Tax Tips Re: Your IRS Letter or Notice

Have you ever received a letter in the mail with the initials IRS?

I bet a million dollars that your heart started pounding! And I would have heard you say, “Oh my God, I’m getting audited!”

Stop right there!

The good news is there are various reasons why IRS will give you a letter.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

The IRS sends notices and letters for the following reasons:
• You have a balance due.
• You are due a larger or smaller refund
• IRS has a question about your tax return
• IRS needs to verify your identity
• IRS needs additional information
• IRS changed your return
• IRS We need to notify you of delays in processing your return

Your thinking, “What now?”

Here are your next steps:

Read – the letter contains valuable information, so please read it carefully. If the IRS changed your return, compare the information on the letter with your original return.

Respond – don’t ignore the response due date of the letter. Respond or if you don’t have the information, call and request for an extension.

Pay – if you agree with the changes, then you can pay online or issue a check.

Keep a copy of your notice or letter – this is very important since you might need these at a later date.

Contact us – you can contact the IRS or if all else fails, you can contact us for assistance.

So there you go. You’ve learned the reasons and the steps to take when you receive an IRS letter or notice. So next time, when your receive one, instead of freaking out, I would hear you say, “I got this Noel.”

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

What IRS Forms To Use For An Address Change

Did you recently move or change your home or business mailing address? If so, here are the forms you need to be aware of.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Use Form 8822 Change of Address to notify the IRS of a change to your home mailing address. For business, use Form 8822-B Change of Address or Responsible Party – Business to notify the IRS if you changed your:

• Business mailing address
• Business location or
• Identity of your responsible party

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Should I Use My Retirement Monies To Pay Off My Debt?

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here’s a tax question, I got from one of my clients:

Should I use my retirement monies to pay off debt?

Here are the facts of the case:

Client has two credit card debts. One credit card has a balance of $40,000 at 20% and another one has a balance of $10,000 at 9%. He wants to pay off both credit cards by taking out some retirement monies? He just wants peace of mind that those credit cards have been taken care of. So what do we do?

Great question!

The first thing you need to do is to determine your total tax rate. You need to find out both your income tax and the withdrawal penalty rate. The sum is the total tax rate that you need to apply to the retirement amount you want to take out. So for example, your total tax rate is 40% (30% income tax rate and 10% withdrawal penalty rate) and you want to take out $50,000 to pay off your debt, you will be paying $20,000 in taxes ($50K x 40%)! Ouch!

In order to avoid paying taxes, here are the LowerMyTaxNow strategies:

1. You can take out a home equity line of credit. The interest in the first $100,000 is tax deductible. You just exchanged a non-deductible interest to a deductible amount to give you additional tax savings.

2. You can max your 401-K to the extent of the employer’s matching. The rest can be applied toward paying down your credit card debts.

3. You can borrow money from your 401-K. That way, you will avoid the $5,000 of withdrawal penalty.

4. You can negotiate your interest rate with your credit card company with a better rate if you have a good credit.

5. Transfer balances to a lower interest credit cards.

To summarize, make sure that you look at alternative options before taking out retirement monies to pay off debts. That way, you can avoid paying huge amount of taxes and maximize the use of your monies.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Tax Basics For Your Kid’s Summer Job

Is your kid planning to work this summer? If so, make sure you know the tax basics.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here are four things you need to consider if your kid decides to get a summer job:

Tax returns. Assuming no other sources of income, your child can earn up to $6,300 in 2016 before a tax return has to be filed. However, if income tax is withheld from paychecks, your kid will have to file a return to claim a refund.

Federal income tax withholding. When hired, your child will have to fill out Form W-4, Employee’s Withholding Allowance Certificate. This form tells the employer how much federal income tax to withhold. If the job involves tips, remember that tips are taxable income. Have your child maintain records of amounts received.

Financial aid. Summer earnings can affect eligibility for college financial aid. If you’re counting on financial aid, check out the earnings limit ahead of time.

Retirement saving. Consider encouraging your child to open a Roth IRA. Amounts invested in a Roth can grow tremendously due to tax-free compounding over many years. As an incentive, you might match any amounts your child is willing to save.

To recap, consider these tax basics when you kid gets a summer job.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Foreign Account Reporting by June 30

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

If you hold foreign bank or financial accounts, or have signature authority over such accounts, and the total value of all your accounts exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR.

It’s easy to overlook this requirement because it’s separate from your federal income tax filing, with a different deadline and strict rules.”FBAR” refers to Form 114, Report of Foreign Bank and Financial Accounts. Your Form 114 must be filed electronically with the Treasury Department no later than June 30. No filing extension is available. So, please watch out for the filing requirement due date.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

How To Solve Your Depreciation Dilemma

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Do you own a rental property where you have “used up” most or all of your depreciation? You want to sell the old property and buy a new one so you can start benefiting from the depreciation deduction again. You’re thinking: Can I do that? Answer: Absolutely!

Here are 3 tax strategies that you can use:

 

  1. Take advantage of the suspended rental losses – if your income is more than $150K, the IRS will suspend your current rental losses and will be carried over to future tax years indefinitely (exception applies for RE professional). Any carried-over rental losses not used can be claimed if your income will permit or fully expensed during the year you sell the property to offset potential capital gains.

