The month of November is approaching, which means that there is about 2 months left to write the story of your 2016 income tax return. These moves may not apply to everyone, but it is good to have knowledge of them.
1) Plan Your Itemized Deductions: Will a higher deduction amount benefit you more next year than this year? If you suspect your income may be substantially higher in 2016 vs. 2017, plan to push more deductions to the higher income year. You can do so by utilizing your charitable deductions, mortgage interest, and real estate taxes.
2) Fatten Up Your 401K Or Simple IRA: If you are not reaching the limit of contributions to your employer sponsored retirement plan, start accelerating deposits into it. This strategy will lower the amount of your taxable income for 2016. Of course, only do so if you do not need to utilize the extra take home pay.3) Convert Your IRA To A ROTH: Do you expect to move up tax brackets sometime in the near future? If you convert your traditional IRA to a ROTH IRA now, you will pay the tax at your current tax bracket instead of your higher tax rate in the future.
4) Sell Stock: First of all, you should never base your investment strategies around tax. However, if you were planning on selling a stock sometime soon, now may be the time to do so. You can sell a stock at a loss to offset some of your income, or sell a stock at a gain if you believe you will be jumping to a higher tax bracket in the future. Consult with your financial adviser and tax adviser before doing so.
5) Avoid Penalties: The IRS and State penalize you if you do not pay in enough tax throughout the year. “Enough tax” means that you need to pay in at least 100% of what your 2015 tax liability was or 90% of your 2016 tax liability. To avoid penalty, you can catch up by making an estimated payment or changing your W-4 withholding.
6) Protect your 2016 Tax Refund: The IRS has announced that 2016 refunds will be delayed. If you don’t want to wait for your refund, take some of it now. If you believe you have a refund coming, adjust your W-4 to receive more take home pay and pay less tax for November and December.
7) Review Your Financial Statement: This is for the business owners out there. Check what your financial statement says for the year thus far. Are you going to be showing a large profit? If so, think about making purchases for supplies or equipment that you may need in the near future. Reduce the amount of tax you pay now by purchasing things you will need later.
As mentioned earlier, not all of these apply to every taxpayer. If you are curious to see if one of these strategies may help you, please consult with your tax adviser before making the move.
Winter is coming, make some tax moves.
Nicholas Hammernik, EA
Hammernik and Associates helps individuals in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa, West Allis, and Southeastern Wisconsin with tax preparation and tax planning. Hammernik and Associates helps small businesses in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa, West Allis and Southeastern Wisconsin with accounting, payroll, business coaching, and QuickBooks.
This past Tuesday night, I had the opportunity to help Milwaukee entrepreneurs compile their business plans. I occasionally volunteer my time with the Wisconsin Women’s Business Initiative Corporation. WWBIC is a great organization with this mission:
WWBIC is a leading innovative statewide economic development corporation “Putting Dreams to Work.” We focus on individuals who face barriers in accessing traditional financing or resources in pursuit of their dreams and economic well-being. We provide targeted individuals interested in starting, strengthening or expanding businesses with access to vital resources and tools such as quality financial and business education and responsible financial products. We improve the economic well-being of targeted low income individuals by building assets and advancing economic self-sufficiency. We particularly focus on women, people of color, and low-income individuals, providing direct lending and access to fair and responsible capital, quality business education, one-on-one technical business assistance and education to increase financial capability.
The students of WWBIC are put through classes which teach them all aspects of starting and maintaining a business plan. My duty is to review their business plans with them and inform them of important aspects of tax and accounting that they should know.
This past session, I met with an aspiring gym owner, in-home care specialist, beauty salon owner, record label owner, and clothing line designer. It is great to see individuals with a vision and goals to become their own boss and do what they love to do.
Here were the main questions that were asked by these entrepreneurs, and the topics I really tried to emphasize to them:
- The difference between being a sole proprietor, corporation, and partnership.
- How to decide if people that do work for me should be employees on payroll or should be subcontractors.
- The importance of having a profit margin that is sustainable.
