respectively. Filling out these forms do not necessarily mean that you will be paying too much in taxes, nor does that mean that you won’t be able to make up for these taxes either. If you see yourself filling out either Schedule, feel free to contact your trusted tax preparer or accountant to discuss these forms. When tax day comes, being prepared for Schedules C and E can save you time and, possibly, money.


Should I Choose a Roth or Traditional IRA?

Posted on October 4th, 2018

Do you have questions about which type of Individual Retirement Account (IRA) is right for you? When deciding between a traditional IRA and a Roth IRA, consider factors to such as tax incentives, age restrictions, and income restrictions before making your decision. Tax Incentives One of the main differences between the traditional IRA and the Roth IRA is the tax incentives provided by each. When deciding which is right for you, focus on what tax bracket you plan to be in when you retire, and if that bracket will be higher or lower than the one you’re in now.

  • Traditional IRAs – A traditional IRA is the best choice for you if you believe your tax rate will be lower in retirement than it is right now. With traditional IRAs, you are not taxed when you contribute money to your account. Taxes are paid when you withdraw the funds.
 
  • Roth IRAs – Roth IRAs are the best choice for you if you believe your tax rate will be higher in retirement than it is now. When you contribute to a Roth IRA, you pay taxes on the funds as you put them in. You will not have to pay taxes on funds when you’re able to withdraw.
  • Age Restrictions In addition to considering tax incentives when choosing between a traditional IRA and a Roth IRA, it is important to keep in mind that with a traditional IRA, there are age restrictions for contributions.
    • Traditional IRAs – Anyone younger than 70 ½ with earned income can contribute to a traditional IRA.
     
    • Roth IRAs – Roth IRAs don’t have age restrictions.
    Income Restrictions
    • Traditional IRAs – You can contribute to a traditional IRA regardless of how much money you make. However, the amount of money you contribute can’t exceed the amount of income you earned that year.
     
    • Roth IRAs – For some high-income earners, Roth IRAs are out of the question. To contribute to a Roth IRA, single tax filers must have a modified gross income of less than $135,000 (in 2018). Married couples filing jointly must have modified AGIs of less than $199,000 (in 2018) to be able to contribute to a Roth IRA. The amount you contribute to a Roth IRA can’t exceed the amount of income tax you earned that year.
Withdrawal Rules Both traditional and Roth IRAs allow their owners to begin taking penalty-free distributions at age 59 ½. A major difference between traditional IRAs and Roth IRAs is when the savings must be withdrawn:
  • Traditional IRAs – Traditional IRAs require you to start withdrawing funds at age 70 ½, even if you don’t need the money.
 
  • Roth IRAs – Roth IRAs don’t require withdrawals during the owner’s lifetime, which means that you can let your Roth IRA continue to grow throughout your life (tax-free) if you don’t need the money. To avoid incurring a tax payment, Roth IRAs require that the first contribution be made at least five years before the first withdrawal.
Since Roth IRAs don’t require that you withdraw funds in your lifetime, and beneficiaries aren’t required to pay taxes on withdrawals, Roth IRAs can be a good wealth transfer strategy. Other Considerations
  • Traditional IRAs – Contributing to a traditional IRA lowers your adjusted gross income for that year, which can help you qualify for other tax incentives such as the child tax credit or the student loan interest deduction.
  With traditional IRAs, if you are under 59 ½, you can withdraw up to $10,000 from your account to pay for qualified first-time home buyer expenses and higher education expenses, without paying the 10% early-withdrawal penalty. You are still required to pay taxes on the distribution.  
  • Roth IRAs – Roth contributions (but not earnings) can be withdrawn penalty and tax free at any time. Even before age 59 ½.
If you are under age 59 ½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time-home-buyer expenses, if at least five tax years have passed since your first contribution. Roth IRAs can be invested in almost anything you want: index funds, life cycle funds, individual stocks, or other investments.   Remember, whether you choose a traditional IRA or a Roth IRA, it is important that you begin contributing as soon as possible to accrue savings, and avoid withdrawing earnings before age 59 ½ to avoid penalties.   Sources https://www.rothira.com/traditional-ira-vs-roth-ira https://investor.vanguard.com/ira/roth-vs-traditional-ira https://www.nerdwallet.com/article/roth-or-traditional-ira-account


Reducing Tax Liabilities for High Income Earners

Posted on July 2nd, 2018

Preparing for end-of-the-year taxes can be daunting, but understanding good tax-planning practices can help to increase your chances of receiving higher returns on your investments. Income from investments can be one of the best places to look when searching for places to cut costs and increase your revenue. Creating a proactive tax-plan can prevent you from paying thousands of dollars in unnecessary taxes.

