Month: October 2013

  • How Do Property Taxes on Second Homes Work?

    The deadline to appeal property taxes is September in many areas. With the decline in property values, it may be worth appealing your property tax value to make sure you are paying the correct property tax amount. You may be able to save money. Josh Ritchie gives us details on how frequency of use of second properties may impact how you report property taxes.

    When we think about vacation homes, taxes are rarely the issue that commands our attention. Yet while the beach out back or the stellar restaurant down the street might be more exciting to think about, taxes are a huge consideration in their own right. Failure to properly plan and budget for property taxes could transform your dream vacation home (or timeshare) from an uplifting getaway into a financial nightmare.

    Here, we explore how the details of your vacation home situation affect your property tax obligations and preparation strategies.

    How Frequency of Use Affects Property Taxes

    Contrary to some assumptions, the government does not simply apply a blanket tax obligation to all vacation home owners. Rather, they consider how frequently the home is occupied, and whether the primary occupants are you (the owner) or tenants that you rent to.

    SmartMoney helpfully divides vacation home ownership (for tax purposes) into three categories:

    Use a lot, rent a lot
    Rent a lot, use a little
    Use a lot, rent a little

    Each category is summarized and explored in more detail below.

    If you use your vacation home a lot, and also rent it a lot…
    Your vacation home is considered a personal residence. As SmartMoney explains, this is potentially beneficial for you:

    Specifically, this applies to homes that are rented more than 14 days a year and have personal use of more than 14 days or 10% of the rental days, whichever is greater. Personal use includes use by family members and anyone else who pays less than market rental rates. Vacation homes fitting this description are considered personal residences.

    “This helps you, because Uncle Sam lets you deduct interest on up to $1 million of mortgage debt (and up to an additional $100,000 for home equity loans). Property taxes are generally deductible, no matter how many homes you own. Those fortunate enough to own more than two homes can pick the two with the most mortgage interest each year which is usually the main residence and the vacation home with the biggest loan.”

    The main thing to keep in mind is that you must deduct the expenses from your own use of the house and the expenses incurred while renting separately.

    EXAMPLE SCENARIO:

    To use SmartMoney’s example, we will assume your vacation home is rented for three months, used by your family for two, and vacant for the other seven. Vacant time, it should be clarified, is considered personal use for tax reasons. Thus, you would deduct three months worth (25%) of the interest and taxes from rental income, and nine months (75%) from your itemized deductions on Schedule A of your tax return.

    Keep in mind that this category applies to “homes that are rented more than 14 days a year and have personal use of more than 14 days or 10% of the rental days, whichever is greater.”

    If you rent your vacation home a lot, but only use it yourself a little…

    You are treated differently for tax purposes. Specifically, the rule is that your vacation home will fall under the category of “rental properties rather than for personal residences if you rent more than 14 days a year and if your personal use doesn’t exceed 14 days or 10% of the rental days, whichever is greater.”

    This scenario varies considerably from the first category. For one thing, since your home is a rental property, rather than a personal residence, you cannot deduct the interest expenses incurred during your own use. But there are benefits as well. If you incur rental losses, you can write these off as a taxable loss as long as you “actively participate” in the property by making day-to-day management decisions and meet personal income limits.

    If you use your vacation home a lot, but only rent it out a little…
    By far the simplest and most beneficial category, this applies to homes “that are rented for fewer than 15 days a year and used by the owner for more than 14 days.” If this describes you, then your vacation home is actually a personal residence for tax purposes. As such, you can deduct the interest and property taxes as itemized deductions, in the same manner you do for your actual home.

  • Tax Tips for Extension Filers

    Autumn is upon us, and if you chose to file a tax extension this year, October 15 is your target date…your zero hour…your deadline. Your six-month grace period is coming to an end.
    If it feels as though the past few months have flown by, don’t fret, there is still time to submit your tax return without incurring any additional penalties or interest. We’ve compiled a short list of last-minute tax tips for you extension filers needing to get your returns filed with the IRS by October 15th.

    Electronic vs. Paper
    It may come as a small surprise, but October 15th is the tax deadline for electronically filing your tax return. You are still eligible to file a paper tax return after October 15th, but you will incur those nasty interest charges and late penalties.
    The best decision you could make at this point is to go ahead and e-file your tax return by the 15th. By doing so you will remain within your six-month grace period. There’s no sense in giving the IRS a reason to take more than you owe.

    Double Check Personal Information
    This is it – your last chance to make sure everything contained within your tax return is true and accurate. There are no additional extensions after October 15th.
    Don’t panic, but don’t forget to review your personal information. Make sure your name, birthday, address, and social security information is correct. Also include all W-2s and 1099s, when entering your information.

