Stephen Wallick July 3, 2019 No Comments

Are You Overpaying Business Taxes?

If you’re in business, you already know a portion of your annual earnings is going to the IRS. But if you’re like one-third of the country’s small businesses, you fear you’re paying more than required. No matter how many deductions and credits you dig up, you know, deep down, you’re missing at least one or two.

That insecurity only worsens when tax laws change. Even if your business uses professional tax preparation services, there are things you need to do throughout the year to keep your tax bill at a minimum. 

Structure Your Business Correctly

The way your business is structured plays a huge role in how much taxes you’ll pay for that year. This is especially important with the new tax laws, which change taxes for partnerships, S Corporations, and sole proprietors. It’s essential to make sure your business has the right structure as soon as possible. A business structure assessment is a quick and easy way to make sure you have things set up to maximize your tax savings.

Track All Expenses

Many businesses realize they might have missed a deduction or two sometime during tax season, usually when they’re pulling everything together. It can be all too easy to misplace a receipt or lose track of your mileage during a business trip. Make sure you’re set up to capture as many deductions as possible throughout the tax year by choosing apps that make it easy to snap a receipt. Some apps even automatically update your bookkeeping software with the information from the receipts you scan.

Defer Money

If you haven’t already, you should set up a retirement plan. This will not only protect you in your golden years, but it can also provide tax savings. You can contribute up to $6,000 before taxes to a traditional IRA if you’re under the age of 50, and that amount increases to $7,000 for those age 50 and up. You may also be able to tax deduct those contributions, as long as you or your spouse aren’t provided a retirement plan through work. It’s important to look into your retirement savings options and start putting money in there before the tax year is over.

A 15-minute free business structure assessment can help you get a head start on your savings for this tax year. Only ten of these assessments are available, provided on a first come, first served basis. Contact us today to make sure you’re enjoying all the tax savings available to you.

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Stephen Wallick June 25, 2019 No Comments

Announcing Our New Partner, Michael Wallick, MBA

Please join us in welcoming Mike to the Stephen Wallick and Associates team!

Michael Wallick, MBA

Michael Wallick has joined Stephen Wallick and Associates as a partner.  Mike will be opening our new Philadelphia PA Office and will split his efforts between Nashville and Philadelphia.  Mike holds a degree in Management with an emphasis in Accounting and a Masters of Business Administration.  Mike also served in the United States Navy and is a Disabled American Veteran.

Mike began his career in public accounting and over the last decade as a consultant with various national and international companies with a host of accounting and tax-related issues.  Mike is also Certified in Sarbanes Oxley with extensive experience in risk management and compliance in addition to Six-Sigma process improvement methodologies.  He has also conducted Quarterly and Annual reviews to assure that public companies were in compliance with SEC reporting guidelines

A sampling of clients that Mike has worked with include PharmaNet, Penske, Generally Electric, Urban Outfitters,  GSK (Global Pharmaceutical Company ), Flint Group, Cenlar and Lehigh Cement Company to name a few.

Mike is also the founding and managing partner of Phoenix Transitional Living.  PTL currently serves the community with a focus on providing safe, clean and sober living arrangements to anyone in Recovery.  Mike started PTL with the intent of helping Veterans that struggled from addiction as a result of injuries or psychological trauma related to the effects of war and military service and has evolved into helping anyone suffering from Addiction.  As of today, this has grown incredibly into 6 homes through the Philadelphia metropolitan area.

Mike is currently completing his Enrolled Agent licensure and holds other professional certifications.

Mike is married to Sarah and together they are raising their 4 children.

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Stephen Wallick April 19, 2018 No Comments

Investment Property Tax Deductions

Paying property taxes is a part of the American home-owning process. Luckily, the tax code has many rules allowing rental property owners to save money and reduce their taxes.

Investment properties have some great tax deductions that you can use to minimize your total taxes due. However, some of you may find these investment property tax deductions very confusing and it can be difficult to understand which tax deductions to claim.

