AccuPay Systems

Author: Felix Mwania

  • Why paying off your mortgage faster isn’t always the best move

    Why paying off your mortgage faster isn’t always the best move

    This article will look at the idea of why paying off your mortgage faster isn’t always the best move through the lens of ‘Opportunity Cost.’ Before leaning into paying down any debt as aggressively as possible, it’s worth stepping back and examining the ‘big-picture’ situation.

    The advice to get out, and stay out of debt is given by hundreds of advisers and thousands of articles online. The advice isn’t ‘wrong’, but it might be incomplete. Financial life is like real life – it’s complicated.

    Opportunity cost is an expression from economics. It means the “cost” of a decision is the next best option.

    Being fixated on using your incoming cash flow to paying down a mortgage can blind you to other things you could be using that money for. Paying off your mortgage faster can be psychologically pleasing, but it can come at the expense of other moves that are a bit more financially savvy.

    Bad debt

    The obvious example is Bad Debt. Mortgages tend to be regarded as good debt because often the value of your home increases over the long term. Setting aside market corrections and economic slumps, over all the trend in vast sections of the country’s real estate prices are upwards over a long time horizon. You spent money on something that increases in value.

    Bad debt means spending money on things that decrease in value.

    There’s also a good chance you’re paying higher interest too.

    It’s a given you should pay down credit card debt before looking at anything else. For any of your other debts, they can be prioritized in order of highest interest to lowest interest rate. This is better strategy than simply paying off your mortgage faster to increasing your overall cash flow and long term net worth.

    Investing

    While looking at interest rates of various forms of debt, one might forget that when mortgage interest rates are low, the chances of finding investment options with a good yield are higher.

    If the average return is larger than the mortgage rate, every dollar you invest gives you a net-positive result over simply throwing it on the mortgage. Add to that, their are tax benefits of using an IRA to invest that dollar.

    You’d be losing money by paying off your mortgage faster.

    Granted, results in investing are not guaranteed. But remember we’re talking about long time horizons here. With the increasing popularity in index fund investing and robo investors, it’s not that far fetched to be able select a portfolio that over time will work in your favor and that will require very little work on your part to maintain.

    Emergency fund/insurance

    Imagine a scenario where a person is so adamant about paying down their mortgage that they’re left with minimal cash housed in the bank. Then a week later that person loses their job and is unemployed for an indefinite period of time. Was paying off your mortgage faster yesterday worth the jeopardy your mortgage is in today?

    The emergency fund is called that because predictable things happen at unpredictable times.

    Cars break down, jobs get lost, children need braces, or any number of other unexpected expenses. It’s insurance against those things happening at a time when you are financially at your weakest. The suggestion of three-to-five months savings is a guideline. Maybe you’ll need less, maybe more.

    Insurance – particularly health insurance – becomes more important as we move through life.

    Unexpected medical expenses build up enormously fast. “Not getting sick” isn’t a plan, nor is “Don’t let the house burn down.” A responsible person needs to look at potential risks and mitigate them as much as possible. Don’t take risks with your health or your property just because you don’t like owing the bank money.

    Retirement planning

    Connected to the above point of investing, your retirement planning should be considered. If you neglect your retirement accounts, you may end up having to get a reverse mortgage to fund your retirement anyways.

    Interested to learn a little about Individual Retirement Accounts (IRA)? Here are five reasons to contribute to an IRA today.

    If your employer has a 401(k) matching plan, you should be taking full advantage of that – otherwise it’s money left on the table. Both the traditional and the Roth IRA have tax advantages to consider.

    To expand on the above example, if you found an investment with higher returns than your mortgage’s interest rate, purchasing that investment through a Roth IRA would allow those earning to grow tax free. Improving the compounding effect further.

    You’ll lose tax benefits

    The IRS allows you deduct interest paid on home equity up to $100,000 for married couples filing together and $50,000 for married couples filing separately. Paying off your mortgage faster means you pay down the principle faster and ergo have less interest expense you can deduct at tax season.

    Granted, the tax deduction most likely won’t outstrip the amount you would save on interest.

    Because of the ways mortgages are structured, you pay more interest at the beginning of the loan and progressively less every month. Ergo the tax benefit helps you more at the beginning of the loan than it does down the road.

    However, this should be taken into consideration of the bigger picture plan. Getting a bigger tax return for a few years can be used in tandem with other strategies to maximize your net worth in the long run. It depends on your income / federal tax bracket, as well as individual state income tax. Check with your accountant on this one.

    Conclusion

    Sacrificing things like vacations or eating out is a personal choice. Being aggressively frugal does have it’s drawbacks along with it’s advantages.

    But it’s worth looking at things through the lens of what you want the end result to be, and what tools you have to get you there. Examining the whole picture through the lens of ‘Opportunity Cost’, you might find yourself changing your mind about the efficacy of paying off your mortgage faster at the expense of the other places you could be utilizing your money.

  • How to choose health insurance plans

    How to choose health insurance plans

    For American’s not covered by their employer, there are two main challenges when trying to figure out how to choose health insurance plans. The first is navigating the available options. The second is affordability.

    An insurance policy is a way to smooth out the costs of minor and major hardships. It brings Health Care coverage within reach of individuals. Individuals that would largely be unable to access it otherwise. Here are some of the key things to know when choosing health insurance on the healthcare exchange.

    Navigating the available options

    There’s a handful of acronyms that cause the most confusion. These are the types of insurance plans available. It’s worth running through these a few times – it’s the first step in choosing health insurance.

    EPO, or ‘Exclusive Provider Organization.’ This is a plan that covers your visits to doctors or hospitals within their network (with exceptions for emergencies). You won’t need a referral to see a specialist.

    HDHP or ‘High Deductible Health Plan.’ This plan is built around having lower priced premiums than the other plans. These require a higher deductible payment when you do incur health expenses. Meaning that over the course of the year, you’ll have to pay more before the plan kicks in to cover the balance.

    HMO or ‘Health Maintenance Organization.’ Like the EPO your plan covers visits to doctors or hospitals within their network (with exceptions for emergencies). You’ll usually be required to choose a primary care physician and any referrals to specialists will come through them. People tend to go this route because premiums can end up being lower.

    POS or ‘Point of Service.’ Works very similar to an HMO. You’ll likely need to select a primary care physician to coordinate your care. You visit professionals/hospitals in the network, but if you’re willing to spend a little more, you can receive health care outside the network, should that be something you need or desire to do.

    PPO or ‘Preferred Provider Organization.’ The premiums are likely a bit higher than HMO’s, but you do not need to select a primary care physician, nor do you need referrals to see a specialist. You save money by selecting care professionals in the network, but you can visit professionals outside the network (with some extra expense). The extra cost equates to more flexibility.

    A note on taxes

    Using a HDHP can make you eligible for a Health Savings Account (HSA). Meaning you can choose health insurance with a Tax incentive. Funds you contribute to your account can be deducted on your tax return. The funds roll over year over year and can be withdrawn tax-free to pay for qualified medical expenses. I.E. to cover the deductible in the year the health expenses are incurred, incentivising people to set aside savings for future health expenses.

    For 2017 the IRS will allow you to contribute up to $3,400 for yourself or $6,750 for your family.

    Navigating affordability: premiums v.s. deductible

    Like most places you spend your money, the more you spend the more you get – in this case, more coverage. But at the same time, you will need to think about the balance between how much coverage you think you will need and what’s within your financial reach.

    The first level to consider is the trade-off between the premiums and the deductible. This first level of costs will need to be considered for any of the above mentioned plans.

    Think of the premium as a monthly membership fee. It will smooth your potential healthcare costs out over the course of a year and will need to be paid to keep the policy in good standing.

    Think of the deductible as the fee you will pay if and when you actually need to use healthcare services. If your healthcare costs go higher than the yearly deductible, that’s when the insurance company steps in to start covering the costs.

    There’s a whole lot of information the insurance provider considers behind the scenes to come up with these numbers, but you can generalize and say there’s an inverse relationship between the two. The lower the cost of the monthly premium, the higher the cost of the yearly deductible. The higher the premium, the lower the deductible.

    Navigating affordability: Levels of coverage and the metallic tiers.

    Now it’s true that there is an inverse relationship between premiums and deductible. It’s also true that the higher the level of coverage, the higher your premiums to be. This is the second factor to consider when thinking about your monthly bills versus your (potential) yearly healthcare costs.

    Insurance companies group plans into metallic colored tiers. There are four basic options, all plans fall into one of these buckets.

    So you pay your monthly premium (which you select upfront). Then as you need services, you pay out of pocket until you reach your yearly deductible (which you also select upfront). After that, the insurance company steps in to start covering costs.

    The tier you selected determines how much of those costs you will pay (called an insurance copayment) and how much the insurance company will cover.

    Bronze

    Silver

    Gold

    Platinum

    You Pay

    40%

    30%

    20%

    10 %

    Insurance Pays

    60%

    70%

    I80%

    90%

    There is a limit to your out of pocket costs. If your costs go high enough, the insurance company will then step in to cover 100% of the yearly costs up to the limit of the policy. The higher the tier, the higher the premium you can expect to pay for your plan.

    How to choose health insurance plan that’s right for you

    It’s ideal to choose health insurance based on your health care needs. You don’t necessarily know what your costs will be in the future, but you can start by looking at your current and past situation.

    On the one hand, if you anticipate using health care more, it will likely make more sense financially to pay higher premiums and select a higher coverage tier.

    If on the other hand you’re relatively young and healthy and don’t anticipate using health care beyond emergency situations, it will likely make more sense financially to purchase lower premium plans.

    Of course there are other things to consider. Do you want to keep your current doctor? That may dictate which plan you select.

    There’s a component of financial planning as well. If you’ve got better savings habits, looking at HSA options may be a smart move for those who don’t anticipate using using health care much in the near future, but want to plan for potentially needing more down the road and want to take advantage of the benefit to their income taxes.

    Consider everything. All the different health care professionals / prescriptions you’ve needed in your past. What do your income / savings habits look like now, and what will they look like in the future? What about your dependents (if any)?

    Other factors to consider to help you choose health insurance plan that’s right for you

    There is such a thing as a “Catastrophic policy.” For those under the age of 30 (or those with a hardship exemption) you can opt for a plan with very low premiums and very high deductibles that will cover you in the case of an emergency. Just about everything else will need to be paid out of pocket.

    It’s also worth pointing out that you can potentially be covered under your parent’s plan until age 26.

    There is a premium tax credit for those with very low incomes. Individuals earning 100% to 400% the Federal Poverty Line. Check Healthcare.gov to see if you qualify.

    You’ll need to be aware of both the dates enrollment for the following year will begin. Usually early November as well as the deadline to secure your coverage for first calendar day of the following year – usually mid December. Healthcare.gov can help you navigate these dates, as well as navigating the appropriate healthcare exchange (marketplace) depending on where you live.

    Remember to document your coverage for when you file your taxes — and remember, if you’re not exempt and you chose not to get covered, there’s a fine to pay come tax time.

    If you enjoyed this article you might also like to read Work-life balance. Check it out and leave some comments below.

  • 4 innovative ways to stay visible to your clients year-round

    4 innovative ways to stay visible to your clients year-round

    4 innovative ways to stay visible to your clients year-round

    Are you looking for innovative ways to stay visible to your clients year round but aren’t sure where to start? If so, you may want to take a peek at this article for tips and tricks on how to keep your business relevant all year, even if you only provide a seasonal service.  Keep your customers coming back and your company thriving by following some of these recommendations. 

    Whether you regularly offer a product or service or your company specalizes in a seasonal service, it’s imperative that you find ways to stay visible to your clients year round. 

    Of course, your first aim should always be to let the quality of your work speak for itself. But that’s not always enough to keep customers coming back. 

    So, how do you keep your product or service in the back of a customer’s mind continually? 

    Here’s a look at 4 innovative ways to stay visible to your clients year round. 

    1. Develop relationships that go beyond work

    We all love people who come off as personable. Those types of individuals tend to stick out in our minds. We enjoy the company of those that show a genuine interest in us. 

    So, work on getting to know your clients beyond the scope of your work. 

    The next time you conference call or meet, start by asking your client about their family, their personal interests, etc. and use that information to your advantage. 

    You can call customers up every once in a while just to check on them or invite them out to lunch just to catch up. 

    2. Show interest in THEIR  work

    One of the best ways to stay visible to your clients year round is to show an authentic interest in the work they do. 

    If they have a business that offers a product or service you could really benefit from, become one of their clients. 

    If not, offer to help them by sending quality leads their way or introducing them to your social network of other professionals that can grow their business. We generally never forget the people that go out of their way to help us, and that impact can become a reoccurring customer. 

    3. Take the “Thank You” Card one step further

    A big mistake that a lot of businesses make is overlooking just how meaningful a personal gesture can be. 

    If you’ve recently completed work for a client, especially right after tax season, think about sending them a good old-fashioned thank you card with a personal message on the inside.

