Stephen Wallick June 13, 2018 No Comments

What Happens When Your Business Gets Audited by the IRS?

With the beginning of the tax season, millions of Americans are getting their financial houses in order trying to maximize their deductions and capitalize on any new tax breaks recently passed onto the law. The annual ritual comes with a warning that many people take lightly: Do whatever you can to ensure that you don’t get audited.

Typically, the Internal Revenue Service (IRS) audits less than 1% of the tax returns annually, so the probability of drawing federal scrutiny is incredibly low. Though most of the audits consist of IRS employees asking a few questions for clarifications, a fraction of these include going after people (both the tax payers and tax preparers) who intend to defraud the government.

What happens when your business gets audited by the IRS

The IRS reserves the right to audit any taxpayer, even if they don’t see any discrepancies in your business. According to the IRS, taxpayers may fall under the audit scrutiny due to random selection, computer screenings, or just by being tied to other entities such as partnerships or other business collectives.

So here’s how an audit works:

  • The agency will notify you via mail

The IRS never initiates contact by phone or email and certainly not by text message or on social media platforms (as constantly stressed by them whenever an IRS Scam makes its way around). The IRS will use postmarked letters via snail mail. Once the correspondence has been received and contact has been established, this is where things typically get more intimate.

  • An in-person interview may be arranged

An agent will set up a meeting either at a local IRS office or at your home if necessary. According to the IRS website, “If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as expenses, income and itemized deductions. You can request a face-to-face audit if you have too many books or records to mail.”

  • What will you need to bring?

The IRS will tell you what to bring to the audit. The request documents may vary according to your situation. Basically you will need to support the income and losses you claim including the medical/dental records, deductions, credits, insurance reports and more.

    • If audit is initiated via mail, they will provide the address for you to mail the paperwork. You will also be asked to fill out a questionnaire. Some of the common forms are Schedule C query and the Travel, Meals & Entertainment query.
    • If your meeting is face to face, you will be instructed on what documents to bring. Before getting there, they will want you to organize your paperwork by year to speed up the process.

After getting all of your paperwork, the IRS will make a determination. However, don’t think that this will happen in a timely fashion. Generally, the IRS retains a three-year statute of limitations, and in cases involving the “substantial errors”, they can go back additional years (usually not exceeding six).

What happens when the audit is completed?

After the completion of an audit, you will be notified of the IRS’s determination. The three scenarios include:

   1. Substantiation

When the IRS determines verification of your tax information, you will be asked to sign the examination report and your filing will be processed as normal.

   2. Changes

The IRS will recommend adjustments/corrections to be made to your filing and you have to agree with them and make these changes. 

   3. Appeal

You have the right to talk to an IRS manager, file an appeal with the independent Office of Appeals by mailing a protest letter, or request the IRS’s Appeals Mediation Program, when you disagree with the agency’s findings.

Though the federal audit process is pretty straightforward, the process may slightly differ on the state level. For more details, please go through your state’s tax appeals division which is usually found within its Department of Revenue.

You can learn more about tax audits, IRS issue resolution and back taxes here. If you want to talk to an Enrolled Agent with the IRS, please call me today at 615-326-TAX9  

Stephen Wallick May 16, 2018 No Comments

Best Time to Reach Out to an IRS Enrolled Agent 

An IRS Enrolled Agent is a tax professional representing taxpayers in matters relating to the Internal Revenue Service (IRS) tax laws. This position is comparable to an attorney or an accountant specializing in IRS matters. IRS Enrolled Agents can choose to represent any taxpayer and may specialize in certain areas of tax law which they practice. The benefit of working with an enrolled agent is that we specialize in dealing with the IRS on your behalf.

Usually, the enrolled agent acts as a legal representative for the taxpayer in issues related to the IRS tax matters.  The enrolled agent must be accredited by applying for an enrollment care, which certifies that the agent has proven competence in the areas of tax laws. The services of an enrolled agent for tax problems are indispensable to resolving your IRS related tax issues.