Before claiming any deductions ensure to have detailed and thorough records to back them up. Track your expenses as you make them, this will make your tax prep much more manageable if you are organized throughout the year. The IRS scrutinizes these deductions and you need to be prepared to get audited. Failing to present appropriate receipts and validating the business necessity of each expense will result in paying the amount due with interest when you get audited.

Here are top three investment property tax deductions you might be missing out on:

1) Loan Interest/Points

If there is a mortgage on the property then the loan interests will be probably your single largest deductible expense. Further, if you paid buy-down points on the property purchase or mortgage refinance then you’ll be able to deduct those as well.

  • Mortgage Interest (primary & secondary)
  • Credit card interest on items used for the property
  • HELOC Interest for loans used to repair or improve the property
  • Mortgage Points to purchase or refinance a rental property

Remember you’ll only be able to deduct the money which was actually spent on your rental business and you won’t be able to deduct the interest of a withdrawn line of credit which is sitting in your bank account.

2) Taxes

Usually, the real estate taxes are paid through the mortgage company, and so they show up on the Form 1098 which is sent from the bank. If the property is free and clear of any mortgage, then congratulations!! But in case you didn’t keep receipts of those payments then you will have to look up your tax records online. Other taxes such as business-related wage taxes, personal property taxes or permit fees are also allowed deductions:

  • Social Security Taxes for Employees
  • State, County and City Taxes
  • Medicare and Unemployment Taxes for Employees
  • Permit Fees/Inspection Fees
  • Personal Property Tax/Vehicle Tax

3) Depreciation of assets

Generally there are three types of costs that you need to capitalize and depreciate:

  • The value of improvements such as windows, appliances, countertops, carpet, etc.
  • The value of the structure and not the land
  • Computers/ Equipment/ Laptops

Remember that these expenditures cannot be deducted in a single year, but rather they must be depreciated over multiple years. Or else people would abuse the system claiming $100K for repairs in a single year in order to remove all the tax liability and then the next year they could sell the property to recoup their renovation ROI.

If you have any questions about investment property tax deductions, give me a call today at 615-326-TAX9.

Stephen Wallick March 28, 2018 No Comments

Second Mortgage Interest Is No Longer Deductible

Generally, second mortgages on the same property do not carry any special income tax benefits. However, if you get a second mortgage on a new property then under the Tax Cuts and Jobs Act of 2017, you are able to deduct the interest on your first and second home as long as the loan total is less than $750,000. This $750,000 cap applies to a purhase of a new home or a second home which is taken after December 15, 2017, through 2025. If your home loan was taken under a binding contract before December 15, 2017, then you can deduct a higher dollar amount of home mortgage interest. (Up to $1 million of interest and an additional $100,000 of home equity debt.)

So what is a second mortgage?

A second mortgage is a loan that uses your home as collateral. Often, a second mortgage is an additional mortgage on a house or other property where the original mortgage is still in effect. In such situations, the term “second mortgage” refers to the loan’s priority. If you were to default (if you foreclose on the home and it is sold to pay off the loans) then the proceeds will go towards paying the original mortgage before the second mortgage is being paid.

When do people get second mortgages?

Most people take out a second mortgage in order to pay for expenditures which are too difficult to cover with other means of payment such as credit cards. A new car, add-ons to a home or other home improvement projects, a boat, and college tuition are just a few examples. Some people also use the second mortgages to consolidate other, more expensive debt.

When is the interest on Second Mortgage Payments Deductible?

Usually, you can deduct the interest you paid on second mortgages that were taken out after October 1987. The number of second mortgages taken out before this date will be factored into your total acquisition indebtedness (the debt incurred while acquiring, constructing or substantially improving a qualified residence).

