Monthly Archives: November 2015

Tax-Free Income from Your Home!

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Did you know that you can receive rental income without paying income taxes on it? Generally, if you rent your home or vacation home for less than 15 days then you do not have to include the rent as income.

Did You Get a Surprise After Filing Your Return?

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Everyone loves to receive a much larger than anticipated tax refund, but what if you unexpectedly had to pay when you filed this year? There could be several reasons why, but it’s not too late to fix it for 2015, including:

Your filing status or dependents may have changed, perhaps from married to single, which usually causes you to pay more income taxes. Maybe you cannot claim your children as dependents anymore. For 2015, each exemption decreased your taxable income by $4,000.

Your business did very well and additional taxes were not paid. If you are self-employed, not only will you owe income taxes on each dollar of earnings, but you may be subject to self-employment tax, which is an additional 15.3%.

Taxable income has increased and certain deductions and credits have been phased-out. Once your income goes beyond certain thresholds, many tax credits, such as the child tax credit and education credits, are reduced. Real estate losses may also become reduced or eliminated as well.

To prevent a negative surprise for 2015’s tax return, check your current withholdings to make sure that enough taxes are being withheld each paycheck. If you need to increase your withholdings, simply print out form w-4 from www.irs.gov or ask your employer and submit it to them with the additional amount you would like withheld. Any amount can be specified, such as $100. If you need help estimating, please contact our office.

Penny Wise, Pound Foolish

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What do I mean by penny wise, pound foolish? Saving a penny, but it costs you a dollar. Here are a few examples:

Extreme Couponing: I watched an episode of extreme couponing years ago and the first thought that came to my mind, aside from obsessive, is that the coupon clippers spend way too much time trying to save money. If an average family spends around $200 to $250 on groceries weekly, but they spend 30 hours a week couponing, aren’t they missing out on actually earning money? Multiply 30 hours by a minimum of $20/hour working and the result is $600. Even if $200 out of that goes towards taxes, it makes sense to try to earn more money than trying to save $200 by cutting coupons all day. The net result of working would increase your cash flow by around $10,000.

Not Investing in Yourself or Your Business: Aside from retirees, most individuals make the most income from earnings as a business owner or an employee. Don’t hesitate to intelligently invest money to further your career to produce more income, or to invest money into your business to produce more profits. Investing can be in the form of items designed to produce more income, such as marketing, or to reduce expenses, such as updating your equipment and use of technology.

Spending Too Much on Items That Are Tax Deductible: Just because you can save taxes by paying loan interest, or by purchasing a new vehicle and equipment for your business, does it really make economic sense to do so? Spending a dollar to save a quarter is definitely penny wise, pound foolish.

Doing It Yourself or On the Cheap: Should you really do your own plumbing if you have never done it before just to save some money? It may end up costing you more when a real plumber has to fix your mess! I also see this with tax and accounting matters, but I am biased in this area, of course.

I still remember the first time I heard the penny wise, pound foolish saying (actually it was a partner at a large public accounting firm, and he said, “penny wise, dollar dumb,” but it still means the same thing). Think before trying to save!

Should Both Parents Work?

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The birth of a child is one of the most amazing, memorable times of a person’s life. I remember the birth of our first daughter, Alana, and how I truly understood the expression, “walking on air.” The births of each of our other children were equally as amazing.

With the birth of a child, or perhaps your second, or third, or sixth in my case, comes an important question. Does it make sense for both parents to return back to work? There are many factors to think about, financial and non-financial, but here are some of the financial elements:

Daycare Expenses: The cost can vary significantly, but a typical range can be $800 to $1,200 per month per child. If you have one child in daycare and are paying $12,000 per year, the cost may make sense, depending upon income, but what about two children in daycare with expenses of $24,000 per year?

Commuting: If you take mass transportation into NYC from NJ, you may have to pay for parking at the local train station, the PATH train to NYC, and possibly the subway. If you drive into NYC the toll is at least $11.75. That comes to $59 a week in tolls and approximately $3,000 a year!

Dining Out: Almost everyone likes to go out to lunch a couple of times a week to break up the monotony of work. If you spend $10 twice a week, this adds up to $1,000 a year. Also, if both parents work, then you may be more likely to order take-out more often during the week due to time constraints. This may add another $1,000 to $3,000 a year.

Taxes: My favorite subject. This really depends upon your bracket, but even with a parent in the 15% federal tax bracket, once payroll taxes and state taxes are included, at least a quarter of your earnings will go towards taxes. Although, you do get a credit of around $600 for each child in daycare up to a maximum amount of $1,200.

If you have two kids in daycare and work in NYC, you can easily spend $40,000 for the privilege of working! Unless you are able to work from home, have a flexible schedule, and even have a grandparent help out, working doesn’t sound so appealing.