Monthly Archives: October 2016
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