    You can even take the card one step further by sending out a small, personalized gift to show your appreciation for their business. If they mentioned that they like a particular kind of muffin, for example, send them a small basket of those muffins. 

    These types of gestures really go a long way to remind others about the value your business can bring. 

    4. Stay connected

    If you’re really curious about the ways to stay visible to your clients year round, one of the things you want to master is finding innovate methods to engage your clients. 

    Here are a few ideas you can implement: 

    • Start a weekly or monthly newsletter 
    • Implement a client survey after the completion of each project; respond, and adjust, to negative feedback 
    • Interact with customers and other businesses on social media

    While any business can benefit from this sort of strategy, businesses that rely on mostly seasonal clientele (like CPA firms that specialize in tax filing) can find this process especially rewarding. 

  • Violence in the workplace: How to prepare for it

    Violence in the workplace: How to prepare for it

    Violence in the workplace: How to prepare for it

    Violence in the workplace is a sobering reality. Despite the prevalence of an “It can’t happen to me,” or “That can’t happen here,” attitude, the truth is that workplace violence can happen anywhere and can be devastating for the employees and staff.

    Does your company have protocols for dealing with violence in the workplace and do you know what the plan is for handling disgruntled customers or coworkers? Are you prepared?

    Why should companies prepare for violence in the workplace?

    Statistics on violence in the workplace in the US

    • 2nd leading cause of on-the-job fatalities, behind automobile accidents.
    • Leading cause of death in the workplace for women.
    • 2 million American workers report being a victim of workplace violence every year.
    • Businesses are the most common location of active shooter attacks.
    • The FBI reports that 45.6% of active shooter incidents occur at a commercial areas with and without pedestrian traffic.
    • Costs the American workforce $36 Billion annually.

    What are the requirements to avoid violence in the workplace?

     OSHA requirements for business: A duty to protect

    If you fail to address the threat of an active shooter in the workplace, this can be considered a violation of the Occupational Safety and Health Act (OSHA) under the General Duty Clause (Section 5(a)1). 

    This requires employers to provide their employees a place of employment that is free from recognizable hazards that are causing or likely to cause death or serious harm. OSHA violations can lead to citations, fines, lawsuits and damage to institutional reputation.

    Recent court rulings throughout the country have allowed negligence suits filed by victims of Active Shooters to proceed against employers for failing to provide defensive training to their employees. In other words, companies can no longer avoid their corporate responsibility to provide training on both how to spot potential active shooters and on how to react if confronted.

    Learn some interesting basics on how often to pay your employees. Some basics are not that basic after all, and reading this article may give you some ideas you never thought about.

    Violence in the workplace checklist

    The following items serve merely as an example of what might be used or modified by employers to help identify potential violence in the workplace problems.

    This checklist helps identify present or potential violence in the workplace. Employers also may be aware of other serious hazards not listed here.

    Designate competent and responsible observers to readily make periodic inspections to identify and evaluate workplace security hazards and threats of violence in the workplace. Schedule these inspections to be conducted on a regular basis; when new, previously unidentified security hazards are recognized; when occupational deaths, injuries, or threats of injury occur; when a safety, health and security program is established; and whenever workplace security conditions warrant an inspection.

    Periodic inspections for security hazards include identifying and evaluating potential workplace security hazards and changes in employee work practices which may lead to compromising security.

    Please use the following checklist to identify and evaluate workplace security hazards to avoid violence in the workplace.

    TRUE notations indicate a potential risk for serious security hazards:

    • True or False: This industry frequently confronts violent behavior and assaults of staff.
    • True or False: Violence has occurred on the premises or in conducting business.
    • True or False: Customers, clients, or coworkers assault, threaten, yell, push, or verbally abuse employees or use racial or sexual remarks.
    • True or False: Employees are NOT required to report incidents or threats of violence, regardless of injury or severity, to employer.
    • True or False: Employees have NOT been trained by the employer to recognize and handle threatening, aggressive, or violent behavior.
    • True or False: Violence is accepted as “part of the job” by some managers, supervisors, and/or employees.
    • True or False: Access and freedom of movement within the workplace are NOT restricted to those persons who have a legitimate reason for being there.
    • True or False: The workplace security system is inadequate-i.e., door locks malfunction, windows are not secure, and there are no physical barriers or containment systems.
    • True or False: Employees or staff members have been assaulted, threatened, or verbally abused by clients and patients.
    • True or False: Medical and counseling services have NOT been offered to employees who have been assaulted.
    • True or False: Alarm systems such as panic alarm buttons, silent alarms, or personal electronic alarm systems are NOT being used for prompt security assistance.
    • True or False: There is no regular training provided on correct response to alarm sounding.
    • True or False: Alarm systems are NOT tested on a monthly basis to assure correct function.
    • True or False: Security guards are NOT employed at the workplace.
    • True or False: Closed circuit cameras and mirrors are NOT used to monitor dangerous areas.
    • True or False: Metal detectors are NOT available or NOT used in the facility.
    • True or False: Employees have NOT been trained to recognize and control hostile and escalating aggressive behaviors, and to manage assaultive behavior.
    • True or False: Employees CANNOT adjust work schedules to use the “Buddy system” for visits to clients in areas where they feel threatened.
    • True or False: Cellular phones or other communication devices are NOT made available to field staff to enable them to request aid.
    • True or False: Vehicles are NOT maintained on a regular basis to ensure reliability and safety.
    • True or False: Employees work where assistance is NOT quickly available.

    Conclusion

    Keeping violence in the workplace is not that hard if you can proactively work on mitigating it. As a business owner or manager, you should keep your employees well educated so they can be on the look out for signs and warnings. 

    When done collectively and proactively, violence in the workplace can be avoided or kept to a bare minimum. Safety in the workplace creates a conducive environment for productivity and morale and in turn longevity and loyalty by your most important assets – your employees.

    We partner with E-Comp for workers comp. Check out workers comp page to learn more about pay-as-you-go policies. We will help you for FREE.

  • 401k or IRA: Picking the plan for your company

    401k or IRA: Picking the plan for your company

    401k or IRA: Picking the plan for your company

    Selecting the right retirement plan for your company is tricky business. It’s more complex than just 401k or IRA, there are a lot of moving parts to be aware of and keep track of.

    Making the right choice is more than looking at the corporate tax deduction. The right plan helps draw in the right talent and push your company up to the next level. Happy employees are loyal employees. Selecting a 401k or IRA starts with some key decisions:

    • Who are the employees you are trying to benefit?
    • What benefits do you want for the employees?
    • What administration costs are you able to pay?

    In this article we are going to take a look at the SIMPLE IRA, the SIMPLE 401k, and Traditional 401k.

    SIMPLE Plans

    SIMPLE plans (Savings Incentive Match Plan for Employees) are built with companies with less than a 100 employees in mind. If your company has 2-100 employees who earn $5000 or more per year, there is an option for a SIMPLE 401k or IRA plan. As a rule of thumb, SIMPLE plans are less complex to administer and less cost intensive than their traditional counterparts.

    SIMPLE IRA

    A SIMPLE IRA plan is an Individual Retirement Arrangement that start-ups can set up for their employees. Employers and employees make contributions to the account. Companies using these plans are ones who don’t already have a plan and have less than 100 employees.

    Under this plan:

    • The employer contributes to an individual account setup for each eligible employee;
    • The employees defer a part of their salaries into the plan for retirement;
    • Each employee is immediately vests 100% in his or her SIMPLE IRA.

    The company is required to make contributions to the plan and can chose to:

    • Make a non-elective contribution of at least 2% of the employee’s compensation for all eligible employees earning at least $5,000; or
    • Make a 100% matching contribution up to the first 3% of the employee’s compensation.

    As is with all IRA’s loans are not allowed.

    SIMPLE 401k

    The SIMPLE 401k plan offers small business owners  a cost-effective way to offer retirement benefits to their employees.

    The main differences between this and a traditional 401k include:

    • The contribution limits are lower for a SIMPLE 401k plan than for a traditional 401k plan. At this time the limit is $11,500 per year.
    • Under this plan, the contributions made immediately vest. Which is a way of saying that employee’s that meet the requirements may withdraw the entire balance at any time.
    • The SIMPLE 401k is not subject to annual nondiscrimination testing and does allow for loans.

    To be eligible, companies cannot exceed 100 employees that receive $5000 or more in compensation for the previous fiscal year. Also, the company cannot maintain another retirement plan option for employees who are eligible to participate in the SIMPLE 401k plan.

    That being said, companies have the option of maintaining a second retirement plan that covers employees with a collective agreement if these employees are excluded from the SIMPLE 401k plan.

    Companies that use these plans like them because they are much simpler to administer. They don’t require much of the testing that Traditional 401k plans require and are less expensive for the company.

    Traditional 401k

    The main advantage of the Traditional 401k plan over the SIMPLE plan is more flexibility. With one of these plans:

    • Most plan providers offer different levels of plans. Or varying options available under a particular plan. As an example, an automatic enrollment option or various vesting schedules.
    • With a traditional 401k your employees can contribute up to an annual maximum as set by the Internal Revenue Service. At this time, that amount is $16,500 per year.
    • Employer contribution is optional. The company can contribute anywhere between 0% to 25% of the employee’s annual compensation into the account..

    You might also like this: Tips on how to talk about money with kids

    A traditional 401k plan is subject to reporting obligations and tests:

    • ADP Test: The Average Deferral Percentage test compares employee deferrals of highly compensated versus non-highly compensated employees.
    • ACP Test: The Average Contribution Percentage test compares employer matching contributions and employee after-tax contributions of highly compensated versus non highly compensated employees.
    • Top-Heavy Test: This test compares the overall benefits in the plan of key employees such as owners and officers to non-key employees.

    All of these tests will be performed annually. Failing a test may require additional contributions. Or possibly require ‘highly compensated employee’ distributions to bring the plan into compliance. Traditional 401k plans are compatible with Money Purchase or Profit Sharing Plans.

    To Conclude: 401k or IRA

    Selecting the 401k or IRA retirement plan that best fits the requirements of the company is not a choice that management should make lightly. The right plan can attract and retrain all-star employees. It also allows them to claim tax deductions for contributions from the calendar year in which they were made.

    SIMPLE 401k or IRA plans are attractive to small business owners because of they reduce administrative complexity and costs. However, these are not the only factors to weigh. It’s worth consulting with a tax or financial adviser when making the choice of which plan to adopt.

  • Household employer payroll: The ultimate guide for nanny tax and the household employer

    Household employer payroll: The ultimate guide for nanny tax and the household employer

    Household employer payroll: The ultimate guide for nanny tax and the household employer

    Nanny payroll is quite confusing and especially for the first time household employer.

    But why do we need to know about nanny payroll?

    We can all agree that finding time to balance our numerous responsibilities isn’t easy.

    Between work, shuffling kids to and from school , as well as all your other various commitments, getting through the day can feel like a  juggling act. 

    It’s difficult to find time to fit all those tasks in one day, which is why many people hire household help, commonly called nanny help.

    But did you know that being a domestic (or household) employer can actually make you subject to paying a Nanny Tax? Even if you pay the person in cash. 

    Even more importantly, carefully documenting your household employer payroll can make all the difference in the event of an audit or other mishap.

    So what exactly is this tax and how does it work? Keep reading to find out.

    What is the nanny payroll and nanny tax?

    If this is your first time hearing about the nanny payroll or even nanny tax, you are not alone. 

    However, there are a few reasons why it’s really important to know what this tax is. You also need to know how this tax affects Nanny Payroll.

    But first thing’s first: Nanny tax isn’t just applied to Nannies (I know, obvious, but stay with me).  

    While nannies and babysitters make up a portion of those affected by this tax, they are just a small chunk. 

    According to the IRS, other workers to which household employer rules apply, and hence nanny tax applies includes:

    • Housekeepers/cleaners
    • Cooks
    • Gardeners/ yard workers
    • Caretakers and Private Nurses
    • Drivers

    The list goes on–but essentially, if you hire a household employee you’re most likely subject to nanny tax, also called household employment tax. 

    But does this mean that you have to pay nanny taxes on every service that’s done in your home? 

    Nope.

    Only certain kinds of workers count. Knowing the distinction will help a lot.

    So, who is classified as a household employee?

    It doesn’t make a lot of sense to take taxes out of the wages of every service person who does in work in your house.

    If you did, you’d end up wasting a lot of time and accruing a ton of frustration.

    Which is why the IRS doesn’t require YOU to pay taxes on services provided to you by an independent contractor. 

    However, failure to account for the Nanny tax in the right circumstances can lead to serious charges like tax evasion.

    That’s why it’s important to  know what the distinction implies. 

    An independent contractor is someone who usually provides their own tools and determines how the job is done. 

    Differentiating between Contractors and Employees can be daunting. Read the complete guide in this blog post.

    On the other hand, a household employee is someone who YOU provide with the resources to do the job as well as the full instructions as how to get it done. 

