Credits for First Time Home Buyers

If you are a first time homebuyer, you will be glad you made the decision to purchase a home when tax season kicks in. Even though the First Time Homebuyer Credit is no longer around, you still have other options. Today, this article is discussing credits available for first time homebuyers.

Home Mortgage Interest Deduction The interest that is paid to your lender can be deducted. If you itemize your deductions, you may find that this is the biggest deduction you will make.

Points or Loan Origination Fees Deduction – Whatever fees you encountered when obtaining your home mortgage can be deducted. You also report your points on Form 1098.

Property Tax Deduction – Most homeowners hate when it is time to pay property taxes. The good news is you can deduct any payments that you made towards property taxes.

Residential Energy Credit – If you have decided to install solar panels, energy efficient windows, or other similar things to save energy you may be able to get a tax credit of up to 30% of the cost. Therefore, converting to a greener lifestyle does not have to be as expensive as you thought it would be since the IRS rewards those who take an interest in keeping the environment clean.

Closing Thoughts

You may have encountered a lot trying to secure your first home and you may have even had to put out a lot of money too. The good news is when tax time comes around some of the money you have spent will be credited back to you, which can help you lower your tax bill.

 

 

 

How Retirement Income Is taxed

As retirement nears, taxpayers start to worry about how their retirement income will be taxed. The good news is not all retirement income is taxable. This is because it depends on where it comes from and how much you have. Therefore, today we are going to briefly cover how different types of retirement income are taxed.

Retirement Income that Is Taxable

• Withdrawals from traditional IRS, 401 (K)s, and other retirement income
• Most pension income
• Interest income, dividend income and capital gains inside of after tax accounts
• Withdrawals from an annuity

Retirement Income that Is Partially Taxable

• Social security income that is greater than the social security limit
• Nondeductible IRA withdrawals
• Income from an immediate annuity that was purchased with after tax money
• Profits from cashing in life insurance policies

If you found this tax article a good read, be sure to take a look at our Tacoma QuickBooks Bookkeepers blog to read up on other topics. Our latest post discusses the EITC, a low income tax credit.

 

Retirement Income that Is Tax Free

• Roth IRA withdrawals
• Municipal bonds interest income
• Life insurance policy loans
• Reverse mortgage income
• After tax contributions withdrawn from an employer sponsored plan such as a 401 (K)
• Income that is a return of your own principal or cost basis
• Profits of selling your home, when requirements have been met

Closing Thoughts

When it is time to retire, you should already be aware of which income is going to be taxed and which income will not be. Therefore, before you start saving for retirement, try to make sure that your accounts are tax-free or are only partially taxable so you can get the most out of your retirement years.

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Tax Penalties for Not Paying Your Tax Bill

If you do not pay your tax bill, you can expect penalties to be enforced. Today, we are going to be discussing the tax penalties for not paying your tax bill.
Keep in mind you have until April 15 each year to file your federal taxes and pay the taxes that you owe. If you do not do so, you will face the following penalties.
• You will have a “failure to pay” penalty imposed. This could apply even if you pay some of your taxes but not the entire amount.
Even if you do not have the money to pay your taxes, it is important that you file them on time to avoid penalties for late filing. Additionally, you should pay as much as you can so interest can be reduced. Lastly, the IRS is willing to work with you so contact them if you are unable to pay the entire amount owed to them by the tax deadline.
• If you file late, you can expect to have to pay 5% of your unpaid taxes for each month that your return is late. The penalty starts April 16 and it will not exceed 25% of your unpaid taxes.
• The failure to pay penalty is ½ of 1% of your unpaid taxes. It applies each month after the due date.
Bottom Line
As you can probably tell not paying your taxes is going to cost you more money in the end. You should always try to pay your taxes on time even if it means taking out a loan to do so. This way you can avoid having the penalties applied to your account.

Ways to Prepare for Tax Season

If you wait until the end of the year to start preparing for tax season you are going to find it to be a very stressful time for you. If you start in the middle of the year you will find when tax season comes around it will be a breeze. Additionally, during the middle of the year things will be slow for your financial advisor too. Therefore, today we are going to discuss three things to think about during the middle of the year to prepare for tax season.

Check Your Estimated Tax Payments

During the middle of the year, you want to make sure that you are up to date with your estimated tax payments. This is important to do because if you do not make the correct amount of estimated tax payments when you file your taxes you will have a penalty imposed for not doing so. Therefore, to keep more of your hard-earned money in your pocket you need to stay on top of your estimated tax payments.

Organize Your Tax Documents

If you do not already have an organization system in place for your tax documents, such as receipts and charitable donations, now is the time to do so. When January comes around you will find preparing your taxes is easier when all of the required documents are readily available.

Are You Within the Tax Guidelines for Your Rental Home?

You can deduct expenses from your rental home when it is not in use. However, in order to do so you cannot use it as a personal home for more than fourteen days in a year or have rented it for 10% of the days to others for fair rental price.