- What kind of taxes am I subject to as a business owner and when should they be paid.
- Keeping track of business related mileage.
- How to improve cash flow.
- Projecting profit and loss for 3 years. What kind of goals do you have in mind.
- How to file a tax return as a sole proprietor.
WWBIC really pushes their students to come up with a complete game plan to prepare for the world of being self employed. It is a tough task for an entrepreneur to handle all the aspects of owning a business. That is where Hammernik & Associates comes in to help. Our main focus when dealing with business owners is to relieve the stress of dealing with the financial aspects of their business. By giving a business owner peace of mind that their financial paperwork is being taken care of, it allows them to do what they do best…produce sales.
We work with businesses of all sizes and business owners with different needs. We have packages available for the business owner that wants all hands on deck, and also packages for the owner that just needs some occasional advice.
I encourage any aspiring entrepreneur to contact us so that we can get you off to the right start in reaching your goals. I also encourage any business owner that is stuck in neutral to contact us so that we can analyze how we can develop a strategy to get you back over the hump. If you need accounting help in Milwaukee, Waukesha, and everywhere in between, we have been helping business owners for 30+ years.
My Dad, Dale, has written a book which should be a hand book for every small business owner in Wisconsin. It covers all the aspects of running your own business and is a good resource whenever a question may arise. That book, Straight Talk About Small Business Success In Wisconsin, can be purchased on Amazon or contact our office if interested.
Any time you volunteer, you get that feeling that you are helping out someone that needs your help. The truth is, we get that feeling of satisfaction every time that we help our clients out. As I mentioned, our services focus on providing our clients the free time to work on their business, make money, spend time with family and enjoy life to the fullest. We help Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa with small business tax preparation, small business accounting and small business tax planning.
I have been with WWBIC for about 2 years now and will continue working with them. If you are interested in using your skills to volunteer for them OR if you are an aspiring entrepreneur that needs some help, visit them at http://www.wwbic.com.
Dream big, entrepreneurs, dream big.
Nicholas Hammernik, EA
Last week, I blogged about a new IRS scam out there. Since that time, there was a major development in combating the IRS scams. A call center in India was raided by police and 70 workers were arrested for involvement in IRS phone scams. Check out the Forbes article here : Dozens Arrested In IRS Phone Scam
Now, let us proceed with this week’s topic: Buying A House!
The leaves are falling, the temperature is dropping, and the weekends are full of football…fall is here. I’ve always thought, especially in Wisconsin, that fall is one of the best time to buy a house. Locally, you want to get everything moved in/out before there is snow and ice on the ground. In fact, I moved into my house almost 2 years to the date. I did some research, and fall is indeed the best time to buy a home. October is the best month, and October 8th is the best date. (h/t Business Insider) Perfect timing for this blog post!
With all that being said, there are tax factors involved with buying a house.
If you are a first time homeowner, welcome to the life of itemized deductions. If you are not new to being a homeowner, you are probably been in a relationship with itemized deductions for awhile. The interest that you pay for on your mortgage and the real estate taxes that you pay on your house are two main components of your itemized deductions.
Tax Strategy To Maximize Deductions
When you close on your house, there is a lot of paperwork involved(and signatures). The closing statement is a very important component of the sale. It shows all of the expenses involved with the sale. In most cases, it will designate the real estate taxes to the buyer and the seller based on the time of the sale. For instance, if the house is sold 10/1/16, 75% of the 2016 real estate taxes will be allocated as an expense to the seller, and 25% to the buyer. When you go to pay your real estate taxes, you will be paying the full 2016 amount. However, keep in mind that you have already been reimbursed for the months you did not live there on your closing statement.
Wait until January 2017 to pay the real estate taxes. This is very important to remember. Often times mortgage companies will automatically pay your current year real estate taxes on 12/31 of that year. This tax strategy will not be able to be implemented if this happens. We have already implemented this tax strategy with clients this year. If you or someone you know bought a house this year, please have them call one of our consultants so that we can help them save hundreds of dollars in taxes. This is just one tax planning strategy that we use to help Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa with tax preparation.