    In-home baby sitter vs day care

    For example, imagine a baby sitter you hire to take care of your children while you’re at work. 

    Everyday, this babysitter comes to your home at the specific time you request, makes your children breakfast, takes them to school, brings them home from schools, etc. Besides that, the babysitter also takes the children to activities and after school functions upon your request. 

    This person would fall under the category of household employee. Reason? Because you are essentially providing all (or most) of the resources as well as instructions on how the job is to be done. 

    However, if you were to drop your kids off at a babysitters house or at a daycare before work, then this caretaker would fall under the category of independent contractor. 

    Why? 

    Because they provide all the resources for themselves and don’t rely on your instructions to get the job completed. 

    Additionally, Nanny taxes don’t apply to you if the household employee just so happens to be your spouse, child, or parent, or an individual under the age of 18.

    How to determine which taxes apply to nanny payroll

    So how does all of this affect nanny payroll? 

    Well, it’s an important determinate as to what taxes (if any) you’ll owe the IRS. In a lot of ways, nanny payroll is subject to same taxes as regular employers. The difference is being in the way the taxes are remitted to the government.

    If you plan to pay more than $1800.00 in household employer wages, you must withhold employment taxes. These are then reported in your Form 1040 Schedule H.

    Such nanny taxes include your specific state taxes plus the Federal taxes below.

    • Income tax (optional – discuss with your payroll professional)
    • Social Security
    • Medicare
    • Unemployment 

    The household employer does not have to make tax deposits and file Federal quarterly tax returns like regular employers. He could, nevertheless, make estimated tax payments under his social security number and take credit when filing form 1040.

    How to process nanny payroll and report nanny taxes

    At the end of the year, your payroll service provider should issue you with Schedule H. This form summarized the different taxes withheld. This Schedule H is then keyed in to your 1040 tax return.

    You don’t HAVE to withhold federal incomes taxes from wages if you don’t want to. Both you and your employee have the option to discuss this matter and reach an agreement. 

    The tax software therefore computes the tax liability as shown on your Schedule H and adds the tax liability to your regular 1040 ta liability. 

    Remember the household employer must match the employee’s Social Security (6.2%) and Medicare (1.45%). This applies to all wages paid to the employee subject to limits. The employer also pays FUTA (Federal Unemployment Tax) of 6.00% for the first $7,000.00.

    For Household employers, FUTA only applies if you paid $1,000.00 or more in wages.

    In addition, employees that make over $200,000 in a year must have a 0.9 percent Additional Medicare Tax withheld as well. 

    Conclusion

    While figuring out taxes is never easy, taxes associated with nanny payroll is especially difficult.

    It’s not as common a topic as filing a 1099 or itemizing deductions, so being uncertain is completely normal. 

    The thing to keep in mind is that these employment taxes are incredible critical, since not only can they affect you but also those that work for you.

    If you’re not sure, don’t be hesitant to seek help. Spending money on actual nanny payroll is guaranteed to save you a lot more money in the long run. 

    Getting these employment taxes done (and done right) can save you potential legal fees, fines, penalties and not to mention the hassle of an audit. 

    So take the time to discuss the matter with your employee as well as a tax professional. In the long run, it’s a step you won’t regret. 

  • Five Estate Planning Must Haves

    Five Estate Planning Must Haves

  • Retirement Plans: Best Alternatives to a 401(k)

    Retirement Plans: Best Alternatives to a 401(k)

    Retirement Plans: Best Alternatives to a 401(k)

    In most companies, the standard and most common of all retirement plans is the 401(k) Plan. But not every company, especially small companies, freelancers and self employed persons have access or the resources to offer a 401(k) plan.

    In fact, statistics show that 31% of the US households do not have access to retirement benefits through employment. Fortunately, there are some really good alternatives to 401(k) retirement plans that have the same or even better tax advantages.

    There are four alternative retirement plans that we think are ideal for entrepreneurs, freelancers or employees with no retirement benefits through their employment. For these alternatives to work, the participant must have earned income. So here are the alternatives:

    • Individual Retirement Account (Includes Traditional and Roth IRAs)
    • Simplified Employee Pension Plan (SEP IRA)
    • Self Employed 401(k)
    • Simple IRA

    IRA (Individual Retirement Account)

    This is the most common of all IRA retirement plans and chances are that you have heard of it in some capacity. An IRA has benefits such as tax breaks compounding. There are two types, namely: Traditional IRA and Roth IRA.

    Who is an IRA ideal for?

    Anyone with earned income or is the spouse of someone with earned income can open an IRA. This also includes those collecting alimony. The maximum contribution in 2016 is $5,500 and $6,500 for those that are over the age of 50. The contribution limit is adjusted annually to factor in inflation. However, the IRS imposes some limitations on both types of IRA contributions.

    How does an IRA work?

    A Traditional IRA allows you tax credit in the year of contribution. At higher incomes, benefits start to phase out. Therefore be sure to check out the limits. As a participant, you can withdrawal from your Traditional IRA without any penalties starting at age 59 ½. Any contributions that were not eligible for tax deduction are exempt from this rule. You CANNOT contribute to the traditional IRA after age 70 ½. Also, participants must begin receiving a minimum required distribution from the account at 70 ½.

    Since Roth IRAs are funded with after-tax dollars, contributions do not have any tax credit benefits but the earnings from this account are tax free. Distributions start tax free at age 59 ½. You may also withdraw from your Roth IRA account at any time without penalty.

    There is no limit on how long you can contribute to a Roth IRA as long as you have earned income. Roth IRA retirement plans do not have the mandatory age driven distributions requirements like many other retirement accounts.

    As a Roth IRAs participant you can benefit tremendously from the tax free earnings. If you start off at age 25 you can  have more than $700,000 by age 65. This is assuming an annual rate of return of only about 5%.

    Important notes about IRAs

    The deadline for contributing for the 2016 tax year is April 17th, 2017. You are allowed approximately 15 1/2 months to deposit your yearly contributions into your IRA retirement plan. Deadlines are not negotiable and tax extensions do not apply to your IRA contribution deadlines.

    Anyone withdrawing early is subject to a 10% penalty, but there are some situations where a waiver will be granted. Read more on these exceptions at www.irs.gov.

    SEP IRA Retirement Plan

    If you are a freelancer or you are self-employed you’re eligible to open in SEP IRA. This is also called Simplified Employee Pension plan. SEP IRA retirement plans provide tax benefits for those who have small businesses or earn their income through freelancing.

    Who is a SEP IRA ideal for?