Beginning in the year 2018 through 2025, the Tax Cuts and Jobs Act of 2017 has suspended the tax deduction for the interest paid on the home equity loans and lines of credit, unless you use the proceeds to buy, build, or substantially improve the home which secures the loan. If you use proceeds of the equity debt to make home improvements, then the first mortgage balance plus the HELOC remain deductible, as long as the total doesn’t exceed the $750,000 dollar cap. However, the interest cannot be deducted at all if the HELOC is used to pay off the car loan or other personal expenses.

Advantages of a Second Mortgage

There may be other advantages to using a second mortgage. For example, the interest rate may be lower than the rate of personal loans or credit cards. Nonetheless, a second mortgage may be an easy way to borrow a large sum of money, still, it can be risky since you are using your home to secure it. Ensure you speak to a qualified tax professional in your region before moving forward with a second mortgage as we will be able to assist you to make the best financial decision for your particular situation.

If you are considering taking out a second mortgage and want to prepare financially, contact me today at 615-326-TAX9 for a free consultation.

Stephen Wallick February 14, 2018 No Comments

5 Tax Tips for New Families

More and more Millennials are beginning to get married and have children. No one enjoys tax season, and I bet they don’t either. But here are some tax tips for new families that will help navigate you through the tax process.

1. Make Sure You Have All Your Tax Documents

Some of your tax documents will come via mail, and some may be found online.  Gather them together and keep track of them! Tax documents include: Health Care Statements (1095-A, 1095-B, 1095-C), needed to verify health insurance coverage; and Income/Deduction Statements (W-2, 1098 Forms, 1099 Forms).

2. There Are Many Great Tax Deductions 

There are opportunities to reduce your taxable income. These allow you to reduce your tax liability. Deductions can include the number of children you have (even one born on December 31), day care expenses, property taxes and car registration fees and charitable deductions.

3. Attention, New parents 

Don’t forget about the $1,000 Child Tax credit. This directly reduces your tax bill by $1,000.  This is different than the deduction mentioned above, as it directly reduces your tax bill dollar-for-dollar.

4. Contribute to an IRA or HSA Account

When you contribute to an IRA for retirement or a health savings account for healthcare expenses, you may be eligible for certain tax deductions based on the amount of your contribution and your income level.  When you contribute to an IRA you are preparing for your future, and an HSA account sets aside tax-free money for medical expenses. 

5. Don’t Be Afraid to Ask for Help

If you are in doubt, make sure you contact a tax professional for guidance. It pays to use a knowledgeable tax professional, as they may find credits and deductions that you don’t know you qualify for.

This year, be proactive about your taxes and start now. If you haven’t started organizing your tax documents, it’s better to start early than waiting until the last minute. There are many resources that can help you find the best option.  Call us at 615-326-TAX9 for a free consultation. 

Stephen Wallick December 27, 2017 No Comments

Large Tax Refunds Can Be Harmful to Your Financial Health

Fallacy of a Fat Tax Refund

Many people think of a large tax return as “found money,” or money that is forgotten because it isn’t seen in a pay check. Others use it to save for a “big ticket” purchase. However, from a financial perspective, it means that you paid more than you had to. A large refund is also a lost opportunity to invest money. Often, tax professionals boast about getting people large returns, but I believe the best value for you is paying as little as possible. I believe the goal of a tax professional should be reducing your overall tax liability, not getting you a large refund.

Is that how the tax thing works? 

I’ve had people sitting across my desk from me, asking this question. It can be difficult to explain why one wouldn’t want a large tax refund. It is important to know that income is taxed differently than wealth. The ultimate goal should be to reduce your tax liability to the point where you pay as little as possible and get no refund. If you pay less in taxes, you can enjoy yourr money throughout the year or use it to build your savings.

Can a large refund be harmful? 

Has your tax preparer ever talked to you about an IRA? This is a beneficial was to reduce taxable income. It is referred to as tax planning. Some people may not be aware may that if they are a W-2 employee, they can request their withholding be adjusted by a specific dollar amount. You can request that this amount be deducted from your check and placed in a n IRA. If you are withholding at a higher rate than necessary, making this change will not lower your gross income, and you will be building savings rather than helping the IRS.

The average tax refund in 2016 was $2,945, so approximately $250 per month was being held by the IRS with no future benefit for the taxpayer.  where that taxpayer received no return and no future retirement benefits. This money is better invested in that account that will grow, tax-free, for your future.

There’s even the potential to earn free money

Many employer-sponsored retirement plans offer a matching contribution up to 50%. So, if you contribute $10,000, your employer will contribute $5,000.  The tax code encourages investing for the future by offering these tax incentives, but it is estimated that fewer than 50% of people who have the opportunity to invest in employer-sponsored retirement plans actually do so. Don’t be one of those people who misses this opportunity!

Behavioral economists use the term “mental accounting” to refer to the people who use large tax refunds as “found money.” But consider this: If the average taxpayer took the $2,500 average refund and invested each year it in an employer-matching retirement fund, a 6% net return over 40 years would result in a $600,000 retirement fund! Now ask yourself, which would you rather have?

Tax Refund or College Planning?

Have you wondered how you’re going to pay for the high cost of college for your child or grandchild? Rather than receiving a large refund, you can invest in one of the many tax-advantaged savings tools, such as a special fund used for qualified education programs. These funds are similar to an IRA in that it is tax-free growth and there is no tax liability if used for qualified education programs.

Rainy Day Funds

Do you have a rainy-day fund? Are you saving for the future? If not, that extra money that is being withheld from your paycheck can be better used to help build one. A Roth IRA offers tax deferral on any earnings deposited into the account. Withdrawals from this account can be considered tax-free if they meet certain restrictions. However, withdrawals before the age of 59 may result in a 10% tax penalty.

Tax laws are always changing and have the potential to impact tax-free retirement funds. It is a good idea to consult a tax professional before investing in or making withdrawals from such accounts.

Stephen Wallick December 20, 2017 No Comments

Why You Don’t Want a Big Tax Refund

The IRS W-4 form is the form you are asked to complete when you begin a new job. This form provides your employer with the information they need to withhold the correct amount of taxes from your check. Most people never think of this form again, but it is a good idea to review your W-4 from time to time. If this form is incorrectly filled out or outdated, you could be missing out on money that could be investing.

Mistakes on Your W-4 Help Uncle Sam

Many people choose to fill out their W-4 in a way that results in more taxes being withheld from their check than is necessary. The theory being that the more taxes that are withheld, the larger the refund each year. You are permitted to complete the W-4 any way you choose, claiming to be single when you are actually married, or claiming only one dependent when you actually have many. The IRS doesn’t mind, because this is actually giving them an interest free loan for the year!

On April 15, you may be happy that you’ve gotten a large tax refund, but in reality, you can earn more money throughout the year. You can use your W-4 as a money-making tool. If you reduce the amount of taxes that are withheld from our check, you can use this extra money throughout the year to invest. Investments, like a 401(k), can you earn money for you, rather than for the IRS! 

Why Minimize Your Tax Refund?

You may like the idea of getting a check form the IRS every year, but there is a money-making opportunity lost when you allow the IRS to hold your money. A more strategic and beneficial option would be to redirect that money to a 401(k). 401(k) contributions through your employer are made pre-tax. Also, many employers will match a percentage of what you contribute. If you increase your 401(k) contributions, you are actually reducing your tax liability while increasing your retirement savings. It is a win-win situation!

Review Your W-4 Regularly

It is important to review your W-4, and it is wise idea to do this annually. Your W-4 should be adjusted to your current salary and lifestyle.

