Many of us who own homes can write off the mortgage interest paid on Schedule A. But who in America benefits most from the mortgage interest deduction, and what may happen to the real estate market and the overall economy if the deduction is limited in any way? These are key issues that are being hashed out in Washington, and tax reform in this particular area could very well be on the way.
A PEW research study in 2010 showed some interesting facts. Only 1/3 of the federal filers take the mortgage deduction, and only ½ of the homeowners. States on the east coast and west coast generally had the highest number of filers and highest average amounts of mortgage deduction taken.
Currently, the deduction is limited to 1 million total of mortgage debt. The amount of the deduction depends on the income tax bracket of the taxpayer. So if you are in the top bracket of 39.6%, you benefit tremendously from the deduction, far more than if you are in one of the lower brackets. Over the 5 year period the mortgage interest deduction is expected to save the American taxpayer $380 billion.
Ideas to limit include lowering the total debt amount to $500k or $750k, not allowing interest deduction on second homes, or making the interest deduction a credit with a certain maximum as opposed to a deduction for only those who itemize. This will allow more lower and middle income taxpayers to benefit from the write off. Many feel that the deduction should be restructured to potentially benefit those in the lower brackets, and spur them into home ownership as opposed to renting.
While we are talking about mortgage interest: There has never been a better time to look at your debt and make sure your house is in order. Rates are so low and it is my goal to consult with each and every one of my clients to make sure they have the best mortgage possible for their particular situation.
Click on the link below to hear Stu and Win Damon talk about this very topic on WNBP FM 106.1 and WNBP.com every Tuesday morning at 8:30.
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He also uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.
It is almost April 15th and that means one thing: Your tax filing is due. No that is REALLY NOT TRUE! The BIG deadline is really not a tax filing deadline, it’s a tax PAYING deadline. So, if you owe for 2012, it’s time to settle up with Uncle Sam, but it is NOT time to file. Our actual returns are due on October 15th, and I actually file many of my clients in the summer or even right up to the deadline in October.
Now I do not recommend this for everyone, but there are many solid reasons to wait: You do not have all your information, you want to fund a SEP IRA (deadline when you actually file the return), or you are simply not ready to file due to work or personal reasons. These are all legitimate reasons for you to file in May-October, and they are all LEGAL!
So remember, pay what you owe by April 15, and also pay a first quarter estimated tax by that date if necessary, but do not force feed a full return by that date because it is not necessary. Get the information you need from a qualified professional. This will arm you with the best information about your tax life.
If you MUST file because you are nervous or anxious, remember that in New England and parts of New York we have until Tuesday April 16th due to the Patriots day holiday in Massachusetts and the fact that the Andover IRS office is closed Monday April 15th.
Listen below to my brief chat with Win Damon of 106.1 FM in Newburyport. You can hear me chat with Win every Tuesday morning at 8:30 as we discuss the many insightful tax and financial issues that affect us all on a daily basis.
There has been a lot of talk over the years about scrapping the tax code and coming up with something new, and there certainly have been a ton of proposals. Unfortunately, much like the banking system being too big to fail, the tax code may actually be too big to overhaul completely.
The talk from the right is mainly about a consumption tax and or abolition of the state tax to replace the current income tax system. Under some radical regressive plans, income taxes, gift taxes, FICA taxes, corporate income tax, and even capital gains would be eliminated in favor of the consumption tax.
The pros of a consumption tax are that the tax rewards saving. If you don’t consume, you don’t pay the tax. Also, the cumbersome current tax code would be scrapped entirely, making many Americans happy they don’t have to stress over taxes every year.
But the cons far outweigh any system like this. First it’s entirely regressive and forces poor folks to ante up more to the table that they cannot afford to pay in the first place. Second, what’s the rate going to be for the consumption tax? There is talk of a rate in the 20% range and many feel that will not even be enough to cover the current tax collections. Also, imagine taxing home sales, medicine, or even food.
For now we will have to deal with the usual partisan bickering over taxes and who should pay what. The democrats want to force the 25+% of American corporations that pay zero tax to pay their fair share of tax. They also want the richest of the richest to pay even more in tax to get their % owed back to levels when there was American prosperity in the 90s. The Republicans want the tax code revamped by broadening the tax base and lowering rates, as well as closing loopholes, something they have said for years.
Click below to hear Win Damon and I review this topic live on WNBP, 106.1 FM Newburyport and wnbp.com. Listen every Tuesday morning at 8:30 for insightful tax and financial tips.