 

  1. Key Tax rate – if you are in the 10%-15% tax bracket and you held the rental for more than a year, then you can pay “0” capital gains rate. Yes! You heard that right…zero! The key here is proactive planning. Make sure you postpone some income and increase your deductions in order to be in 10%-15% tax rate.

 

 

  1. Installment sale – you can spread and report the capital gains over a number of years in order to spread the tax and create a future revenue stream.

To recap, take advantage of the strategies above so you can minimize or spread your taxes and start getting the tax benefits from depreciation deduction again.

All these tax laws represent summarized concepts and cannot be implemented without fuller understanding of your exact situation. For further information and assistance, please contact:

Noel Dalmacio, CPA, CFP, MS Tax Telephone no: (949) 336-1345  

Email: noel@dalmaciocpa.com

Website: www.dalmaciocpa.com  www.lowermytaxnow.com

 Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

How To Take Advantage of a 1031 Exchange

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Do you have a rental property that appreciated in value that you want to sell? You want to pull the trigger but you are afraid of the tax you will be paying on the gain. What can you do?

Millionaire investors used this strategy to build their real estate portfolio. It’s one of the most powerful tax savings strategies available to you. It’s called: 1031 exchange.

A 1031 exchange allows you to postpone your taxes by exchanging up to another higher-priced rental property. It’s a way to consolidate and build your real estate investments without paying taxes. It’s a two-step process: first step, sell your property, second step, reinvest the cash proceeds in a new property.

Here are 6 additional things you need to know about 1031 exchanges:

Must be investment property – It’s only for rental, investment or business property.

  1. 45-day rule – Replacement property must be identified within 45 days of the sale of the old property. There are no extensions allowed.
  2. 180-day rule – It must also be purchased within 180 days of the sale of the old property.
  3. Qualified intermediary requirement – To qualify for the tax deferral, you must hire a qualified intermediary (commonly called an exchange accommodator or QI).
  4. Cash receipt is taxable – Any cash you received or taken out during the exchange is taxable.
  5. Consider mortgages and other debt – If you don’t receive cash back but your mortgage balance went down, that will be treated as income. For example, you had a mortgage of $500,000 on the old property, but your mortgage for the new property is only $400,000. You have a $100,000 of taxable income.

 

To recap, a 1031 exchange is a very powerful tool, that if you use wisely, can save you thousands of dollars come tax time. However, you have to pay strict attention to the rules of qualification. Otherwise, you could find yourself in some trouble with the IRS.

 Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Tax Strategy When Renting Out Your Home During Summer

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

 

Are you thinking of signing up with one of those websites that link travelers to property owners with room to spare? If you plan to offer for rent all or part of your main home, here’s one tax strategy that you might want to apply during the summer.

 

What is it called? It’s called “14-days or less” tax strategy. If you rented out your home for 14 days or less during the year, you don’t have to report the income. That’s right, you get tax-free income! That’s my favorite word…tax-free!

 

So just plan accordingly and make sure the total rental period is 14 days or less during the summer.

 

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

Financial Tips You Need To Know When A Spouse Dies

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

The death of your spouse is emotionally and financially devastating.
Making decisions of any kind is difficult when you are grieving, but having a plan to follow may help. Here are 6 financial tips you need to do:

  • Wait to make major decisions. Put off selling your home, moving in with your grown children, giving everything away, liquidating your investments, or buying new financial products.
  • Get expert help. Ask your attorney to explain the will and implement the estate settlement. Talk to your accountant about financial moves and necessary tax documents. Call on your insurance company to help with filing and collecting death benefits.
  • Assemble paperwork. Documents you’ll need include your spouse’s birth certificate, social security card, insurance policies, loan and lease agreements, investment statements, mortgages and deeds, retirement plan information, credit cards statements, employment and partnership agreements, divorce agreements, funeral directives, safe deposit box information, tax returns, and the death certificate.
  • Determine who must be paid, and when. You’ll need to notify creditors and continue paying mortgages, car loans, credit cards, and insurance premiums. Notify health insurance companies and the Social Security Administration, and cancel your spouse’s memberships and subscriptions.
  • Alert credit reporting agencies. Request the addition of a “deceased notice” and a “do not issue credit” statement to the decedent’s file. Order credit reports, which will provide a complete record of your spouse’s open credit cards.
  • Determine what payments are due to you, such as insurance proceeds, social security or veteran’s benefits, and pension payouts. File claims where needed.

So make sure you plan and implement these 6 financial tips.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

How To Avoid The Inherited IRA Tax Trap

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow

Did you have a parent, relative or sibling that passed away and they transferred their IRA account to you?
If you inherited an Individual Retirement Account, IRA for short, from someone other than your spouse, you may be surprised to learn you have to take annual distributions.

That’s generally the case whether the IRA is a traditional or a Roth account.

The problem sometimes is the brokerage company does not know the tax rules for inherited IRA.

And if you fail to take the distributions as required, you may owe a 50% penalty of the amount you should have taken.

Therefore, to avoid the penalties, make sure you take out timely distributions from the inherited IRAs.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow