fbpx

 

A great way to build wealth is to own a house. Now keep in mind that buying a house ajust because you think it’s the perfect investment is actually not the way to go. A house is a good investment, but there are better ways to invest that will earn a bigger return.

But what happens when you want to sell your house? Suppose you want something bigger, or maybe smaller. Perhaps you’re sick of maintaining your home and you want to move into a rental. Or you have been transferred out of state for your job. No matter what the reason for selling, there are tax implications of selling your house that you need to be aware of (don’t worry, your accountant in Billings, Montana will know the specifics; you just need to be aware).

Avoiding Taxes when Selling Your House

In 1997 the Taxpayer Relief Act was passed. This law provided a big relief to those who were selling their home and making a bit of a profit on it. Before the law was passed you had to reinvest those profits into another home (a bigger home) within a certain time period. Now you get a big break.

2 of the last 5 – The law states that if you have lived in the house, as your primary residence, for at least two of the last five years, then you can claim the capital gains exclusion when selling your house.

$250,000 to $500,000 – If you file your taxes as single, then you can profit $250,000 on the sale of your house and not have to pay taxes on the gains. If you are married, then you can profit up to $500,000 on the sale of your house.

Age is Just a Number – You can claim the capital gains exclusion no matter how old you are. You don’t have to be over 55 to get this.

Before 1997 it was pretty hard to sell a house, make a profit, and get away without paying the taxes. Now it is pretty easy to sell a house, make a profit, and not have to worry about paying taxes on the gains. But there are times when you still might owe.

When do You Pay Taxes when Selling Your House?

Not everyone can get away without paying taxes on the sale of their house. But you almost have to try hard to pay those taxes.

If you profit more than the exclusion allows, then you will owe taxes when selling your house. But the good news is that you don’t owe taxes on the full amount. For instance, if you are married, and you sold your house and made a profit of $500,100, you would only have to pay taxes on the $100 over the exclusion amount. There is more though. If you make over $200,000 per year, there is a Medicare tax imposed on the gains over and above the exclusion.

Keep in mind that you can only claim the exclusion for one house at a time. So if you sell your primary residence, you can claim the exclusion. But then if you sell your vacation home, you cannot claim the exclusion (because you weren’t living there for 2 of the last 5 years).

Taxes when Selling Your House

Still have questions about the tax implications when selling your house? Contact Practical Taxes today!

People dream of winning the lottery. They make big plans on what they would do if they were to win millions of dollars, and they talk about how many people they would help. Of course they complain that the government would take approximately half of their winnings in the form of taxes, but overall they would still be happy with the huge surplus of money that they are left with. So how is it that about 70% of those who win the lottery will go bankrupt?

The Curse of the Lottery Winner

Unfortunately a sudden influx of money does nothing to help improve financial sense. So when people suddenly win millions upon millions of dollars, they simply stick with their same foolish spending habits. Only now those habits are at a much larger scale.

Winning the lottery could help someone out tremendously. And the economic impacts of the lottery can’t be argued with. After all, those who win the lottery spend a considerable amount of it right away. They buy new houses, new cars, give to charities and family members, they pick up the tab at a restaurant… for every customer there. Lottery winners seldom have a problem finding ways to spend their money.

However, without a set plan on how to spend the money, most will make foolish money mistakes that ultimately reduce them right back to where they were before they won their millions of dollars. If you don’t believe me that winning the lottery brings some unnecessary hardship, check out these 10 people that couldn’t handle their winnings.

Make a Plan before You Win

There is really no financially sound reason that you should even try to win the lottery in the first place. In fact, the odds of winning are astronomically high. But you can take this advice and apply it to other financial windfalls like receiving an inheritance, getting a large tax refund, or maybe even an unexpected bonus at work.

Before any money actually comes in, make a sound plan to use it appropriately. For instance, you might want to pay off all of your debt, buy a new car, give a little to your family members, and take a vacation. Depending on your situation, that should only take up a few hundred thousand of your winnings. After that, invest the rest in a trust, preferably an irrevocable trust that has detailed information about who can take money out and how much they can access.

Without a plan, we as humans are likely to overspend. Whether it is on ourselves, giving to charities, or all around just wasteful use of money, the lottery winnings will disappear quickly.