P.S. Now that you have a new home, make sure you’ll stay there for awhile. When I say awhile I mean 2 years…that is the amount of time you need to spend in a principal residence to have the sale of your home excluded from being taxed.
Enjoy this fall weather this weekend!
Nicholas Hammernik, EA
Unfortunately, I feel like I have been alerting our clients of a new tax scam almost every month. Well, here I am again warning you of another IRS tax scam. In the past, we have informed you that the IRS will never call you, they will only contact you via “snail mail”. This was in response to the mass amount of fake phone calls that were being made threatening taxpayers.
It looks like they are now attacking taxpayers via e-mail. They are e-mailing out letters that look ever so similar to the actual letters the IRS sends out when they make changes to your tax returns. The main focus of the letter has to do with the Affordable Care Act, which is the health insurance tax involved with Obama Care. While the letters do look awfully similar to the real IRS letters, there are a few subtle differences. Check it out…Scam Letter
These fake notices are in the e-mail as an attachment. If you happen to receive a suspicious e-mail claiming to be from the IRS, DO NOT open the attachment and forward the e-mail to firstname.lastname@example.org and then delete the e-mail.
In today’s world, criminals will do anything to make a quick buck. They have been very successful in scaring taxpayers into giving them money. For some reason, the IRS and taxes tend to scare people. We are here to protect you from any fear that you may have and give you peace of mind that you are safe. The tactical creativity of the scammers keeps getting better, and I tend to think that sooner or later they will begin to use snail mail in some way.
It is important to remember that any time your receive correspondence, please bring it into our office. Not only will we be able to detect if it is legit or not, but we will also take care of corresponding with the IRS or State if it is a legit letter. Don’t forget to take advantage of our Tax Shield to protect yourself against having to deal with IRS or State letters. The Tax Shield will be a part of our tax packages that will be available this upcoming tax season.
If you have any questions in regards to this scam, or any other scam, please give us a call or e-mail.
Have a great weekend!
P.S. 2015 Tax Returns on extension are due in 2 weeks! Get your information in ASAP if you still need to file.
Nicholas Hammernik, EA
Milwaukee tax preparation, Waukesha tax preparation
School has been back in session for almost a month now. I’m sure all of the college students were glad to get some breathing room from their parents, and the parents of elementary school, middle school, and high school students were glad to get some breathing room from their kids!
Education does not come at a small price. We often get a lot of questions about what school expenses can and cannot be deducted. So, let’s take a look at some of the tax breaks that are available to salvage some of the money spent on educational expenses.
Private School Tuition And School Uniforms
The cost of private school tuition is not deductible on your federal tax return. However, the State of Wisconsin does allow for a subtraction to income as of 2014. The subtraction is limited to $4,000/child for grades K-8 and $10,000/child for grades 9-12. Unfortunately, even if school uniforms are required, the cost is not deductible.
Before/After School Care
For children under age 13, the cost of before or after school care may qualify for a tax credit. These costs would be treated in the same manner as day care expenses and would be categorized under the Child Care Credit.
College Tuition Credits/Deductions
There are three separate tax breaks for paying college tuition. The American Opportunity Credit is available for the first 4 years of post-secondary education at a qualified institution. The Lifetime Learning Credit can be used for tuition after the first 4 years of education, there is no limit on the amount of years this can be taken. The Tuition And Fees Deduction is an alternative to the Lifetime Learning Credit, and can be taken if it provides a better outcome than the credits. It is important to keep in mind that scholarships and grants reduce the tuition paid, and if the amount of scholarships and grants exceeds tuition, it is to be claimed as income. Qualified expenses may include required books and supplies for classes, but it does not include room and board.
Student Loan Interest
Once you make it through the college gauntlet, you have the daunting task of paying off your student loans. The amount of interest that is deductible is up to $2,500, however, this amount may phase out based on income level.