Specific events that would call for making changes to your W-4 form would be:

  • If you have a change in marital status; if you get married or divorced or are widowed, you may want to change your withholding status.
  • If you get a raise; consider adjusting your withholding so you can contribute to your 401(k) account.
  • If you’re approaching retirement; within five years of retirement, it may be worth maximizing your retirement savings.
  • If you receive a large tax refund; this is the number foremost reason to review your W-4.
  • If you have more than one job, carefully consider each W-4 form you fill out. You may want to have more money withheld from a second job than from your primary job. For instance, if you have a second weekend job that brings a low salary, you would want to withhold at the higher rate because it will only tax that portion of your salary.
  • If you receive a large refund from the IRS, consider what you could be doing with that money instead. There is nothing to be gained by giving the IRS access to an interest-free loan. Many people earmark their refund for a vacation or other large purchase. But consider your future, your retirement savings.
  • If you redirect that large refund to a 401(k), you are growing your savings, and that savings is growing!

Stephen Wallick July 2, 2017 No Comments

7 Tax Breaks For All Parents

Parents know that raising children is expensive, but do you also know that raising children pays off at tax time?

You can claim any child younger than 19 as a dependent, or 24 if he or she is a full-time student. You can claim any child who is permanently and totally disabled, regardless of age. You can also claim grandchildren or other qualifying relatives if you provide most of financial support. If you’re separated or divorced, only one parent can claim each child. If your child is old enough to file a tax return, consult with a tax professional to determine if it is more beneficial if you still claim that child as a dependent.

There are many tax breaks for parents that you might not know about.

Here are 7 of the most advantageous tax breaks parents can claim.

1) Earned Income Tax Credit.

This tax credit is for low to moderate income families, including those without children.  If you have more than $3,400 a year in investment income, you do not qualify.  This is a refundable tax credit, which means you are eligible for a refund even if you do not pay any taxes.

2) Child Tax Credit.

This credit can save you up to $1,000 on your tax bill for each dependent child under 17 if your income is under $75,000 for a single parent or $110,000 for a couple. For families with a higher income, the credit is reduced. This credit is not refundable, which means it only serves to reduce the amount of tax that you owe.

3) American Opportunity Tax Credit.

This credit offers as much as $2,500 per year per student toward the first four years of college. To be eligible, your income must be $80,000 or less, $160,000 if married filing jointly. Families with higher income can receive a reduced credit.  40% of this credit is refundable, even if it’s more than what you owe.  This credit can be used for your child, your spouse or yourself. If your child is not a dependent on your return, he may be able to claim the credit on his own return.

4) Lifetime Learning Credit.

This is another tax credit for college expenses, but cannot be used with the American Opportunity Tax Credit for the same student. This credit allows you to claim a maximum of 20 percent of the first $10,000 of eligible expenses, or a credit of $2,000. This credit is not available if you earn more than $65,000, or $131,000 if married, filing jointly. This credit can be used for your child, your spouse or yourself.

5) Child and Dependent Care Credit.

You must be employed or enrolled in school in order to claim this credit.  There is no income limit for this credit, however, it is worth less at higher income levels. It provides a tax credit of 20 to 35 percent, depending on income, of $3,000 in expenses for one child or $6,000 for more than one child. The child must be 12 or younger.  This credit can also be used toward care for disabled adults in the family. If your income is higher, you might save more by paying childcare expenses through a flexible spending account, so consult a tax professional to maximize your benefit.

6) Single head of household status.

Attention, single parents…single people with dependents are eligible to file as head of household. This provides a higher standard deduction of $9,600. It also places you in a more favorable tax bracket. This option is not available if you itemize deductions.

7) Employ your kids.

If you own a business, you can hire your child! The job that your child is doing must be age-appropriate. You can hire your child to file paperwork, answer phones, clean the office, etc. The first $6,300 earned by each child is tax-free. Any additional income is taxed at the child rate, which is lower than the parents’ rate. For this to be legitimate, appropriate paperwork must be filed, depending on your child’s age and the type of business entity. This is basically just shifting income. Another benefit…early savings for your child. The child has earned income, which provides the option of contributing to a retirement account.