If You’re Lucky

If you have been lucky enough to win the lottery, you will want to enlist the help of an accountant in Billings, Montana. With the help of Practical Taxes, you can be sure that your money will be put to the best use, and your taxes will be minimized. Have you seen a sudden influx of money? Did that money disappear a lot faster than you care to admit?

Practical Taxes is a full service accounting firm in Billings, Montana. While tax preparation is a huge part of our business, we also love to help with payroll services. One specialty is online payroll services; no matter what part of the country you live in, we can get your payroll done.

Have you heard of the phone scam where someone calls and pretends to represent the IRS? The scammers inevitably ask for personal information, and, too often, people willingly give out their personal information, such as their social security number to these scammers. The scammers also ask for money. And, unfortunately, people pay it; or they provide their banking account numbers. It’s estimated that over ten thousand people—more everyday—have been affected by these phone scams; estimated that over fifty-four million dollars has been paid to these scammers. But you should know that there should never be a day where an IRS agent simply calls you up, unannounced, and asks personal questions.

The IRS will make initial contact via the good old USPS. If they are requesting money, they will send to you in the mail a bill, requesting payment. The bill will look like any other bill you would receive in the mail; however, it will be from the IRS. There will be directions in the bill as to how to proceed to pay the bill or how to contact the IRS with any questions you may have; it will be simple and to the point. The IRS may notify you of a possible attempt to contact you via telephone—possibly even request a face-to-face meeting—but, when they do call, they won’t request that you tell them all your personal information. Remember, the IRS already has a lot of your personal information, and they won’t ask you for your social security number over the phone; they won’t ask you to tell them your bank routing codes, or your checking account number; they won’t ask you to pay your bill over the phone, and they won’t initially demand a payment—remember that you have rights, too, and one of those rights is to appeal. And they won’t threaten to have you arrested by the local police if you don’t pay.

Call Practical Taxes for all your tax needs.

2016 is officially over, and that means it’s time to prepare for another tax season! Like it or not there’s only a few months left until the April the 18th deadline, and for most of you there’s so much to prepare.

Prepare

For those of you who have a lot of write-offs, those of you with small businesses, etc., January is the time to start getting all of your receipts in order. Make sure that everything is accounted for. If you are missing something, and need to have the filed-proof of something (say an invoice for something work related, etc.) ensure now that you either have appropriately filed away a copy, or, if you have unfortunately lost your copy, you have the time now to find it. This is the time of year to have your vehicle mileage documented orderly if you have yet to do so.

Forms

January the 31st marks the last day at which you should mail your employees W-2 forms. Obviously you will want to mail out any forms on time, because your employees are counting on you for this, but there could also be a penalty charged to your company by the IRS if you do fail to mail out your forms on the 31st of January. Remember, the W-2 form only needs to be postmarked by this date, your employees may not receive it in the mail until a few days after, so, if you are planning to mail the forms at the last minute, it may be wise to explain this to your employees who may be expecting to receive it sooner.

Make a date with you tax preparer

Regardless of how difficult your taxes, your accountant is ready to help you through the process. Try and plan an hour or two for one day in the future (or on several days in some cases) to visit your accountant’s office to prepare your taxes. To ensure that you receive the undivided attention of the accountant you want to see, make a reservation. If you are seeing an accountant for the first time, Practical Taxes is here and ready to help you through the process of your 2016 tax returns.

Practical Taxes

Practical Taxes is a full service accounting firm in Billings, Montana. We can help you get the most from your taxes, and make sure that you will get the maximum refund every year. But we don’t just do taxes! We can help with your bookkeeping, payroll, bank reconciliation, budgeting, and more. Give us a call at 406-894-2090 to learn more.

As most of you already now, tax day is just a week away. For those of you who have yet to file, we understand the stress and the pressure of getting it done soon. However, for those of you under a serious time crunch, there are ways in which you can extend your tax deadlines—however this does not get you out of paying your taxes in a timely manner, it only gives you a little breathing room to get everything in order. Your accountant can help you to file an extension if you are going to need one. You can also find this information on the IRS website. The extension is merely a six-month time leniency in which a person may get together their returns.

tax-filing-deadline

If a person cannot afford to pay their taxes immediately, the IRS does have payment plans. Taxes wont be forgiven when someone participates in this plan, but like most things involving debt, the IRS will accept payment for a predetermined period of time during which the amount owed in tax is entirely paid. These payment plans can extend up to seventy-two months, although if you find yourself having to use these payment plans, you may want to consult with your accountant to prepare a plan for the next year. There is also a plan which the IRS labels the offer-in-compromise, which states that qualified, struggling tax payers may settle their tax debt for less money then they actually owe. This plan is beneficial to some, although it’s only for qualified persons, and your accountant can determine—if this is something in which you’ll need to participate—if you qualify.