There are circumstances when you need the help of an enrolled agent in order to solve an important tax problem. Here are some:

Specific Role of IRS Enrolled Agent for Tax Problem

Enrolled agents such as CPAs and tax attorneys are tax professionals licensed to represent the taxpayers in their dealings with the IRS. Enrolled agents are specialists in dealing with the IRS related matters as they need to work with the IRS for five years or pass a series of tough tests conducted by the IRS to establish their competence for representing the taxpayers before they can qualify for the license. All the enrolled agents are required to undergo a background check and many hours of Continuing Professional Education (CPE) to keep them up-to-date.

Since the enrolled agents are licensed by the US government and not by the individual states, they can practice across the country. Because of all these specific qualifications, you should consider an enrolled agent for your tax problem, especially if the nature of the problem is related to areas such as the IRS audit representation, unpaid back taxes or to counter an impending tax lien or tax levy on your account.

The best time to reach out to an IRS Enrolled Agent

During uncertain economic times, more and more people find themselves unable to fulfill their tax obligations to the IRS. These same economic conditions cause the IRS to crack the whip on defaulters and adopt every possible means to enforce the collections. In fact, recently the enforcement budget has increased and the IRS has added and intends on adding more staff to their team for greater effectiveness. So, if you have piled up the unpaid back taxes, chances are that the IRS may come knocking your door soon. To avoid a visit from the IRS, you should reach out to an experienced IRS enrolled agent for your tax problem.

An IRS enrolled agent is the best tax professional to help you if your tax problems are specifically related to the areas such as IRS audits and responding to the IRS collection enforcement. If the IRS has expressed intent to place a lien on your physical assets,  place a tax levy on your bank accounts, or garnish your wages, then it is time to contact an IRS enrolled agent. If a levy has already been placed, then the IRS enrolled agent will help to release it.

The following are examples of some of the resolutions which an IRS enrolled agent can negotiate on your behalf:

  • Penalty Abatement
  • Offer in Compromise
  • Payment Plans
  • File Unfiled Tax Returns
  • Innocent Spouse Relief

It is best to reach out to an IRS enrolled agent because they specialize in matters of tax law and are well-versed in the regulations and workings of the IRS. If you have been contacted by the IRS for an audit, or if a lien has been placed against you, we can help you find the best possible solution to your tax problems. Contact us today.

Stephen Wallick May 9, 2018 No Comments

5 Top Tips for Independent Contractors for a Painless & Stress-Free Tax Season

Independent contractors has great advantages while earning a living which includes flexibility of setting their own schedule, the freedom of being their own boss and say yes or no to the work as per your interest and availability. Additionally, the age of the Internet makes this occupation easier and more in demand than ever. But the catch is many think that things tend to get more complicated for independent contractors when it comes to the tax season.

So here are 5 top tips for independent contractors that can make filing taxes as painless and stress-free as possible:

  1. Keep track of your paperwork

Come April 15 the deductions are a key way to trim your tax bill. So keep all the paperwork for your business related travel, gas mileage, office supplies and other business related deductions. The strategy is to keep a file on your desk for these receipts and one in your car and throw the receipts in as you get them. This will save your considerable time and effort. And you will be way ahead of the game in the unlikely event of an audit. 

2. Hunt down your 1099’s

It is small but simple things ensure that each of your employers has sent you a 1099-Misc. If you are a part-time freelancer having just one or two gigs then it is easy for you to keep track of 1099’s. However, if you have gaggle of clients then have a quick checklist of who has and hasn’t sent you the proper form so that you don’t file without all the proper information. You should receive a 1099 by early February in any given year hence, any time past this is when you should start making calls. It is worth noting that clients only require to give you a 1099 if you have earned over $600 from them. The IRS will also get a copy of this form and you will want to ensure that when filing your return your income matches those 1099’s. A big red flag for the IRS is small business owners pocketing more cash than disclosing them.