One way to help pay for college is to start a 529 Plan early. This is a mutual fund account that grows like an IRA. However, the earnings on this account are tax-free as long as the money is used in the future for eligible college expenses.
What About The Educators?
If you are a teacher, you are eligible to deduct up to $250 of expenses for classroom supplies. Any out of pocket expenses that you accrue, make sure to keep those receipts for tax time. As of 2015, the State Of Wisconsin also adopted this deduction for State tax return purposes.
As I mentioned before, education is not cheap. It is important to be aware of possible tax benefits from all of the money that you spend on your children’s education. Hopefully this list provides some clarity for all the parents out there, and as always if you have any questions, please give us a call! These deductions are just part of how we help people in Milwaukee, Waukesha, New Berlin, Brookfield, Wauwatosa with tax preparation.
Here’s to a successful school year for all of the students out there, and some relaxation for the parents!
Until next time,
Nicholas Hammernik, EA
The financial mishaps of wealthy celebrities always intrigues me. How can someone with millions of dollars end up in debt? This is exactly what happened to the famed rapper Nelly. I myself am a big Nelly fan and grew up listening to a lot of his hit songs. If you are reading this and have no clue who this Nelly character is, ask your child or grandchild and they can fill you in. I actually recently attended a Nelly concert at Summerfest, and while it was obvious his talent was diminishing, I had no clue his bankroll was also on the down slide.
The IRS ‘Grillz’ Nelly With A $2.40 Million Tax Lien
Yes, you read that right, he owes the IRS a whopping $2.40 million. I would be willing to bet that he had no idea he was behind in tax payments. Many times celebrities entrust their financial people to handle all financial matters for them and to make sure everything is paid for. Well, Nelly’s tax guy wasn’t keeping up with those estimated tax payments. The tax lien that the IRS imposed means that they are going to start taking his assets if he does not settle this debt. The IRS can impose a tax lien when they have tried to collect past due taxes, but have not received any response.
What To Do If You Receive A Tax Lien
Tax liens don’t only happen to celebrities that owe millions of dollars, it happens to many taxpayers across the country that owe amounts generally above $10,000. I’m sure you have heard radio or TV commercials from the national companies claiming they can settle IRS tax debt for pennies on the dollar. In most cases, this is a lie, and just a ploy for you to give their 1-800 number a call. Many of these companies have been reported for taking clients’ money and not completing the work they said they would do for them. We work with our clients throughout the whole process and provide an in-person meeting so that they know who they are working with the entire time. As Enrolled Agents, we are able to talk to the IRS on behalf of our clients and try to reach a settlement. To find out some ways that we help people out with tax debt, visit that section of our website http://hammernikassoc.com/irs-representation/tax-resolution/ .
So, What’s Next For Nelly?
Nelly fans across the world are trying to help their beloved rapper out by streaming his songs. Spotify reported that in the last week, his songs are up 200%. However, there will need to be a lot of songs streamed to make up that amount of debt. Songs will need to be streamed between 4-5 million times to accrue the $2.4 million, and that does not even account for the share allotted to his record label, producers, etc.
Regardless, Nelly better hire a good tax professional to represent him in negotiation with the IRS, or they are about to make it hot in herre for him.
If you, or somebody you know, needs help with IRS debt, please contact our office at 414-545-1890. We help people in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa with tax debt and liens.
The first step in getting back to solid tax standing is to stop the bleeding. We are here for you to set up a game plan to get rid of that tax debt once and for all.
Have a great weekend!
Nicholas Hammernik, EA
Does anybody actually go to the mall anymore? I can personally count on one hand the number of times I have been inside a mall in the last year. Many millennials, like myself, would much rather do our shopping in the comfort of our own homes. It isn’t only millennials, websites like Amazon.com and Ebay.com have seen their activity soar over the last decade. Online shopping is the new way to shop for many reasons. One of those reasons, that you may not even be aware of, is that in most cases you do not pay for sales tax on your purchases. Thus, online shopping is not only convenient, but it is also cheaper!