Tax day is stressful, and your accountant understands that. If your one of the many who are struggling under either a time constraint or you’re struggling with financial concerns, make sure to call your accountant so that you may benefit from these IRS programs. If you are ready to get your taxes done and you have the time between now and tax day, call your accountant and get your 2015 taxes behind you.

Practical Taxes

Practical Taxes is a full service accounting firm in Billings, Montana. We can help you get the most from your taxes, and make sure that you will get the maximum refund every year. But we don’t just do taxes! We can help with your bookkeeping, payroll, bank reconciliation, budgeting, and more. Give us a call at 406-894-2090 to learn more.

Taxes-300x225I have yet to meet a single person who loves paying taxes. Sure we all love the benefits that we get out of them: emergency services, hospitals, roads without potholes, and a host of other benefits. But when it comes down to it, we all want to reduce our tax bill as much as possible. As an accountant in Billings, Montana, we want to help you keep as much money in your pocket as possible. Here are the 5 easiest ways to keep your tax bill down.

Reduce Taxes: Invest in Yourself

As long as you meet the income requirements (for 2014 you can make as much as $60,000 as a single person, or $96,000 as married filing jointly; if you don’t have access to an employer plan those limits are lifted for single and $181,000 for married filing jointly), you can contribute to a traditional IRA.

A traditional IRA helps those who want to save on their taxes now, but keep in mind that taxes will come due eventually. Suppose you put $5,500 into your IRA (the current limit for those 55 and younger; 55 and older can do $6,500) this year. You can then deduct $5,500 off of this year’s income. However, when you withdraw that money during retirement, you will owe taxes as though the money was earned the year you take it out.

To get your tax bill down for this year, put more into your IRA.

Reduce Taxes: Invest in Others

One of the easiest ways to do good with your money is to donate to charities. There are thousands of worthwhile organizations across the country, but I would suggest you donate to a local group. From churches, to homeless shelters, to community groups, there is surely a charity out there that you would like to support. The good news is that you can give away as much of your money as you would like. Even if that means you donate $100,000 to a group, you can write off the $100,000 from your current income. Be sure to check out charitynavigator.org before you send just anyone money though; you will want to make sure they are legitimate.

Reduce Taxes: Take a Stock Loss

Do you have investments that just aren’t cutting it? You can sell them and write the loss off on your taxes. As hard as it is to invest money and get less money back, it can be an effective tool to reduce your tax bill. Keep in mind though, that selling a stock to capture that loss prevents you from buying back into the same stock for 30 days. If you do, it’s a wash sale and your losses won’t help you.

Reduce Taxes: Contribute to a Health Savings Account

If you have a high deductible health insurance plan, you may be eligible to open a Health Savings Account (HSA). This unique plan allows you to pay for medical expenses with before-tax money. Unlike a flex plan offered through work, the HSA money doesn’t expire at the end of the year. Keep in mind that the money must be used for health related items, but can’t be used for OTC medications.

Reduce Taxes: Hire an Accountant

Yes, it may seem counter intuitive, but one of the best ways to save money is to spend it. An accountant, such as Mike here at A+ Accounting, can actually help you get a bigger refund on your taxes. By legally utilizing the tax laws, an accountant will find every deductible that you qualify for. Many of these you wouldn’t have known about and subsequently would have missed. Not only that, but you will save a whole lot of time by letting someone else prepare your taxes.

Reducing your tax bill is the goal of just about every American. Before 2015 rolls around, take a few minutes to see if you can take advantage of any of these tips to keep your liability as low as possible. When it comes time to file that return, an accountant in Billings, Montana will help you get the biggest refund check possible.