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He also uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.
Stu Steinberg, CPA, MBA of ERock Tax in Newburyport has partnered with Dave Plunkett, CPA of Peabody, MA. The two CPA’s, who have known each other for several years, have professional practices that match up nicely as Dave’s focus is small business corporate tax consulting while Stu’s focus is on the personal level.
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg brings a broad depth of knowledge to his work. Stu founded Erock Tax to help provide tax strategies to individuals, families and small businesses. He also uses his CPA expertise to help each client navigate their long-term debt and mortgage, gaining them the best deals and rates possible. Stu is passionate about empowering his clients through education about their tax health. He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.
Dave Plunkett, CPA co-formed Miasserian & Plunkett, CPA’s LLC in June 2003 to hels companies throughout Boston and Essex county deal with a broad range of business, tax, and accounting issues. He uses his vast experience in the tax and accounting world as he consults with his tax clients every day. He has worked as a corporate controller for a global manufacturer of biotech as well as Chief Operating Officer fpr Bruker BioSciences Inc., a publicly traded company. David holds a master’s degree from Suffolk University and a bachelor’s degree from Merrimack College. You certainly may be hearing from him as you plan your tax program!
Please reach out anytime for any of your tax, budgeting, bookkeeping, cash flow, and business accounting or consulting needs. Stu can be reached at stu@erocktax.com and Dave is at Dave@miasserianplunkett.com.
Well folks it’s that time of year again: TAX TIME. I know you are all so excited about this, but let’s face it, we have to do this every year, right? It is always best to stay organized when planning for your taxes. Even if you do not open up all the envelopes that arrive it’s ok. You can simply get a large 10 x 13 envelope and put all your tax documents in it when they come in. When you are ready we will review all your pertinent forms, get your 2012 returns filed, and start planning for 2013 and beyond!
You see taxes are not about just filling in the forms and forgetting about it. We pay so much in federal taxes, state taxes, fica taxes, sales taxes, and healthcare taxes. The planning process is often overlooked but it really is the most important part of the tax filing process, especially if you are self employed and/or pay estimated taxes. If you plan correctly, you won’t get a huge refund or you won’t owe too much unexpected money come tax payment time.
Please reach out anytime as the tax season progresses. Do not let financial and tax issues bog you down or stress you out. Get the answers you need in a timely fashion. You will be glad you did!
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime
At the last minute Congress passed a new law that will affect most of us. Below I outline a few of the changes.
1) Your payroll taxes are going back up to where they were before the last 2 years. Total payroll taxes = 15.3%, with 7.65% paid by the employer and 7.65% paid by the employee. The 7.65% is broken down into social security portion of 6.2% and Medicare of 1.45%. It is the 6.2% portion for the employee that was lowered to 4.2% for 2 years, and that is going back up to 6.2% for 2013. The 6.2% maxes out at $113,700 for 2013, so for a taxpayer making more than $113,700 that equates to an additional tax of $2,274 for 2013, and if you make $50,000 that means you will pay $1,000 more.
2) Who is paying higher income taxes? Well, if you are single and make more than $400,000 or married and make more than $450,000, than your top tax rate is going up from 35% to 39.6%. President Obama campaigned for 2 years on a plan to raise taxes on individuals making more than $200,000 and married couples more than $250,000. So we knew something had to give here. All other tax rates have no change.
3) How about taxes on investment income, capital gains and dividends? If you are in the $400,000 or $450,000 income bracket your rate on this unearned income will rise from 15% to 20%. All others will stay at 15%, except those in the lowest 2 tax brackets who will pay 0%! High earners should also be aware of the 3.8% health care tax on unearned income that starts in 2013 as part of President Obama’s Affordable Care Act.
4) Very important tax breaks for families will be extended for 5 years. This includes the Child tax credit, the earned income tax credit that was originally set up by President Reagan in the 1980s, and the American Opportunity Tax Credit of up to $2,500 a year for 4 years for low income families.
5) If you have ever been subject to the AMT tax, you know how painful that can be. Well, many middle income taxpayers will be protected going forward from this tax as it will now be adjusted for inflation. It was never adjusted previously, and every year seemed to hit wage earners who made less money. We should see some protection here.
There are many other updates and of course the rules keep changing all the time so it is always best to seek competent advice when determining your specific situation.
Listen as Win Damon and I review these changes on WNBP Radio 106.1 FM and wnbp.com
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime.
