Homeowners: Don't make these common insurance mistakes

Homeowners: Don't make these common insurance mistakes

Catastrophes, thefts, natural disasters, accidents, fires – they happen. If such misfortunes strike, a well-researched and up-to-date homeowner's insurance policy can keep your family's finances afloat during trying times. Proceeds from a homeowner's policy can provide necessary funds to replace your house and belongings. A good policy can also protect against unexpected liabilities. If you're considering a new homeowner's policy (or already have one), watch out for some common pitfalls, including the following:

Inadequate policy limits. Some homeowners try to lower their premiums by purchasing a policy that doesn't fund their home's replacement value. That's often a big mistake. If the cost to replace your home has risen over the years and policy limits haven't kept pace, you could end up footing the bill for much of the replacement cost (or selling your property at fire sale prices).

Personal property not documented. If you need to file a claim, an insurance carrier will want solid evidence that you owned the items being claimed. It's a good idea to take pictures or videos of all your household goods, and keep receipts of all expensive purchases. Place copies of the pictures and receipts in a safe deposit box and at home in a fireproof safe. You might even send copies to an out-of-town friend or relative. Being able to provide clear evidence of your personal belongings will simplify the claims process and help ensure that you get paid.

Valuables not covered. Check your policy to ensure that expensive jewelry, antiques, and other valuables are included. If not, consider adding a rider to the policy that specifically lists such items.

Deductible too low. Generally, the higher the deductible, the lower the premium. True, in the event a claim needs to be filed, you'll pay a bigger chunk of the repair or replacement cost with a high deductible. On the other hand, with a high deductible you'll generally pay lower premiums each year.

By doing careful research and avoiding some common mistakes, your homeowner's insurance policy will be affordable and still provide solid protection should disaster strike.

Should you have a business buy-sell agreement?

Should you have a business buy-sell agreement?

What will happen to your business if you die, retire, or become disabled? If you are the owner of a small business, you need a means for the transfer of that business in the event something happens to you. With a "buy-sell" agreement, you are able to plan for many contingencies over which you would otherwise have little control. A buy-sell agreement should establish a price for the business and the method of succession.

The traditional buy-sell agreement is a contract between the business entity and all the entity's co-owners. The agreement typically covers valuing the business, laying down triggering events that would bring the terms of the contract into effect, and defining the transfer of ownership.

There are many advantages in drafting a buy-sell agreement, including the following:

*         Provides a framework for dealing with owner disputes – ensures a smooth transition of control and power to the owner's successor.

*         Facilitates estate planning objectives – can help minimize certain estate taxes and can be structured to take advantage of favorable redemption rules upon death.

*         Fixes value for estate tax purposes – includes a method for valuing ownership interests and establishing a fixed value for purposes of taxing the estate upon its owner's death.

*         Forces shareholders to deal with liquidity issues – addresses how a possible buyout would be funded.

*         Helps prevent loss of tax benefits – especially for S corporations in which transferred stock could lead to termination of the S election. It can disallow the transfer of shares without the consent of owners.

Something as valuable as the ownership and management of a small business should not be left to chance. The agreement needs to satisfy all parties involved, including the IRS requirements for tax purposes. If you need assistance in drafting a buy-sell agreement or in updating your current buy-sell agreement, please contact us and your attorney.

Update your beneficiary designations

Update your beneficiary designations

Who have you designated as beneficiaries for your insurance policies and retirement accounts? If you can't remember, you're not alone. But it's worth checking. If you make the wrong decision, it could affect who inherits those assets. In some cases, it could also change the taxes your beneficiaries will pay and the value they'll receive. Here are some key facts about beneficiary designations.

What are they?

*        When you designate a beneficiary for an account, you are naming the person you want to inherit that account.

*        Your designation determines who will inherit the assets in the account, regardless of what your will might say. Generally, the assets will bypass probate and go straight to the person or institution you named.

*        You can designate a person or group of persons, a charity, a trust, or your estate. You may also want to designate a secondary or backup beneficiary in case the primary is no longer living.

Why are they important?

*        It's important to keep beneficiary designations up to date because they determine who will inherit the assets in your accounts. Changing your will won't change the beneficiaries.

*        There can be tax implications too. With a traditional IRA, your choice of beneficiary can affect how quickly withdrawals must be made and taxes paid. That can change the value of the IRA to your beneficiary.

How do you update them?

*        First, find copies of all your current designations. Contact your insurance company and plan trustees if you can't locate the documents.

*        Review them and decide what changes you'd like to make. Make an appointment to go over the changes with your tax or estate planning advisor.

*        Send your updated designations to the account trustees. Make sure you receive confirmations and keep copies in your records.

Don't forget about the nanny tax

Don't forget about the nanny tax

A good domestic worker can help take care of your children, assist an elderly parent, or keep your household running smoothly. Unfortunately, domestic workers can also make your tax situation more complicated.

Domestic workers of all types generally fall under the "nanny tax" rules. First, you must determine whether your household helper is an "employee" or an "independent contractor." If you provide the place and tools for work and you also control how the work is done, your helper is probably an employee. For example, at one end of the spectrum, a live-in housekeeper is probably an employee. At the other end of the spectrum, a once-a-month gardening service may qualify as an independent contractor.

If your household worker is an employee, then you, as the employer, may be required to comply with various payroll tax requirements. For the years 2014 and 2015, the important threshold amount is $1,900. If you pay your employee $1,900 or more during either year, you are generally responsible for paying social security and Medicare taxes on your worker's wages. In addition to social security taxes, you may be required to pay federal and state unemployment taxes as well as other state taxes. With these taxes go various deposit and filing requirements, including the requirement that you provide your employee with an annual W-2 form that shows total wages and withholding. February 2, 2015, is the deadline for providing W-2 forms to workers to whom the nanny tax applies for 2014.

As you might expect, most people need assistance complying with the nanny tax rules. If you need details about the rules or help in dealing with them, contact our office.

Congress retroactively extends tax breaks for 2014

Congress retroactively extends tax breaks for 2014

In its final session of the year, Congress extended a long list of tax breaks that had expired, retroactive to the beginning of 2014. But the reprieve is only temporary. The extensions granted in the Tax Increase Prevention Act of 2014 remain in effect through December 31, 2014. For these tax breaks to survive beyond that point, they must be renewed by Congress in 2015.

Although certain extended tax breaks are industry-specific, others will appeal to a wide cross-section of individuals and businesses. Here are some of the most popular items.

*        The new law retains an optional deduction for state and local sales taxes in lieu of deducting state and local income taxes. This is especially beneficial for residents of states with no income tax.

*        The maximum $500,000 Section 179 deduction for qualified business property, which had dropped to $25,000, is reinstated for 2014. The deduction is phased out above a $2 million threshold.

*        A 50% bonus depreciation for qualified business property is revived. The deduction may be claimed in conjunction with Section 179.

*        Parents may be able to claim a tuition-and-fees deduction for qualified expenses. The amount of the deduction is linked to adjusted gross income.

*        An individual age 70½ and over could transfer up to $100,000 tax-free from an IRA to a charity in 2014. The transfer counts as a required minimum distribution (RMD).

*        Homeowners can exclude tax on mortgage debt cancellation or forgiveness of up to $2 million. This tax break is only available for a principal residence.

*        The new law preserves bigger tax benefits for mass transit passes. Employees may receive up to $250 per month tax-free as opposed to only $130 per month.

*        A taxpayer is generally entitled to credit of 10% of the cost of energy-saving improvements installed in the home, subject to a $500 lifetime limit.

*        Educators can deduct up to $250 of their out-of-pocket expenses. This deduction is claimed "above the line" so it is available to nonitemizers.

The remaining extenders range from enhanced deductions for donating land for conservation purposes to business tax credits for research expenses and hiring veterans.

Finally, the new law authorizes tax-free accounts for disabled individuals who use the money for qualified expenses like housing and transportation. Another provision in the law provides greater investment flexibility for Section 529 accounts used to pay for college.

Every new business needs a record system

Every new business needs a record system

Many small start-up businesses are off and running before any record system has been set up. There is money deposited into the new business checking account, some from invested funds and some from sales. Money has been paid out for equipment and supplies, some by check and some by cash out of pocket or from sales receipts.

This informal method of cash receipts and disbursements needs to be formalized. The bookkeeping system does not need to be complicated. In most cases, you can continue to operate much as you have. You just need to do it in a way that leaves a few more tracks.

For example, make all purchases by check. The small miscellaneous cash paid-outs from your pocket (or the petty cash box) are reimbursed by a check with a listing of the expense codes. All your cash receipts are deposited into the bank. No more taking cash from the till for lunches, supplies, etc.

If all the money received by the business is deposited into the bank and all expenses are paid by a company check, the proper journal entries are easy to create from the bank statement.

If you are starting a new business, don't wait until the end of the year and surprise your accountant with a box of miscellaneous receipts. That is the most expensive and least effective use of your accounting information. In addition to setting up the proper record system, your accountant will provide you with guidance on other business, tax, and financial matters.

Not all "income" is taxable

Not all "income" is taxable

There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

*        Borrowed money such as from banks or personal loans.

*        Money received as a gift or inheritance from family or friends.

*        Money paid on your behalf directly to a school or medical facility.

*        Most life insurance proceeds.

*        Cash rebates from businesses when you buy an item.

*        Child support payments.

*        Money you receive for sustaining an injury.

*        Scholarships for tuition and books.

*        Disability insurance proceeds from a policy purchased with after-tax dollars.

*        Up to $500,000 of profit for a couple selling their personal residence.

*        Interest received on municipal bonds.

If you have included any of these on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

Make retirement plan contributions early

Make retirement plan contributions early

With retirement plan contributions, it's the early bird who maximizes tax-deferred earnings. Make your contributions as early in the year as you can. For 2015, you can contribute up to $5,500 to an IRA ($6,500 if you're 50 or older). The limit for 401(k) contributions increases in 2015 to $18,000 ($24,000 if you're 50 or older), and the limit for SIMPLE contributions is $12,500 ($15,500 if you're 50 or older).

Look for tax savings in miscellaneous deductions

Look for tax savings in miscellaneous deductions

Certain miscellaneous expenses you pay during the year may be tax-deductible. Examples include fees you pay for tax advice and employee expenses such as union dues, tools needed for your job, certain work clothes and uniforms, and work-related travel. If you itemize, these deductions could lower your tax bill. Most miscellaneous deductions can only be deducted if their total is more than two percent of your adjusted gross income. Other miscellaneous deductions are not subject to the two percent limit. Some examples: certain casualty and theft losses and gambling losses.

For more information, contact our office.

Check your tax withholding for 2015

Check your tax withholding for 2015

Withholding too much tax from your wages isn't a smart financial move. Review how much you're having withheld in 2015 to see if it matches the actual tax liability you expect to have. If an adjustment is needed, file a new Form W-4 with your employer.

February 2 is deadline for 1099 reporting

February 2 is deadline for 1099 reporting

Form 1099s must be filed by businesses each year. This year the deadline for filing falls on February 2, though electronic filers have until March 31 to file. The most common form for businesses is probably Form 1099-MISC, used to report miscellaneous payments to non employees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).

For details or filing assistance, contact our office.