    SEP IRA plans are best for small business employers, one-man-show businesses, freelancers and employees with side gigs. Therefore, C-corporations, S corporations, partnerships and sole proprietors are eligible to open a SEP IRA.

    How does a SEP IRA work?

    SEP IRA retirement plans are classified in the same category as traditional IRAs. Therefore tax deductions apply to contributions. Nevertheless, the big difference is that the SEP IRA has a significantly higher contribution limit. Your contribution limit is based on your income. The limit for 2016 is 25% of your pre-tax income (20% if self-employed) or $53,000, whichever is the lower.

    As an employer, you can set up accounts for eligible employees but you MUST contribute to the employees’ the same amount that you contribute to your own account. Employees are NOT eligible to make contributions to their SEP IRA retirement plans; only the employer may contribute.

    Your employer funded SEP IRA, even though classified as a Traditional IRA, does not impact your eligibility to contribute to a Traditional IRA or Roth IRA. Therefore you can open a Traditional or Roth IRA account.

    SEP IRA retirement plans are very easy to set up and maintain. There are no required annual filings and the contribution limits are quite high ($53,000 in 2016), hence making it a very attractive alternative retirement plan to a 401(k).

    Important notes about SEP IRAs

    This retirement plan does not provide for employee deferrals NOR catch up contributions. On the other hand employers may contribute up to $53,000 or 25% of employee wages, which is pretty generous.

    The tax deadline is also the deadline for setting up an account. April 17th, 2017 will be the 2016 deadline. You can get a contribution extension by filing for a tax return extension. Therefore the deadline will be the same for both.

    Self-employed 401(k) Retirement Plan

    This type of 401(k) is the equivalent of the regular 401(k) offered through the employer but specifically for the self employed individuals with NO employees. This type of 401(k) is also called a solo 401K.

    Who is a Solo 401(k) ideal for?

    A Solo 401(k) is strictly for the self employed. It has generous high contribution limits of $53,000 on the employer part plus $18,000 ($24,000 if age 50 or older) on the employee side.

    How does a Solo 401(k) work?

    This plan provides the self employed participant two opportunities to contribute: One as an employee and second as the employer.

    As an employee, just like with an IRA, you can contribute up to 100% of your total income up to $18,000 for the 2016 year. If 50 or older you are eligible to make catch up contributions of up to $6,000 (for 2016) for a total of up to $24,000.

    As an employer you can contribute up to 25% of your total earned income. Nevertheless, it is very important to note is that you must first deduct half of your self-employment tax and any contributions that you have made as an employee (in the preceding paragraph).

    Important notes about Solo 401(k) plans

    If your total contribution (plan assets) reaches $250,000, you must file an IRS Form 5500. The end of the fiscal year generally is the deadline, therefore, for 2016 the last day to contribute is December 30th which is the last business day of the year.

    Simple IRA Retirement Plan

    A Simple IRA is another retirement plan that allows small businesses (under 100 employees) and the self employed. It encourages employers to participate and consequently encourage their employees to save for retirement. Just like a 401(k), this plan offers pre-tax contributions and employer match to the employee contribution.

    Who is a Simple IRA ideal for?

    This type of account is for small businesses with less than 100 employees and self-employed individuals.

    How does a Simple IRA work?

    • In 2016 an employee may contribute 100% of salary for a total up to $12,500.
    • If you are an employer you may match the employees’ contributions up to 3% or 2% non-elective contribution.
    • Catch up contributions ($6,000 for 2016) are allowed for those age 50 and over

    You should be aware that even if a business does not make a profit, contributions to the Simple IRA plan may be enforced.

    Important notes about Simple IRA plans

    October 1st is the deadline to set up this type of retirement plan. Contribution deadline is the business’s tax filing deadline – including extension.

    Conclusion: Select your plan and start saving for retirement today.

    Saving for retirement is very easy, and especially because there are plenty of alternatives to 401(k). All it takes is the willingness to give it a try. With all these options your employees are bound to reward your company with loyalty and service.

    Once you’ve determined which retirement plan works best for you or your employees, it is important to start saving immediately. Start while you are younger so that you have plenty of time to accumulate savings. Contact us to help you select and set up your company’s retirement plans.

  • 7 Measures you should not use to cut payroll costs

    7 Measures you should not use to cut payroll costs

    Your employees depend on you just as much as you depend on them. They’re part of your team, and you never want to let them down. In fact, they’re a big part of the reason why your business is thriving. So, it can be really frustrating and incredibly heart-breaking when you have to make massive budget cuts that impact them. But even if you have to, there are measures you should not use to cut payroll costs.

    When money gets tight, you may feel like there’s no option than to cut operating costs wherever you can, which includes making significant changes to your payroll. However, there are some methods you should only be implementing as a last resort (if at all).

    Here are 7 Measures you should not use to cut payroll costs:

    1 – Wage and labor cuts

    Remember how I said your employees depend on you?

    Well, I meant it.

    There’s a reason why this option is number one on the list of 7 measures you should not use to cut payroll costs. It should be your last–and final–option. 

    Here’s why: 

    Employees carry your business, especially when it comes to customer service. In most cases, the people that work for you are the face of your company.

    Most likely (unless you know all your customers by name) they’re the first people that come to mind when your customers think of your business. 

    Naturally, cutting wages or even issuing layoffs will decrease employee morale. If this happens, their performance is likely to take a hit too. 

    The reason for this is simple. By cutting wages you cut a chunk of your employees’ livelihood. 

    This puts a lot more strain on them to work harder to make ends meet, such as by picking up a second job. 

    So instead of getting the 100% effort you used to get, your employees will be forced to give you only 50% of their best effort. 

    Additionally, if you make labor cuts, you put more pressure on the remaining employees take on the task of those who were laid off. 

    Layoffs also place added stress on employees because they’ll be in fear of getting the ax as well. 

    We all like to think that this might encourage them to work harder, but the fact of the matter is that it can have the opposite effect. 

    Our employees are actually more likely to fail at their jobs because they’ll be focusing less on the tasks at hand and more on their fears. 

    Place stressed and distracted employees in the same room as customers and it is a disaster waiting to happen. 

    2 – Pay Cuts To Cut Payroll Expenses

    So if you shouldn’t cut employee jobs or wages, the next logical step seems to be to cut your own salary right? 

    No, not exactly. 

    This “take one for the team” attitude is noble, but it can also be problematic. 

    Just like your employees work hard to make ends meet, you also have expenses you have to keep up on.

    If you cut your own salary, you’re bound to hurt your own morale.

    Of course, no one is going to be more dedicated to your business than you and odds are you’d probably do your job for free if you had to.