Practical Taxes

Practical Taxes is a full service accounting firm in Billings, Montana. We can help you get the most from your taxes, and make sure that you will get the maximum refund every year. But we don’t just do taxes! We can help with your bookkeeping, payroll, bank reconciliation, budgeting, and more. Give us a call at 406-894-2090 to learn more.

Emergency-Fund-300x199As a financially savvy adult, you likely know about emergency funds. But if you are like most Americans, you have yet to really get started saving into your emergency fund. This little slush fund, that comes in extra handy during the leaner months, is a tool that everyone needs to utilize. In fact, even before you make the commitment to start saving in your IRA, you should be saving into your emergency fund. Any accountant in Billings, Montana, or financial planner will tell you that. So what are the benefits of an emergency fund? Here are just a few.

 

Paying Taxes – As much as we hate to do it, we have to pay our taxes. And as much as most people hate to work, the fact is that one job often doesn’t meet our living expenses. So we pick up a side job, or start a little business on the side (in personal finance blogs across the internet you can see this referred to as a side hustle). While it is tempting to just take that money and not report it as income, if you are going to do the right thing you need to report it.

But adding that to your tax return may suddenly drop you from getting a tax refund, to having to pay in. This can be discouraging for anyone, but it can be even more discouraging if you don’t have a source of funds to dip into to pay those taxes. An emergency fund is designed for this exact occasion.

Unexpected Expenses – There will come a time when your car breaks down. You will get sick or injured and be hit with an unexpected doctor bill. You are going to foolishly leave the turkey in the oven too long and it will start a fire causing you to fry your oven from the inside out and then you will have to go buy a new oven. These things happen, and while we call them “unexpected” we can fairly well rely on them. They really are not that unexpected after all.

When you have an emergency fund set up and properly funded, these expected unexpected expenses are no big deal. You have the money, you saved the money for this reason, and it only takes a few clicks of the mouse to transfer the money from your savings into your checking account.

Opportunities – Many financial professionals won’t call it an emergency fund. Instead, they prefer the term opportunity fund. Because sometimes there are opportunities that come up that you just hate to pass on. But if you don’t have an emergency (opportunity) fund, then you really do have to pass. That can be a great business opportunity, a really sweet deal on a vacation, or your dream car just hit the market. If you want to be able to take advantage of the opportunities that life holds, you need to have an emergency fund.

The list of benefits of an emergency fund goes on and on, but I think you get the point. Without an emergency fund, you are putting yourself in a position that could be devastating to your financial health. Instead of taking that risk, make the commitment for 2015 to start your emergency fund. Just $25 or $50 per month will go a long way to offsetting some of those little surprises that life can throw at you.

A financial planner can help you figure out an emergency fund, and an accountant in Billings, Montana can help you make the most of your taxes so you can adequately fund your opportunity fund.

Practical Taxes

Practical Taxes is a full service accounting firm in Billings, Montana. We can help you get the most from your taxes, and make sure that you will get the maximum refund every year. But we don’t just do taxes! We can help with your bookkeeping, payroll, bank reconciliation, budgeting, and more. Give us a call at 406-894-2090 to learn more.

Is Rental Income Fully Taxable?

Rental-Income-300x257Owning real estate can help you offset your tax bill. Things like property taxes, mortgage interest, and PMI are all deductible. If you choose to rent out your property for the purpose of augmenting your income, it is important that you familiarize yourself with basic information related to it so that you will be able to maximize your earnings by maximizing your tax deductions. Let Practical Taxes explain what you need to know about rental income and taxes.

 

What is Rental Income?

Rental income refers to any payment you receive for the use of your property. Like other types of income, it has to be reported in the same year when you received it, even if it is supposed to be payment for the following year. For example, you enter into a contract where your property will have a 5-year lease. If your lessee pays rent for both 2016 and 2017 within the year 2016, you have to report both payments as income for the year 2016.

Likewise, if you make use of security deposits for final rent payment or to cover damages caused by the tenant, this should also be included as part of your income in the year when you received it (typically the year when your lease contract started). Don’t include security deposits, though, if it is to be literally used as a “security deposit”, meaning that you will return it to your lessee at the end of the lease.

In case of lease cancellation, the payment you receive will still be considered as rent, thus, it will also have to be reported as part of your rental income for that year.

Rental income and expenses are reported through Schedule E of IRS Form 1040.

