Short Sales - What you need to know about mortgage debt forgiveness.
With the value of properties dropping over the last couple of years many people have been forced to sell their homes for less than they owe on the property. When this happens, the bank can require that the people who owe the mortgage still owe the outstanding balance or it can forgive the outstanding amount, called mortgage debt forgiveness. While having the bank forgive the outstanding mortgage balance sounds great, there are other considerations that you need to think about first.
Generally, any debt that has been forgiven is considered taxable income by the IRS. However, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007 which forgives taxes on the amount of mortgage forgiveness if a few conditions are met. First, the property sold on which mortgage forgiveness was given must have been the taxpayers primary residence. Second, if the debt forgiven was for a refinance, the income from the debt forgiveness can only be forgiven if the refinance was used to improve or repair the primary residence. Thus, if you refinanced and used the money to pay off credit cards or other debt, the debt forgiven would still be taxable as income for IRS purposes.
Where are your records?
Tax time is rolling around again so what can you do now to ensure a less painful tax preparation this year? The easiest thing to do is keep a record of your transactions. Sounds easy but we all forget to save those receipts or print out those statements.
What records and receipts should you be keeping? Well, did you purchase a car in 2009? If so, keep that receipt as you may be able to deduct the sales tax you paid. Did you buy or sell stocks? You need to know what your basis was in those stocks, which again means that you need to know what you paid for the stock, the commission you paid to purchase the stocks, and any stock dividends you received that were reinvested in stocks. This might not be too bad if you only make one or two stock purchases a year, however, once you reach the level where you buy and sell stocks several times a month, this can be a nightmare.
Other receipts that you might want to save are your medical receipts. For example, you need evidence to show how much you paid for the year in after tax dollars for your medical premiums. You also want to save receipts for copays, prescriptions, and other medical expenses. Many stores make this easier now by showing you at the bottom of the receipt the amount that qualifies as a medical expense.
Do yourself and your tax preparer a favor and keep your receipts and print out and save your monthly statements. You can make life even easier by sorting the receipts and statements out by category, at least you can do that if your New Year’s resolution was to get organized.
Tis the Season to Save . . . On Taxes!
Everyone hates paying taxes. We all accept it as inevitable but look for ways to reduce our tax liability. Luckily for us, the IRS offers incentives in the form of tax deductions. Some common deductions include charitable contributions, interest on your home mortgage, and interest on your student loans. While you may have no control on when you pay your mortgage and interest, you do have control on when you make charitable contributions.
Basically we are talking about the time value of money. You get the same tax deduction for your charitable donations whether you make them all in January, throughout the year, or all on December 31. This allows you to use your money throughout the year instead of letting someone else use it.
Some people might want to make charitable deductions but are afraid that if they don’t make them in little contributions throughout the year, the money will be spent come December and they will lose out on the deductions. If you are really serious about making charitable contributions but also not wasting your money, put aside the money you want for charitable contributions each month in a savings account. This allows the money to collect interest, which you can use for yourself, or you can add it to your charitable contributions at the end of the year and get even more tax deductions. Either way, you have the money to make your charitable contributions, you got the value of having the money for the entire year, and you still get your tax deductions.
Financial Fortunes
Understanding finances and how to keep track of your finances can make or break your business. Keeping track of your finances is especially important for small cash based businesses. It is very easy to forget or lose track of what you make, the taxes you need to pay on your sales, and what was sold if you don’t develop a system to keep track of everything. This can land you in hot water not only with the IRS and your state, it will also make it hard when you need investors or try to get a loan from a bank.
Many small businesses don’t realize the importance of keeping good records. They want to try and hide some of their income in order to keep taxes down. However, while this might save them a few dollars in the short term, this gamble could really hurt in the long run. If the IRS finds out that you are not properly reporting all your income, including any cash tips or sales from other items that are not the main part of your business, they will not only collect the back taxes for that income, they will also impose fines and charge interest on the back taxes owed.
There are plenty of good accounting systems available that will help you keep track of your inventory, sales, invoices, expenses and income. I frequently use Quickbooks. Ask your accountant or other business owners for what they recommend.
Secrets from a Hiring Manager
There is plenty of competition in the job market, so how can you get ahead? Surprisingly, it may take something as simple as common sense and respect for the people who are interviewing you.
1. When an ad states Do Not Call, don’t call.
Surprise. It is so simple, but it can mean the difference between the hiring manager looking at your resume or promptly dumping it in the trash. When the ads state don’t call, there is usually a reason, and when you ignore that statement, you are showing the hiring manager that you don’t respect his/her authority or ability to make decisions. Not a good move.
2. Dress for Success.
When you get that interview, you need to make a great first impression. If you don’t have a suit, check into getting one. If you can’t afford one, stop by your local Goodwill, Salvation Army, or contact local charities that provide suits to people unable to afford them. Whatever you do, do not look like you bought the suit at Goodwill though. Get the suit early enough that you can take it to the dry cleaners and get it cleaned and pressed in time for your interview. Having a suit is not enough, you also have to show good personal hygiene by wearing clean clothes and trying to look your best. In addition, make sure that the suit actually fits properly.