Tax-saving Solutions

While high-income taxpayers are required to pay the most income tax, there are a few practices these individuals can engage in to lower the amount they pay at the end of the year. Purchasing stock for at least one year prevents you from paying additional costs from unnecessary taxes. Allowing your stock to become eligible for long-term treatment helps to reduce the amount you pay in taxes. Failing to hold stock for at least a year causes you to pay short-term capital gains on investments rather than just the 15 to 20 percent of normal capital gains tax, in short paying more.

Regular reviews of your taxable assets make sure you’re aware of all the areas that may be costing you extra money. Routine checks develop good practices and habits that help to reduce what you pay. Reduce the amount of taxable interest, which means reducing the amount of money stored in low-profit areas. Banks give their clients close to nothing, while clients are still required to pay at least half of that interest in taxes.

Utilizing high-profitable places to store your money will not only increase your dividends but also reduce the amount of taxes you pay. Give away assets, that is, giving or donating assets to charities and family members using appreciated stock, may reduce the amount of taxable income you own. Neither party associated in the exchange is required to pay capital-gains taxes when the stock is transferred. Additionally, family members may qualify for a different tax bracket that are lower than your costs, in turn reducing the overall amount of gains lost through the process. Since the New Year is just around the corner, it’s best to engage in proper tax-planning practices to best increase your chances for reducing the amount of money you pay and increase the amount of profit you actually keep.


How to Achieve Financial Goals with a Budget

Posted on April 5th, 2018

Planning ahead for your finances can save you stress down the road, and ensure the success of your personal and professional goals. Outlining a monthly budget is one of the most effective ways to both organize your finances and chart your progress. The following guideline offers some helpful suggestions to stay organized and motivated as you chart your financial future.

The Importance of Setting Up a Budget

Assessing the amount of money you earn every month after taxes is the first step toward setting up a reliable budget. Next, you should determine how much is needed to satisfy monthly bills and necessary living expenses. Setting up a budget will go a long way toward helping you accomplish your financial goals as you streamline purchases. Splitting your monthly income into three categories is a popular budgeting method. Under this system, half goes toward absolutely necessary expenses like housing, transportation, utilities, and food, 20% covers retirement and debts, and the last 30% is spent on personal expenses, such as entertainment, personal care, or charity, to name a few examples. As far as personal purchases are concerned, you should really weigh the overall value of what you’re spending money on. Is the purchase an impulse? Does it benefit your daily life in any way beyond instead gratification? One popular sentiment many apply to their spending habits is the idea that memories are more valuable than individual material goods.

The Big (and Small) Picture

As you establish your financial goals, it’s helpful to organize a plan that addresses each goal in smaller, bite-sized installments. We can easily overwhelm ourselves with long-term goals, so assessing what can be realistically accomplished within the near future may ensure long-term success.

Along with drawing up a budget, creating a financial calendar will help organize your tax schedule, whether you have upcoming appointments or need to remind yourself to pay quarterly taxes on time. This visualization can also help you track long-term goals through smaller, more immediately achievable tasks, while also allowing you to track your current status. Knowing where you stand will help you stay current on financial goals. Tracking your net worth can also prevent the resumption of bad spending habits and stop current ones in their tracks.

Making the Most of that 20%

The simple act of listing your debts will help you form a plan of attack. Focusing on interest rates instead of what you owe will allow you to effectively prioritize the payoff of individual debts. The bill with the highest interest rate is costing you the most money, so it should take top priority on your list. Once that debt is paid, apply the same method to the next item.


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