What Expenses can be Deducted from Rental Income?

Because rental income is considered as income, the IRS will let you deduct expenses from rental income so that you will not have to pay taxes for the entire amount that is paid to you. Generally speaking, any cost you incur from operating, managing and maintaining your rental property can be considered as rental expense, and therefore deductible from your rental income. These expenses are those that are necessary to keep your property in optimal operating condition. Rental expenses include (but may not be limited to) the following:

  • Repair costs such as fixing faulty plumbing; replacing broken doors, windows or cabinets; repairing damaged appliances; or repainting chipped or cracked paint.
  • Insurance fees for fire, flood, liability and mortgage
  • Maintenance fees such as utility expenses, cost of supplies, cleaning expenses, wages paid to maintenance personnel, salaries paid to managers or supervisors running the rental property, homeowner association dues or condo fees, pest control fees, and garbage disposal fees.
  • Tax-related fees such as legal fees paid for tax preparation, mortgage interest payments, and local property taxes.
  • Advertising and promotional expenses.
  • Travel expenses you incur when the purpose of your travel is to check on your property or do other tasks related to renting your property such as collect rent.
  • Losses from natural disasters (fire, flood, hurricane, Godzilla attack) or theft.

What Expenses cannot be Deducted from Rental Income?

At some point, you might consider upgrading or modernizing your property for better appeal and resale value. Expenses that are incurred for such purposes are not necessary to continue operating your rental property and are therefore not deductible from your rental income. Examples are structure additions (such as a new floor, a new room, any extension, a swimming pool) and constructions that can extend the usefulness of your property (such as adding a new roof or installing insulation).

To recover from expenditures like these, you may report the expenses as depreciation deductions through IRS Form 4562. Unlike expenses which you can deduct in full, depreciation cost has to be spread out equally over the number of years it is expected to be useful.

As for rental-related losses incurred, special rules referred to as Passive Activity Rules (PAL) will apply. In a nutshell, these rules restrict you from using passive income losses (such as those from your rental activities) to offset other taxable income that you have.

Practical Taxes Knows Rental Taxation Laws

If you are considering buying a house, condo, or apartment building to be used as a rental, you need to know some of these rules. If you have been considering it, but you haven’t taken the plunge, don’t let this dissuade you! Owning a rental can be a great source of revenue.

The best part of collecting rental income is that you just need to keep track of the numbers. Then let Practical Taxes, your accountant in Billings, MT, handle the rest. We have trained accountants that fully understand the rental income tax laws so that you don’t have to learn them.

 

So you’ve got a great product, business, or service to offer. You’re sure because the small number of people who’ve tried it sing nothing but praises. So how do you go about promoting your product without having to spend that little profit you have earned so far? Your online advertising budget can only go so far. Use the power of the Internet to get noticed online with these 3 simple tips.

Get-noticed-online-1024x322

Have a Great Website

Even with social media around, it’s safe to say that everything starts with your website because it is the first thing that people will go to for information about your business and your brand. It’s been said that first impressions are always the last. With this in mind, you have to make sure that your website is not only visually appealing, it is crucial that you work on having your loading time as short as possible. As fast-paced as everything is right now, you don’t want people leaving your site even before you are able to present your brand. Once they are in, they should see clear, organized, and accurate information. One of the quickest turn-offs is being provided with erroneous information — from incorrect contact numbers or operation hours, or something that’s much more disappointing like displaying an offer that is no longer available. Work on having a website that is nice-looking, responsive, informative, and up-to-date. Keep in mind that websites are get-what-you-pay-for. If you plan to spend just a little bit, expect to have a website that looks like you didn’t invest much.

Personalized Experience and Lasting Relationships

Having accounts on social media, as well as having a blog, have become an integral part of online branding efforts. Typically, you blog about information that your targeted audience is searching for, and then share your posts on your social media platforms. That’s just part of the strategy, though. More than just publishing content that’s worth reading, you should make it a point to interact with your audience — not just in general, but on a more personal level. Don’t be a mere observer, participate too. Thank them for liking and re-tweeting. Respond to their comments. Offer your insights and share some additional inputs. Make them feel that you do not just view them as customers or consumers, but as human beings who have to deal with everyday life experiences. Relentless pushing of your products is a no-no. Instead, try to build a positive relationship with your audience. Win their trust and you’ll likely win their loyalty too. Don’t just sell — connect!