3. Hire your family members

Another great way to save on your taxes is to hire your spouse or children to do a little work for you. If your spouse works for you then you can get a tax break on medical insurance while if you hire children to do things to help your business then you can in effect move a bit of your income to your children who may not be subject to the unemployment taxes and the social security tax.

Retirement planning

A great way to protect some of your hard earned income is to open a self-employed retirement plan. You are allowed to put in up to 20% of your earnings into this retirement plan called a Simplified Employee Pension Plan or a Keogh plan. You can contribute maximum amount of $52,000 a year to this retirement planning which is a great way to save some money and protect some of your income.

5. Don’t do it yourself

Freelance and independent contractors are as independent as they come. But the tax hurdles for them are far more numerous than for the typical 9-to-5ers and the risk of potential penalties isn’t worth taking. This goes double for people who are new to the gig economy. It is one thing to try to swing it yourself with the tax accounting software once you have been on your own for a few years but if you have just started then don’t do it yourself. Instead seek advice from a professional tax accountant having experience with freelancers, small businesses and independent contractors.

Now that you know the 5 top tips for filing taxes as independent contractors, I hope that doing business on your own doesn’t mean wrestling with your taxes on your own. Get in touch with us to get help with the affordable tax services for keeping your hard-earned income and also keeping yourself on the right side of the IRS.

Stephen Wallick May 2, 2018 No Comments

Understanding the Basics of Payroll Taxes

What are “Payroll Taxes”?

Payroll taxes are taxes that an employer withholds and pays on behalf of his employees. They are based on the wage or salary of the employee. In most countries including the US, the federal authorities and many state governments collect some form of the payroll tax. The governments use revenues from the payroll taxes to fund the programs such as health care, social security, unemployment compensation and workers compensation.

Sometimes, the local governments will collect a small payroll tax to maintain and improve the local infrastructure and programs including:

  • Road maintenance
  • First reports
  • Parks and recreation.

What do the Payroll Taxes Include?

The US federal payroll taxes include the following:

Federal Income Tax Withholding

Taxes withheld from the employee pay for the federal income taxes (FIT) owed by the employees. The amount of FIT is determined by the information provided by the employees on Form W-4 at hire. This form can be changed by the employee at any time and as often as they wish.

Taxes Paid for Social Security and Medicare called FICA (Federal Insurance Contributions Act) Taxes

Employees and employers share these FICA taxes with the employer deducting the employee share which is one-half of the total due from the employee salaries/wages and the employer paying the other half. The payroll taxes also include the amounts payable by the businesses for FICA tax that are equal to the amounts paid by the employees.

The Payroll Tax Process

An employer calculates the gross pay for an employee and, based on the employee’s gross pay, will deduct a specific amount for:

  • Federal income tax based on the W-4 form the employee has completed most recently
  • FICA taxes

FICA Tax Withholding Rates

The employee tax rate for social security is 6.2%. Also, the employer tax rate for social security is 6.2%: 12.4% total. The social security share of the tax is covered each year at a maximum wage subject to social security. The employee tax rate for Medicare is 1.45% amount withheld while the employer tax rate for Medicare tax is also 1.45%: 2.9% total.

Starting from the 2013 tax year, an additional Medicare tax of 0.09% has been imposed on the higher-income individuals. This tax is applicable on income over $200,000 each year and is payable based on the individual’s income level and federal tax filing status. There is no wage limit for the Medicare tax and all covered salaries and wages are subject to the Medicare tax.

How do State Payroll Taxes Work?

The state payroll tax includes the state income tax withholding for those states which imposes the income taxes. Additionally, other state payroll taxes are:

  • State worker’s compensation funds
  • State disability funds (California is one of these states)
  • State unemployment tax funds

Depending on where your employees work the state payroll taxes apply to your business.

How do Employers Pay Payroll Taxes?