3. Bring copies of your resume to the interview.
Bring several copies of your resume with you so that you can pass them around to the different people in the company that you are interviewing with in case they did not print one out for the interview. In addition, review the resume just before the interview so that everything on it is fresh in your mind and you can answer their questions without that awkward pause.
New Roth IRA Rules Postpone Income Reporting
On January 1, 2010 the rules for converting a retirement account to a Roth IRA are changing. Currently, people can only convert their accounts to a Roth IRA if they have a modified adjusted gross income of $100,000 or less and must not be filing their taxes as married filing separately. Under the new rules, people will be able to convert their other IRAs to a Roth regardless of their income levels. In addition, their is an option that allows report half the income from your conversion in 2011 and the other half in 2012 rather than reporting all of it in the year of conversion as required under the current rules.
Small Business Solutions: Online Faxing
Small businesses are always looking for ways to save a little money. While a phone line is necessary, a dedicated fax line is not an essential. If you don’t use fax frequently enough to justify a phone line dedicated to the fax machine, check out this options websites instead.
www.unityfax.com
UnityFax has a variety of plans for businesses to choose from, incoming faxes can be downloaded from the website, however, they are also sent directly to your email so you know almost immediately when a fax comes in. This service is especially great for service providers who are always on the go. For me, it is much easier to check a fax on my phone than be tied down to one location in the event that a fax does come through.
Online faxing is just one way that technology is making life easier for small businesses.
Black Friday is Coming, Start Planning Now
If you are like me, Black Friday is one of the best days of the year. Last year I stayed up all night to check out a midnight sale at my local outlet mall and from there it was one store after another as they opened. However, if you don’t know what you are looking for ahead of time, you can miss out on some great deals and also waste a lot of time looking around stores that you think might have something worth the effort but then has nothing you want. If you don’t know exactly what you want, you could also get caught up in the spirit of shopping and end up purchasing a lot of things that you don’t need.
My advice, start checking the sales now. Most of the stores already have their Black Friday ads available online so you can start shopping now.
http://www.theblackfriday.com/
This website has the Black Friday sales for every store you can imagine. By planning things out early, you can make sure that you get everything you want/need so that you are well on your way to getting your Christmas shopping over so that you can just enjoy the holiday without all the stress of last minute shopping, hint hint to the men out there.
Who is an employee?
When starting a business, there are many questions you need to ask yourself. One that you probably haven’t thought about is who is an employee of the business. It is important to know who the IRS considers an employee because the business needs to pay payroll taxes on all income that individual earns as well as federal and state unemployment tax. While these may not seem very expensive when the employee only earns minimum wage, however, if you make the mistake of claiming the individual is an independent contractor when the IRS determines he is an employee, not only do you have to pay the back taxes, you will also be required to pay interest and penalties, which can quickly add up.
When determining whether or not a person is an employee or an independent contractor, the IRS looks at financial control, behavioral control, and the relationship between the parties. When looking at financial control, they will look at whether or not the person had a significant interest in the his work. For example, if the person was paying his own expenses or has a significant investment in his work, he is likely to be an independent contractor. When looking at behavioral control, the IRS look at the extent of instructions the person is given to fulfill his job or the training the job provides. The more instruction or training the company provides, the more likely that the IRS will find the person is an employee. When looking at the relationship between the parties, the IRS looks at whether or not the business pays the person benefits or whether there is a written contract between the parties stating their intent that the person be treated as either an independent contractor or an employee.
The IRS says that not one of these factors is controlling, They look at the totality of the facts. If you still have questions about whether or not the person walking for you is an employee or an independent contractor, you can file Form SS-8 with the IRS requesting that they make a determination whether the person is an employee or an independent contractor.
Expensive kids? Not anymore!
School just started. The kids all needed back to school clothes, winter is coming so they are going to need new winter clothes as well since they keep growing. Oh, and they need fuel (food) so they can keep growing. All these expenses can really add up quickly, however, there are ways to keep the costs down.
1. Pack lunch instead of buying lunch.
By taking a few minutes each morning to make your kids a sandwich and throw in some fruit or give them the leftovers from dinner the previous evening, you can know what your kids are eating and save a few dollars in the process.
2. Buy school clothes smart.
Instead of buying clothes at the peak of back to school at the department stores, instead check out the clothes at Target or Wal-Mart. My secret, I buy 95% of my clothes at the outlet malls. But going to the mall alone isn’t enough, ask the mall people about additional discount booklets to save even more at the stores.
3. Start saving for college now.
College is expensive. Maybe your kids will get a full ride, most likely not . . . so start saving now. It isn’t going to get cheaper. Consider putting away that money you save by making your own lunches and shopping for bargain into a college savings account for your kids. It will help save a lot of headaches when your kids are juniors and you realize just how much it will cost when your daughters says she just has to go to Cornell. Believe me, you will be thanking yourself for putting money away for all those years.