    IRAs
    October 15th is also the final deadline to fund your SEP-IRA if you requested an automatic extension. If you’ve forgotten about this little deadline, you still have time to make some deposits. Just remember to update your tax paperwork after you’ve funded these accounts, because, although it’s 2013, you’re actually funding your accounts for the 2012 tax year.

    Preparing for the Future
    It’s easy to get stuck in a rut, especially when that rut is filing for a tax extension year after year. Let’s face it, when you file your taxes in October, the last thing you want to think about is preparing for next year’s taxes. But no matter how much you want to forget about taxes, April is always right around the corner.
    Let this be an encouragement for you to get organized this year. The middle of November is a great time to begin gathering your thoughts and your records for the upcoming tax season. And if you would like to save more on your 2013 taxes, use this time to make some year-end financial maneuvers to get yourself in a better position for next year.

    Blog taken from Turbotax

  • Don’t Forget About These

    Don’t Forget About These Miscellaneous Tax Deductions

    You filed for a tax extension, and bought yourself a bit of time to get your final tax return into the IRS. The clock’s been ticking and the October 15th tax deadline is approaching.

    Hopefully, you’ve spent this time gathering your documents: The W-2s, home mortgage interest, etc. You know, those “usual suspects” for the itemized deductions you’re permitted to take to get a bigger tax refund.
    Today, we’ll discuss job related tax deductions that you may not be thinking about.

    Un-reimbursed employee expenses – IRS regulations permit you to deduct such out of pocket expenses if they are ‘ordinary and necessary’ to your job function.
    “Ordinary” meaning that it’s a commonly accepted practice in your trade or business, and ‘necessary’ in the sense that it’s appropriate and helpful to your job. Bringing a client to a local baseball game might be an accepted form of client entertainment. Flying he and his wife to the Superbowl? Not likely to pass. Items that are commonly in this category include professional journal subscription costs, work-related classes, and licenses.

    Work clothes and uniforms – That beautiful suit you wear to the office? Sorry, not a deduction. The IRS is talking about a uniform, such as a police officer might wear to work, or the fireproof shirt, pants, and headgear a welder might use on the job.
    The common sense test should be used here. A costume, uniform, or protective gear required by your job are part of this allowable deduction. Nice clothes you wear to work are not deductible, even if your employer requests you wear a suit every day.

    Expenses for searching for a new job in your profession – Looking for a new job? You can deduct certain expenses, but only if you are looking for a job in the same field. Unfortunately, if you’d like to change occupations, no deduction is permitted. The allowed expenses include employment agency or headhunter fees, the cost of producing and mailing resumes to prospective employers, and travel/transportation expenses.

    @TURBOTAX

  • The Government Shutdown and Your Taxes

    The Government Shutdown and Your Taxes IRS Update:

    The government shutdown that took place on October 1 left everyone with questions about how the shutdown will impact them.
    If you are one of the taxpayers that filed an extension, you may be wondering if the shutdown impacts filing your taxes.
    Don’t worry. We have you covered and have answers to your burning questions:

    Should I still file my extended tax return in light of the shutdown?
    Yes, you still need to file your tax return by the October 15th extended deadline. E-filing your return is the fastest way to have your tax return processed. Returns filed by mail will not be processed until after the shutdown is over. Acknowledgements will be issued by the IRS for e-filed accepted tax returns.

    You said paper filed returns will not be processed, but I have to mail mine. Will it be considered timely filed?
    Yes, although paper tax returns will not be processed until after the shut down is over, the postal service will still post mark your paper filed return. Any tax return postmarked by the due date will be considered filed on time by the IRS.

    Will the IRS shutdown exclude me from late filing penalties if I don’t file by October 15?
    No, the IRS still requires that you file your tax return by the extended deadline.

    I owe money on my 2012 taxes, what should I do?
    You should submit the balance owed electronically when you e-file your taxes. Payments received will still be posted to your account.
    If you have a previous balance due, you should submit the payment as you normally do.

    Will the government shutdown affect my tax refund?
    If you e-file your tax return, the IRS will still process your tax return as it normally would. If you are due a tax refund, it will be issued when the shutdown is over.

    Can I still check the status of my tax refund?
    If your tax return was processed before the shutdown, you can use “IRS Where’s My Refund?” to check the status of your tax refund. If you e-filed your tax return after the shutdown your e-filed tax return will be processed, however you will not be able to check the status of your refund until after the shutdown is over.

    Article by Turbo Tax Lisa Lewis
    @TURBOTAX