The payroll tax process includes several steps. After you have completed the calculation of the amounts for federal income tax withholding and FICA taxes and withheld these amounts from the employee paychecks:

  • After completion of the payroll process, you must calculate the amount you as a business must pay for FICA taxes and set aside those amounts
  • Finally, you must make payments to the IRS either monthly or semi-weekly depending on the size of your total employee payroll
  • You must report on payroll taxes quarterly using Form 941

Please note this information is only intended as the basics of payroll taxes, hence, it is not a tax or legal advice which you can rely upon for your business. Consult a tax or legal professional for proper guidance and specific advice related to your business.

Stephen Wallick April 25, 2018 No Comments

Everything You Need to Know About Estimated Quarterly Payments

The IRS expects to receive tax payments according to the income you are projected to earn in a given year. This is referred to as “pay as you go” system or estimated quarterly payments. These payments are estimated based on your total income from the previous year’s tax return. These quarterly payments help to ensure that you pay no unnecessary penalties at the end of the year for underpayment.

The estimated quarterly payment is a method to pay tax on the income which is not subjected to tax withholding. This can include the income from your business earnings, self-employment, interests, dividends, rent, and other sources.

If you are employed full or part-time, your taxes will be sent directly to the IRS as they are withheld from your paychecks. If you are self-employed or an independent contractor, you need to make tax payments in the form of estimated quarterly payments or estimated tax. Typically, the IRS requires the estimated tax to be paid quarterly, i.e. in 4 equal installments spread throughout the year. If you underpay your estimated quarterly payments, you will have to write a bigger check to the IRS when filing your tax return. If you overpay your estimated tax, you will receive the excess amount as a tax refund which is same as how withholding the tax works.

Here’s a look at who needs to make the estimated quarterly payments and how to make the quarterly payments:

Who Need to Make the Estimated Quarterly Payments?

There are many factors which determine whether you need to make the estimated quarterly payments. As a general rule is if your tax liability is $1,000 or above for the year then you are expected to make the estimated quarterly payments. If you owed more than $1,000 in taxes when you filed your tax return for the previous year then the IRS expects you will either have more tax withheld from your paychecks or that you will make the estimated tax payments the following year.

Generally, the following people are required to make the estimated tax payments:

  • Self-Employed Persons or Sole Proprietor Business Owners

Those who have income from their own business will need to make the estimated quarterly payments if their tax liability is expected to be over $1,000 for the year. This includes both part-time and the full-time enterprises.

  • Partners, Corporations and S Corporation Shareholders

Usually, the business ownership earnings will need estimated quarterly payments. In the case of corporations, the estimated quarterly payments must be made if the corporation is expected to have at least $500 in tax liability.

  • People Who Owed Taxes for the Previous Year

If you owed taxes at the end of previous year, it probably means that too little was withheld from your paychecks or you had other income which increased your tax liability. This is a flag to the IRS that you should be making the estimated quarterly payments.

How to Make Estimated Quarterly Payments?

The IRS Form 1040-ES (Estimated Tax for Individuals) is used for calculating and making the estimated quarterly payments. To determine how much you are required to pay for the estimated quarterly tax, you must compile your income, credits, deductions and the paid taxes- similar to filing a yearly tax return. Typically, you can look at your income/liability numbers from the previous year to gauge what you’ll owe the next year.

To make your estimated quarterly payments, the year is divided into 4 payment periods in which each period has a specific payment deadline. Failing to make the estimated quarterly payments on time can result in the IRS penalties:

  • 1st Quarter: January 1- March 31. Deadline: April 15.
  • 2nd Quarter: April 1-May 31. Deadline: June 16.
  • 3rd Quarter: June 1-August 31. Deadline: September 15.
  • 4th Quarter: September 1- December 31. Deadline: January 15 of the following year.

Note that it is important to make the estimated quarterly payments. Even if you have already missed a few installments of the estimated tax, you should still try making the estimated payments as soon as possible.