Be Your Own Brand

While it is tempting to do what everyone else is doing and copy marketing tactics that seem to catapult other businesses to success, it is important to stay grounded and accept the reality that just because it is working for many, it doesn’t necessarily guarantee that it will work for you too. Before going any further, it is important to clearly define what your brand is all about, and what you really want to be known for. Think of something that will set you apart from everyone else. All your strategies should revolve around this. Regardless of what channel you use, the actions you do and the things you say should support and reinforce your ideal brand image.

Practical Taxes Can Help After You Get Noticed Online

We can’t run your social media for you, or build you a website, but we can help when it comes time for your business to grow. Whether you are freelancing right now in order to bring in side income, or if you are in the throes of building a business, we have services to meet your needs.

Practical Taxes offers payroll services, business tax preparation (as well as individual), and more. If you are looking for the best accountant in Billings, MT, then you have come to the right place!

 

Divorce-1-300x200Have you wondered how divorce affects taxes? Perhaps you are in the midst of a separation, or you are recently divorced. Going through a divorce is hard enough. Thinking about taxes at the same time might just be borderline torture. To help lighten the burden, even just a little bit, here are the most important things you need to know when it comes to taxes amidst divorce, particularly for the first year after.

Keep reading as your Practical Taxes, your tax preparation specialists in Billings, Montana explain what you need to know.

 

Divorce Affects Your Filing Status

As long as your divorce decree has not been finalized yet, your filing status remains a choice between married filing jointly, or married filing separately. Once finalized, you lose the joint return option and your choices revert to single, or head of household (if you and your spouse lived separately for at least the last half of the year, you had a child (or children) living with you for more than 6 months during the year, and you paid for more than 50% of the cost of maintaining your home to care for your child (or children).

Your Exemptions for Dependants May Change

Only one parent can claim a child as a dependent. To be able to claim your child, you must be what is referred to as the custodial parent. This means your child should have lived with you for more than 6 months out of the year (longer than he/she did with your ex-spouse). As a non-custodial parent, it will only be possible to claim dependent exemptions if the custodial parent agrees not to claim the exemption by signing a formal waiver or written declaration (IRS Form 8332).

Simultaneous with the dependency exemption, the spouse who claims it is also entitled to claim the Child Tax Credit (up to $1000 per child under 17 years of age), as well as one of the higher education credits — either the American Opportunity Tax Credit (up to $2500) or the Lifetime Learning Credit (up to $2000).

Alimony and Child Support Payments

If you’re the one who’s paying alimony, you will be entitled to tax deduction for the payments, provided you pay the alimony in cash, and the conditions of the alimony are explicitly expressed in the divorce settlement/agreement. On the other hand, the recipient of the alimony will have to pay income tax for the amount received.

Conversely, payments for child support are not deductible, and child support payments received are not taxable. The IRS recognizes that supporting one’s child is a parent’s obligation, so child support payments are deemed tax-neutral.

When it comes to medical expenses, even if you are not the custodial parent, you can claim these as deductions if you have been continuing to pay your child’s medical bills even after the divorce.

Divorce has big affects on your taxes

Expect a Transfer of Assets

When property is transferred to one spouse, the recipient does not need to pay tax for that. It is only when he/she decides to sell it that capital tax gains will be charged. The bad news? The tax will cover the cumulative value from before the transfer was made up to the present. To illustrate, if the husband transfers real property to his wife, no tax will be charged yet. When the wife sells the property later on, she will be charged with capital gains tax on the appreciated value from the time the property was still a joint ownership, up to the present time when the property is being sold to a third party.

For retirement savings, it is advisable to do the transfer under a QDRO (Qualified Domestic Relations Order). This will give the recipient access to the funds, and will relieve you of the burden of paying the tax.

Practical Taxes Knows How Divorce Affects Taxes

The good news is that you don’t have to worry about your taxes. Just bring in the appropriate paperwork (most will automatically be sent to you shortly after the new year begins), and we will take care of the rest. Our highly trained accountants understand how divorce affects taxes so that you don’t have to.

Practical Taxes offers affordable tax preparation, and other accounting services, to the Billings, MT community.