1) Check your withholding and boost it in December if necessary. You must take a look at where you stand in your particular case. Some folks actually should advance a payment in December to lower the penalty for underpayment. To cover yourself you should advance 110% of your 2011 total tax. This is especially for folks earning more money in 2012.
2) Make catch-up 401(k) contributions. Contact your local Human Resources Department to get the procedure for maxing out your account for 2012. The deadline is 12/31/2012. This is different than funding a personal Ira or Roth IRA, where the deadline to make a contribution for tax year 2012 is actually 4.15.2013.
3) If you can afford it, take advantage of the gift tax exclusion. For 2012, anyone can give anyone $13,000 per person without any gift tax consequences. This way you can give away small shares of your portfolio yearly and avoid any future gift tax on the items. This can be a large estate tax saving tool and should be looked at in the context of your entire plan.
4) Some will potentially want to sell losing stocks as the year end comes upon us, and some witll want to sell winning stocks depending on the particular situation. Many will want to take advantage of gains before year end as they may be in a top tax bracket and be potentially exposed to higher capital gains rates for 2013 and beyond. Or some may sell $3,000 of losing investments in excess of gains at year’s end to take advantage of the tax savings on the 2012 tax return. Please consult a qualified advisor to help you if you don’t understand this process.
5) One deduction I never like to see is the medical deduction. However it does help to lump your medical deductions if there is going to be a year that you have large medical expenses. You can prepay doctors or dentists if you are already over the threshold in order to make sure you get the largest possible deduction.
One more thing: You will hear a lot about the fiscal cliff in the next few weeks as Washington’s finest strut their stuff. Pay close attention to how this may affect your personal situation before making any financial decisions.
Listen to wnbp.com every Tuesday morning at 8:30 for sinsightful tax and financial chats with morning guy Win Damon. Please click below for the podcast.
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime.
There is sure to be a lot of talk now about the fiscal cliff, a huge set of $500 billion dollar tax hikes and spending cuts that will go into effect if congress does nothing before the New Year. How will this confluence of economic events affect your bottom line?
If nothing is done, there will be about $1 trillion in expenses trimmed from the federal budget, including cuts to defense. Nearly 90% of Americans would have some form of an increase in tax. The 2 year temporary tax cut on social security (up to ~$2000/year for an individual) will expire as well as the Bush Tax Cuts of 2001-2003. In addition, the temporary AMT patch will expire along with the extension of unemployment benefits.
Lower income taxpayers will lose 2 valuable credits on their 2013 filings that were extended under president Obama in 2009. The Earned Income tax credit (EITC) and the Child Tax Credit were designed to lift Americans above the poverty line by giving them a credit for actually going out and working. Families who receive this credit tend to spend the money locally and quickly and this strengthens the local economy.
Higher income households would be hit with higher tax rates on ordinary income, capital gains, and dividends and those making more than $250,000/year will get hit with a 3.8% healthcare surtax on their unearned income. The marginal tax rate on ordinary income will also rise, and there is concern that that would potentially effect economic decisions.
In the very short term I hope President Obama can work with the lame duck congress to get an extension of the status quo, at least for a few months while the new legislators get settled. Then it is game on! If I were in Congress I sure would like to improve upon my 20% approval rating. I would like to be known as someone who could get things done for the betterment of the American people.
Click below to isten to morning guy Win Damon and I review the fiscal cliff on wnbp.com and FM 106.1 in the Newburyport Area
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime
Very recently a friend messaged me and said: Stu, I know you vote socially, and I appreciate that. But what is your economic opinion of the deficit and economic development and how can we best solve this major financial threat to our country? Taking the social issues out of it, Stu, what do you think will work best for our country? I am turning to you because you are a smart guy about the financial space – smarter than I am, and I am very concerned about this particular issue.
This is really the trillion dollar question! The national debt is over 16 Trillion dollars, amounting to $55,521 (1) for every person living in the United States or $136,158 (2) for every family. This is debt that is entirely owned by the United States Government, not debt owned by American Corporations, which are flourishing right now with tremendous balance sheets and lots of investible cash
Most experts feel that both candidates fail in their attempt to balance the budget. President Obama will try and achieve primary budget balance, where all federal spending would be paid by federal revenue, except the interest on the debt itself. This would add 6 trillion to the deficit over the next 10 years however as it contains no changes to the current Medicare program as we know it. We know in a second term for Obama this issue would most certainly be addressed.