Contact me to setup your payment schedule and figure out how much you owe quarterly. 615-326-TAX9

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 April 11, 2018 No Comments

Deductions Every Real Estate Agent Can Claim on Their Taxes

Tax season is here and here are some ways all real estate agents can maximize deductions. Most real estate agents have various expenses and can confidently identify which expenses to use as deductions to help you keep more money in your pocket. Whether you are filing taxes on your own, or if you have an accountant, you need to take advantage of these deductions. No matter where you are in your career, understanding which expenses are allowed will help you to avoid overpaying on your quarterly as well as your year-end taxes.

1. Marketing and Advertising

Marketing and advertising costs such as flyers, business cards, ads, signs, and promos are all deductible. Production costs such as design and writing fees, whether the materials are produced by an agency or part-time hire are also deductible. Online and digital advertising costs include website design, search engine marketing, hosting fees, video production, pay-per-click advertising and any other IT-related costs and are quickly becoming the largest area of spending for real estate agents.

2. Vehicle Mileage or Expense

You spend your days driving between the appointments and properties. How do you determine whether to go with the standard mileage deduction or track all the auto-related expenses? For instance, if you drive 10,000 miles or more per year for your real estate business, it is likely that you’ll get the greatest tax benefit by taking the standard mileage deduction. If you are a lower mileage driver or have especially high car payments, then the actual cost method may yield a higher deduction come tax time.

For those of you who drive over 10K per year, the IRS needs you to keep a detailed log so that you can claim this deduction. Your records should include the time, date, purpose, and mileage of the trip. You can use an app which tracks and records your trips.

3. Home Office Deduction

Do you have a dedicated area of your home for work? If so,  you are eligible for a home office deduction even if you also have office space at your broker’s office (unless you are already deducting the desk fees). The home office deduction provides an option: a regular or a simplified method. Many self-employed people find that the simplified method maximizes their deduction. On the other hand, if you reside in a very high-cost region or have a particularly large home office, then the regular method in which you track the actual expense may yield the highest deduction.

4. Office Supplies and Equipments

Whether you are taking the home-office deductions or the desk fees, you can still claim other office-related expenses including the photocopies, stationery, and any other consumables required to run your business. Other huge purchases such as fax machines, furniture, computers, copiers or telephone, and the related bill can be fully expensed or depreciated over a period of years. You can deduct the full expense for a dedicated landline telephone for your business. If you use a cell phone, only then you are eligible to deduct the business percentage of that expense. Keep careful records of all receipts.

5. Desk Fees

Your desk fees are deductible even if you are hanging your license under a national franchise or with an independent broker. However, note that you will not be able to claim the home office deduction if you are taking deduction fees for the brokerage desk fees.

If you are a real estate agent with specific questions on deductions for your business, contact me today at 615-326-TAX9 for a free consultation.

Stephen Wallick April 4, 2018 No Comments

What is a 1031 Real Estate Exchange?

The simplistic explanation of a 1031 real estate exchange is that you negotiate the sale of your property and transfer ownership to a “Qualified Intermediary”, a professional position just for these exchanges. Your Intermediary then sells the property and holds the proceeds on your behalf. You then identify new properties and negotiate a purchase. The Intermediary makes the purchase with the proceeds they held for you and transfer the ownership of the new property to you.

With the 1031 real estate exchange, the capital gains and recapture taxes you would have otherwise owed from the sale of the first property are deferred until you sell the new property. This can also be done in reverse by acquiring the new property before selling the old property, however the process is more complex.