    But the added stress of a tight personal budget plus the pressures of running a business will eventually add up.

    And that stress will show.

    The more you feel the heat of having to play Russian Roulette with your bills, the more that strain will start to show in every area of your life–including your work.

    You’ll become a worse leader for it, despite your noble intentions. 

    3 – Chopping Hours To Cut Payroll Expenses

    So if you can’t cut labor and you can’t take a pay cut, what should you do? Cut hours?

    This too proves to be a bad idea.

    Once again, if you turn full-time employees into part time laborers, they’re going to have to get creative about making ends meet.

    This means they’ll have to cut corners in order to take on multiple jobs.

    Even worse, they might just start looking for a new job all together.

    Additionally, cutting hours for part-time employees can ultimately hurt your bottom-line more than it can help.

    Remember, unhappy employees equal unhappy customers and lower overall performance.

    4 – Mandatory Leaves of Absence

    Lots of employers take on this method, thinking that it’s a clever way to cut expenses. And in some cases it can be.On one hand, your employees get to keep their jobs and their benefits. This makes it a great option in times of economic crisis when you’re strapped for cash.You can ask your employees to take regular time off (such as twice a month) or it can be set for an indefinite interval. On the other hand, it’s an unpaid leave (also known as a furlough), which can be detrimental to your employees. It can also be legally tricky to enact a furlough, since it would require you set strict rules with your employees.Here’s why:Employees taking mandatory leave cannot do any work–including answering emails–during that time. If they do, you are legally required to compensate them.Finally, the biggest reason why furloughs land themselves on list of things you shouldn’t use to cut payroll costs is because they actually don’t save that much money. Sure, you might not have to pay salaries for all, or a portion of, your team, but there is still the cost of benefits.Additionally, if you furlough your entire staff, or the majority, there is also the potential of you losing clients to other businesses while your company is on hiatus.

    5 – Converting to Commissions

    If you work in sales, it might be tempting to switch some teams over to commission.

    I mean theoretically it should be a win-win, right?

    You save money and your employees get the opportunity of making more money.

    Here’s the problem: You don’t want to find yourself having to hunt down a new workforce. 

    I know, commission seems attractive, but there’s probably a good reason your employees are working for a salary instead. 

    Not everyone has the sales skills needed to make commission pay off.

    I mean, think about it this way. 

    Really good real estate agents know how to close a deal, and they can make a lot of money doing it. 

    But while you might hear about some famous realtors, they’re few and far between. 

    The rest have to struggle to make their commission, and in a many cases, it doesn’t work out. 

    That fact alone will have your employees running for the hills in no time. 

    Additionally, clients might not be crazy about employees taking a more aggressive approach to sales. For customers that can be off putting and it can drive them away. 

    But, should this be a very attractive and the right thing to do for your business, you should check out this guide and implement it correctly.

    6 – Automations to Cut Payroll Expenses

    Depending on your industry, automation may or may not be a practical application as of now.

    However, as technology continues to progress automation is becoming a more eminent reality for many businesses.

    And most businesses are adopting it as a way to cut operating expenses. And it makes sense, doesn’t it?

    Why pay a human being to do the job if you can just replace that person with software or a machine that costs pennies?

    Here’s the problem with this:

    Sure, machines might be faster, more accurate, and less expensive, but they are also impersonal and sometimes difficult to deal with.

    Think about it.

    If you’ve ever gotten stuck repeating a particular word over and over again to an automated system, you’ve probably found yourself gritting your teeth in frustration and prepared to give someone an earful. 

    A machine is no match for human compassion and comprehension. 

    If you replace the majority of your workforce with programs, you’ll risk losing the aspects about your company that made attractive in the first place. 

    7 – eliminating Bonuses to Cut Payroll Expenses

    Finally, one of the last things you shouldn’t use to cut payroll is getting rid of bonuses. Why?Whether you know it or not, your employees look forward to bonuses.Bonuses, especially during the holidays, can really boost their performance. When you get rid of bonuses, it’s a big hit to your employees.On one end, they don’t get that extra income.Equally, cutting bonuses depicts you as a cold or uncaring boss, especially if you cut bonuses for everyone except executives.

    Bonus – Converting to Independent Contractors

    This is probably the worst move to cut payroll costs.Why? Independent contractors are not employees, and the employer should not have any control in their work, only the results. Such control fall into 3 distinct categories:

    1. Behavioral: Does your company have complete control over what your worker does and how your worker does his job?
    2. Financial: Do you control when your worker is paid? Do you supply all the tools and supplies? Do you decide whether or not to reimburse expenses?
    3. Relationship: Do written contracts exist that outline such things as insurance coverage, vacation pay, pension plans, etc.? Is this work vital to your business, and is this relationship going to continue?

    The government is very strict on how workers are classified.Why? Because the government, both state and Federal, is interested in collecting payroll taxes.To learn more on this topic, read an in-depth comparison between employees and independent contractors.

    So how can you cut payroll expenses?

    I know it might seem that your options are completely limited when it comes to cutting costs.But there’s a better way.Instead of taking any measures that can hurt your employees, you can actually cut your payroll processing cost. It takes a little more work, of course, but it’s definitely worth it for both your employees and your business. One of the best ways to cut down costs is to outsource your payroll instead of processing in house.When you opt for a payroll service provider, your dollar goes farther. Not only do you spend less time having to worry about processing in-house, but you’re less likely to get hit with costly mistakes. However, if you already have a provider, you still might be paying too much for services you don’t need. Go through your payroll plan, and make sure that you are not paying for extra services that you don’t need. For example, if none of your employees have a bank account, then you don’t need to be paying for direct deposit. Additionally, make sure that you weren’t lured in by a relatively low base charge, only to find add on features are ridiculously costly. Even more importantly, make sure your provider hasn’t increased their rates. If they have, it might be time to find a new one.The closer you look at the details, the more you’ll find potential areas where you can save hundreds.

    Conclusion

    All in all, you want to save money, but you don’t want to do it at the expense of your employees, or worse, your business. Think about other ways that you can cut cost that won’t have major determents.Don’t be hesitant to renegotiate the terms of your payroll service (you usually can) or even shop around for a new provider. More importantly, keep in mind that Payroll processing is one area where you can cut expenses, but it’s just a start.There are other services you use that you can also try to rework. Maybe you pay too much on your company’s internet bill, or maybe the invoice system you’re using is charging you too much. In fact, your business is more likely to tank because the drop in quality service will drive customers away. Exhaust all the resources you can to cut cost in any other way before you let your employees take the hit.