Well, Congress is well aware of this and the money that they are missing out on. The Census Bureau of the Department of Commerce estimated that in the 2nd quarter of 2016, there were e-commerce sales of $97.3 billion. For local purposes, let’s assume that this was all in the State of Wisconsin. At the general sales tax rate of 5%, this equates to $4.865 billion in uncollected sales tax.
Online retailers are not required to charge sales tax if they do not have a physical location that they sell from. Therefore, the sales are charged with what is called a use tax. The use tax puts the burden on the consumer to report the sales tax on their state tax return. If you ever wonder why your tax consultant may ask if you made any internet purchases for the year, this is why. Although consumers are supposed to report their internet purchases on their tax return, many do not.
Congress wants their money!
There have been attempts in the past by Congress to impose sales tax laws against the e-commerce businesses. Those efforts have failed, but they are not giving up. Judiciary Committee Chair Bob Goodlatte has taken it upon himself to take another swing at it. The big boys like Ebay and Amazon are keeping a close eye on his proposals as it would drastically effect their businesses.
His proposal states: “A state may impose a sales, use or similar tax on a seller, or impose on a seller an obligation to collect such a tax imposed on a purchaser, with respect to remote sale of a product or service only if — (1) The State is the origin State for the remote sales (where the company had the most employees during the previous calendar year); (2) The tax is applied using the origin State’s tax base applicable to non-remote sales; and (3) The State participates in the State tax clearinghouse.”
The online shopping world is great for consumers, and it is a retail giant that is only going to continue to grow. So keep on clicking those purchases from your computer, but be aware that your checkout bag price may be a tad higher in the future.
Until next time,
Nicholas Hammernik, EA
Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa tax preparation
Are you ready for the big news? Your tax return next year is going to be delayed. If you were planning on getting that refund quickly to pay for something…time to change your plans. The IRS has put in place a new law which requires them to hold refunds longer. The IRS is warning taxpayers that their refunds are going to be delayed several weeks more than the normal time. In the past, it usually took the IRS 2-3 weeks to process refunds. Therefore, this new law means that it is going to take at least a good month for you to receive your refund check.
What has caused this law to go into place?
- Earned Income Credit & Child Tax Credit : The IRS has had issues with people taking advantage of these credits and receiving refunds they should not be receiving. Therefore, they will be spending additional time reviewing these returns for accuracy. Thus, this will cause a log jam in tax returns being processed and delay the processing of all returns.
- Identity Theft : We all know how big of a pain in the butt Identity Theft has been, especially if you have been a victim. The IRS recognizes that it is a major problem and is taking extra steps to prevent it. They will be examining returns to look for anything that may look suspicious.
What to do if you do not want to wait for your refund…
Take your refund now…What do I mean by this? Use the remaining 4 months of the year to take larger paychecks instead of your refund. You can do this by adjusting your W-4 to lower your tax withholding. Hammernik & Associates specialized in W-4 tax planning and can help you avoid waiting for your refund later. There is a large population that loves getting that huge refund check every tax season, but how long is too long to wait for it?
We can help residents of Milwaukee, Waukesha, New Berlin, Brookfield, Wauwatosa with all of their tax preparation and tax planning needs.
Give Hammernik & Associates a call to avoid waiting for your refund next year and receiving more of that money now. After all, the Government is just taking longer to pay you back on that interest free loan you are giving them.
If you have any questions about this new law or if you want to take tax planning action, call 414-545-1890.
Until next time,
Nicholas Hammernik, EA
I was struggling to decide a topic to blog about this week, so I took to Twitter to help me out. After all, Twitter is the best way to see what everyone is currently talking about in the world. You can follow us on Twitter at @HammernikTax. I did a simple search for the word “tax” on Twitter. Here are the main topics currently being discussed involving the word tax.
Donald Trump’s Tax Return
This is not a political blog, so I will not be discussing politics, however, this is relevant to our industry. The main topic of discussion revolves around Donald Trump not yet releasing his tax return. It seems like everywhere you go, your tax return is wanted to evaluate your current financial situation. Examples of this include: buying a car, buying a house…and running for president.