Remember these nine extra rules while undergoing 1031 real estate exchange:

  1. Any property involving in a 1031 real estate exchange must be used for business or investment. You can’t sell or receive a home, land under development or property purchased for resale. Sometimes the secondary and vacation homes can be qualified as investments but only if personal use was quite limited.
  2. Property received must be of “like-kind” to the property sold. In case of real estate, nearly everything is of like-kind; undeveloped land is of like kind to corporate offices and apartment buildings.
  3. The Intermediary is a necessary legal buffer because if you receive any money before the exchange is finished completely, then the tax-deferred treatment of gain is broken and all taxes become due immediately.
  4. Due to the complexity of 1031 exchanges, you are not allowed to act as your own Intermediary, nor designate anybody else who has acted as your agent for the last two years including the real estate agents, accountants, investment brokers, employees, and attorneys, so there are a brand of professionals who are Qualified Intermediaries.
  5. From the day the property is sold, you have 45 calendar days to find the potential new properties and 180 days to complete the exchange. These windows are strict, and they count holidays and weekends which cannot be extended or run concurrently.
  6. Identification must be made in writing with a clear description of the new properties and must be delivered to and signed by the Intermediary or current owner of the new property.
  7. Purchasing a new property of equal or greater value than the one you sold is a good idea because any funds left over at the end or additional property received with the new real estate are counted as “boot” and immediately taxed as capital gains. When the newly acquired property is transferred back to you by the Intermediary along with any boot such as leftover funds or the additional property acquired then the exchange is completed. Fortunately, the boot and net gain due to the real estate exchange are taxed instantly in reality and they do not void the deferral of capital gain and recapture taxes that were rolled into the new property.
  8. The cost basis for the new property is equal to the basis of the old property. The new basis is decreased by the amount of any boot received and then increased by any gain which is taxed during the exchange.
  9. Last but not least; be cautious while engaging in this kind transaction with family members because the tax-deferred gains can be forced into recognition in an exchange between related parties if either party sells their property before two years pass.

The most beneficial use of the 1031 exchange rules is to keep exchanging the acquired property. The deferred taxes will roll into that property to be recognized on its sale. If the property is retained long enough, and the last acquired property is passed on to heirs, it will receive a step up in the cost basis at which point the taxes due vanish effectively. A 1031 exchange is tricky to manage but definitely worth investigating.

If you have questions about the 1031 real estate exchange, contact me today at 615-326-TAX9 for a free consultation.

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 March 21, 2018 No Comments

It just got more expensive to owe the IRS money.

April 15th is approaching, and the IRS just announced that the interest rates it charges on past-due taxes will be increasing. Nobody likes to owe the IRS money, but it’s not an uncommon situation — even if you don’t realize it until you fill out your tax return. For these reasons, now is a good time to quickly review what interest and penalties could mean for you if you owe the IRS money.

IRS interest rates are going up

The IRS, which determines its interest rates quarterly, just announced a rate hike for the second quarter of 2018, beginning on April 1. The rate for underpayments and overpayments for individuals will be 5% annually compounded daily.  Rates for corporations are also going up.  If you owe the IRS $10,000, you can now expect to pay about $1.37 per day in interest charges while your debt is outstanding.

This is in addition to penalties you might owe

Keep in mind that the interest charged by the IRS is in addition to any penalties you are assessed for paying or filing late.

The penalty for paying your taxes late is 0.5% of the past-due balance per month or partial month, up to a maximum penalty of 25%.

On the other hand, the failure-to-file penalty is much worse — 10 times worse, to be specific. For each month or partial month you file your tax return after the deadline, you’ll be assessed a 5% penalty, up to the same 25% maximum.

An extension won’t help you avoid interest

As the April 17, 2018, tax deadline is approaching, it’s also important to mention that filing a tax extension does not excuse you from paying your entire tax liability by April 17th. . An extension simply gives you an additional six months to file your return — it does nothing to extend your payment deadline.

So, while a tax extension buys you more time to file your return, keep in mind that interest is charged retroactively to the April 17 tax deadline if it turns out that you owe the IRS money.

If you owe the IRS and have not filed back taxes, Give us a call.  We are Middle Tennessee’s Tax Resolution Experts.