  • Home Tax Deductions: Save Your Money

    Home Tax Deductions: Save Your Money

    If you recently purchased your first home, you may not be aware of all the home tax deductions. In fact, tax benefits are often a prime reason for buying a home, either for personal use or to generate rental income. If this is your first time figuring the tax benefits of a new home, be sure to gather the following documents before completing this article. The topics we discuss concerning home tax deductions are better understood within the context of the tax documents in question.

    Gather the following basic information before you prepare your tax return:

    • Closing statements if you bought or sold your home during the previous tax year
    • Form 1098, Mortgage Interest Statement, if you have mortgage interest
    • Mortgage Amortization Schedule. This shows the interest and principal you paid on the loan.
    • Tax returns for any year you took the Homebuyer Credit.
    • Records of points you are amortizing over a period of years.
    • A detailed list of home office expenses, if you are claiming any.
    • The amount you paid for the home, plus any improvements if you sold your home or you use it for business.
    • Property tax statements or receipts, if not paid through your mortgage company.

    Major Home Tax Deductions

    To ensure you get the full amount of home tax deductions allowed by law, you need to be familiar with some of the most common home-related expenses. These expenses are monies you have paid to facilitate the purchase, make necessary renovations, or use the home to operate a business. The most common home tax deductions are explained below.

    Mortgage Interest Expense

    If the debt is secured by the home, in most cases you may deduct the amount of mortgage loan interest you paid during the tax year in question. This amount will be shown on Form 1098, Mortgage Interest Statement, you should receive from your bank or other lender. Some basic rules apply.

    • If you paid less than $600 in interest, or you paid interest to someone other than a bank or approved lending institution, you will not receive a Form 1098. However, you may still be able to deduct home mortgage interest.
    • If your home loan exceeds $1 million, you may not be able to deduct the full amount of your mortgage interest. (If married but filing separately from your spouse, the amount is $500,000).
    • Special rules apply if your home loan was generated before October 14, 1987.

    Home Equity Loan Interest Expense

    A home equity loan is a loan against the equity you have built up in your home. It is an additional loan that exceeds the balance on the loan used to build or purchase your home. You can also incur home equity debt by refinancing your original home loan for more than the balance owed. The amount of the loan that exceeds the original purchase loan is home equity debt.

    In most cases, the IRS allows you to deduct the interest on home equity debt regardless of how the money is spent. However, there are limitations on the amount of debt that can be treated as home equity debt. It cannot be over $100,000 greater than your acquisition debt (the limit is $50,000 if you are married but filing separate tax returns). It also cannot be greater than the difference between the fair market value of your home and the balance on your original acquisition debt. For more information see IRS Publication 936 (2016) Home Mortgage Interest Deduction and click the link for Home Equity Debt.

    Home Improvements & Maintenance

    Improvements such as a new porch, roof, room, or other major remodeling project can increase the value, or basis, of your home. While they are no longer directly tax deductible, it is wise to record all expenses for these home upgrades. They become necessary later when figuring taxable gains if selling your home, or for figuring depreciation if renting your home. For more information see IRS Publication 530, Tax Information for Homeowners.

    Unless you used your home for business purposes or as a rental during the tax year in question, you cannot deduct maintenance costs such as painting, lawn care, repairing leaks, or cleaning.

    Real Estate Taxes

    Real estate tax is an annual tax levied by most state and local governments based on the value of real property. You can deduct all real estate taxes with other itemized deductions. Most real estate taxes are paid through your mortgage lender. This amount will be shown on Form 1098, Mortgage Interest Statement. If you only own the property part of the tax year, you only owe real estate tax for that part of the year. Therefore, only that portion of the yearly real estate tax is deductible.

    Home Office Expenses

    If you used part of your home for your business, you can take a home tax deduction for your expenses. Direct expenses can be completely deducted, as well as a portion of expenses that benefit the entire house, such as electricity, gas, water, and the like.

    There are two methods for calculating home office deductions. To use the regular method, calculate the number of square feet in the home used for your business, and the total number of square feet in the home. You will also need to record your home expenses such as mortgage interest, real estate taxes, home repairs, utilities, insurance, security, and depreciation. A percentage of these are deductible using a formula relating to the amount of square feet used as office space for your business.

    To use the simple method, you can deduct $5 for each square foot of office space used in your home, with a maximum of 300 square feet, subject to certain limitations. For more information see IRS Publication 587, Business Use of Your Home.

    Late Payment Charges

    If your mortgage lender levies a late payment fee, this fee is deductible as additional mortgage interest. Fees charged by the lender for specific services are not tax deductible.

    Common Questions Regarding Home Tax Deductions

    Can I deduct back real estate taxes I paid when I bought my home?

    No. Delinquent, or “back”, taxes are taxes that were imposed on the seller for an earlier tax year that is still unpaid. If you agree to pay delinquent taxes when buying a home, you cannot deduct them. They are to be treated as part of the cost of the home. IRS Publication 530, Tax Information for Homeowners

    Can I move back into my home for two years to avoid paying tax on any gain?

    As a general rule, if you sell a house you lived in and owned for two of the last five years, you don’t have to pay tax on the capital gain. Unfortunately, you cannot use the exclusion to avoid paying tax on gains that are due to time periods after 2008 when you or your spouse did not live in the house. You may qualify for an exception if you were away from the house because of military service, or due to unforeseen circumstances such as a job transfer or health problems. For more information see IRS Publication 523, Selling Your Home.

    Will I get audited if I claim a home office deduction?

    Certain deductions are considered to be “red flags” the IRS chooses to examine more carefully. Traditionally, home office deductions are often thought to be one of these. However, your chance of being audited in any given year are actually about 1%. And there is no conclusive research that any one factor triggers an IRS audit.

    Where do I record the sale of my home on my tax return?

    The IRS no longer employs a specific form to record the sale of a home. Record the sale on Form 8949, Sales and Other Dispositions of Capital Assets. If you did not receive a Form 1099-S for the sale of your main home, and you do not have a taxable gain, you won’t see the sale anywhere on your return. The IRS does not require you to report it.

    How do I determine the amount of gain due to the time I didn’t live in the house?

    If you sold a home at a gain, you must pay capital gains tax on the gain that is due to the time you did not live in the house. If you sold your house at a gain, you must pay capital gains tax on the gain that is due to the time you did not live in the house. You must record the number of “unqualified use” days when you did not live in the house. You do not have to count days you served on extended duty for the armed services, the intelligence community, the Foreign Service or any temporary absence due to unforeseen circumstances. For more information see IRS Publication 523, Selling Your Home.