The very broad plan put forth by Mitt Romney includes tax cuts, decreased spending, as well as income tax and entitlement reform, with absolutely no specifics. Romney would also plan to spend 2 trillion more than President Obama on the military over the next decade, and will fund that with more spending cuts that he has yet to introduce to the American people. Mix all this in an economic trickle down blender and this could spur economic growth say team Romney.
Here is what I feel this all means. We are in debt, but we can overcome it for sure. It will have to be a partisan compromise, and I feel the debt is SO MUCH more a political issue than a financial issue. As recently as Year 2000 we have had a budget surplus. So it can be done. Revenue collected today by the Federal Government is at the lowest levels in 60 years when compared to Gross Domestic Product. Spending is also at the highest levels since World War II as well. Both areas can be addressed by increasing taxes on the very rich and reforming Medicare and social security to account for the aging population. These will hopefully be addressed in the immediate future by either candidate.
This is what I would do. I agree totally with Robert Reich, Professor of Public Policy at University of California at Berkeley and former Secretary of Labor for the Clinton administration (www.robertreich.org). We should put 2% surtax on wealth in excess of 3 million. Also, we should impose a 1/2 of 1 % transaction tax on every financial transaction, as well as restoring the top tax rates to where they were before Reagan was President. We would use ½ of this savings to pay down the federal debt and the other ½ to make sure EVERY American gets a world class education. The USA is slipping way down in the world rankings in education, and we should be ashamed of ourselves for letting this happen.
I hope this budget mess can be solved in the next four years. Or at least be put on the right track toward a solution. A balanced budget can be accomplished, but we will need all parties pulling together and not crying and screaming at each other like a bunch of little children. We must as a nation improve on the 8% approval rating for congress. What a shame!
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime
“Resident Population … June 1, 2012 [=] 313,650,302″
CALCULATION: $16,159,487,013,300 debt / 313,650,302 people = $51,521 debt/person
[2] U.S. Census Bureau, November 2011. http://www.census.gov/population/www/socdemo/…
Total households = 118,682,000
CALCULATION: $16,159,487,013,300 debt / 118,682,000 households = $136,158 debt/household
Who doesn’t have a hobby, right? We all need something to do when we aren’t working to help us get through the day. But are you making money from your hobby? The Internal Revenue Service defines a hobby as an activity you pursue without expecting to make a profit. It is something you wish to do because you like it, and the cost of the hobby is not an issue. But if you are making money, the government will want you to pay taxes on your income earned. Home based hobbies or businesses like eBay are popping up all over the place, and it is important to understand the tax ramifications of your hobby.
On your 1040 form Schedule C, you can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is limited. You can only deduct expenses up to the amount of money you make on the hobby. So if you make $5000 per year selling stamps, you are limited to $5000 in total expenses on you r Schedule C, even if you have $10,000 total. If you find you are regularly making money from your hobby, it might be to your tax advantage to turn the hobby into a business, thus allowing you to deduct business losses in the years you don’t turn a profit.
But what constitutes a legitimate business? The IRS uses two tests in determining whether your activity is a business or a hobby. The first test is called the profit test. This means you have to show you earned money on the activity every three out of five years. If I prepare your returns in 2010 and 2011 and you showed a loss from your baseball card collecting hobby/business, than you cannot show a loss on this venture when you file your 2012 tax return.
The 2nd test is the factors-and-circumstance test, and the IRS takes an individual look at your pursuit to determine your status. Are you acting like a business while working on this project? Do you keep accurate books and records, have a website and/or business cards, and can you prove that you have a legitimate going concern and that you have attempted to make a profit? Do you depend on the income from the activity for your livelihood? Are you attempting to change your profitability by adopting different business strategies to try to make more money? How much time do you spend working on this project? The IRS also considers the level of personal pleasure you gain from the hobby/business. It is certainly ok to have fun with the pursuit, but the government does not want to subsidize this personal fun if it is just in fact a hobby.
It is important to understand that the IRS considers ALL the facts above (and then some) in determining whether you have a hobby or a business. If it is your turn to be questioned and the IRS calls your number, be prepared to convince the IRS that you’re making a good-faith attempt to run a business and not just taking extra deductions on your Schedule C so you can show a loss and cut your taxable income, thus lowering your total tax.
Click below to listen to Stu and Win Damon of WNBP FM 106.1 chat about this subject
With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work. He has worked with families and small business entrepreneurs for many years helping them plan more effectively. He can be reached at stu@erocktax.com or (781) 247-5569 anytime.