However, a tax return may not always tell the whole story. Our job as tax consultants is to devise strategic plans for our clients to reduce the amount of income they are showing on their tax returns. For instance, we may suggest a client defers more money to their 401K to reduce their taxable income. The tax return will now show that they are making less money, when in reality, they are making the same amount but are “hiding” some of it. So while it seems that we are often judged on the numbers on our tax returns, the tax return is just a sneak peek into the whole story. On that note, you have a little over 3 months left to do your own tax planning to create your own story. That is where the strategic plans on our part come into play. If you think you need to move some things around before the year is over, contact our office ASAP.
Are Contributions To Political Campaigns Tax Deductible?
(Don’t mind the Cubs Profile Picture)
What do you know, Twitter is all about politics right now. The simple answer to this…NO. While you are free to donate your money to a political movement that you believe in, it will not benefit you on your tax return. In order to be tax deductible, contributions must be made to a qualified charitable organization. If you are unsure if the organization qualifies, ask them, or use this IRS Tool.
Federal Student Tax Scam
The Internal Revenue Service issued a warning to taxpayers about bogus phone calls from IRS impersonators demanding payment for a non-existent tax, the “Federal Student Tax.”
Even though the tax deadline has come and gone, scammers continue to use varied strategies to trick people, in this case students. In this newest twist, they try to convince people to wire money immediately to the scammer. If the victim does not fall quickly enough for this fake “federal student tax”, the scammer threatens to report the student to the police.
“These scams and schemes continue to evolve nationwide, and now they’re trying to trick students,” said IRS Commissioner John Koskinen. “Taxpayers should remain vigilant and not fall prey to these aggressive calls demanding immediate payment of a tax supposedly owed.”
This is just another tactic being used by scammers. We have probably all heard of or received of these phone calls, this is just a different target towards college students. REMEMBER: The IRS will never call or e-mail you.
Complaints About Olympic Athletes Taxed On Medals
As I mentioned in an earlier post, Olympic athletes are taxed on both their winnings AND the value of the medal that they receive. There is much banter on Twitter from people complaining that the IRS needs to change this rule. However, it is important to remember that the IRS does not make the tax law….Congress does!
By the way Ryan Lochte & Co. will not be able to deduct their legal expenses for their debacle against their earnings 🙂
Twitter is the first place I go to for updated news. It has become the first source that reporters go to…it is instant news. I enjoyed seeing what people were talking about regarding the word “tax”, I think I may have to do this more often!
Until next time,
Nicholas Hammernik, EA
Earlier in the week, our Facebook account posted a really interesting article from Forbes about the Olympics and taxation. You can view that article here: Facebook Article . By the way, if you are not already following us on Facebook, please give us a “like”!
The article references how Olympic athletes are taxed and how it depends on if they treat their participation as a business or as a hobby. The IRS has strict rules to distinguish what is a hobby and what is a business. They regularly monitor Schedule C’s that are submitted to verify that they are indeed a business activity.
So, What Does The IRS Consider A Hobby Vs. A Business?
Per the IRS tax code, here are some things to consider when determining if you are participating in a business or a hobby:
Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
As a rule of thumb, the IRS considers an activity is being carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
What Is The Difference In Taxation Between A Business And A Hobby?
If you determine that your activity is a business, then you will report all of your income and expenses involved on the Schedule C. On the other hand, if your activity is considered a hobby, you will report your income as “Other Income” and your expenses will only be deductible along with your other itemized deductions on the Schedule A.
Business vs. Hobby is a section of the tax code that the IRS audits frequently, and for good reason. Incorrect deductions of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.
We help business owners in Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa with business tax return preparation and tax planning.
If you are currently doing any side projects, or are considering starting one up, please contact your tax guy at Hammernik & Associates to determine if it is a business or a hobby. Your tax planning strategy may depend on it!
Until next time,
Nicholas Hammernik, EA