How To Take Advantage of Mortgage Tax Deductions

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Mortgage Tax Deductions

Often when considering purchasing a home, one of the things that intrigues potential homeowner’s is the right to be able to claim mortgage tax deductions. There are a number of deductions that are available including interest payments, points and some closing costs. What is not always evident however, is what must be done in order to claim these deductions and when they might be most beneficial.

Prepare for additional paperwork

One of the first things that a taxpayer will need to do to take advantage of mortgage tax deductions is to prepare to itemize deductions. The most significant opportunities for deductions come in the early phases of a mortgage, especially during the first five years. This is because this is when the most interest is paid and also when a new home buyer can deduct points and closing costs. This will require filing a Form 1040 as well as a Schedule A for federal tax filings.

Understanding who can deduct interest payments

Interest payments can only be deducted by the person who is legally obligated to pay the mortgage. When a property is owned equally by two or more non-spousal taxpayers, each of them may claim one half of the interest payments on the mortgage. It is also critical to note that the mortgage company should have issued a Form 1098 with the full amount of interest paid and if this is the case, then copies should be attached to the tax returns.

Second homes and mortgage deductions

For a second home to qualify for tax deductions, the owner, or the person responsible for the mortgage, must have spent a specific number of days in the home throughout the year. In other cases, the Internal Revenue Service would qualify the property as a rental property and is subject to different tax laws. Homeowner’s who have second homes should review Publication 527 if they are confused about the rules.

There are numerous opportunities for a homeowner to take a tax deduction for their home mortgage payments and for specific events that may occur such as destruction of the home, repairs and remodeling and refinancing of the home. However, a homeowner must ensure that they carefully review all of the rules that apply to their individual circumstances. For example, while a primary home loan to purchase may be eligible to claim points, personal mortgage insurance and other costs as a tax deduction, a cash-out refinance may not be eligible for these tax deductions. Homeowner’s should carefully review Internal Revenue Service Publication 936 for information and if in doubt, always contact a qualified tax accountant who can help take the mystery out of mortgage tax deductions.

Visit the California Apartments Blog to get more tax and home improvement tips as well as new home builder reviews such as this Denver real estate for sale.

All You Need To Know About Dealing With Tax Liability

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Do not let tax liability force you to pay more than your fair share of taxes. The IRS has been providing special reliefs to people who have not been able to meet their tax obligations for the last few years.

The tax revenue authority body through its “Fresh Start” initiative is taking target at small business owners and the unemployed to meet revenue collection targets set previously.

According to Doug Shulman, IRS Commissioner, the agency has an obligation to work with struggling taxpayers in order to find a workable solution for both parties.

Every taxpayer should know that failing to file returns or to pay taxes on time will attract penalties which will increase their tax liability.

» Failure to file on time will result in a penalty of five percent per month of the unpaid taxes until the amount is fully settled.

» Failure to pay taxes will lead to a penalty of half of 1 percent of the unpaid taxes every month.

The good news is that the agency is giving a half-year grace period to some self-employed people and eligible unemployed people. During this period, these groups of taxpayers will not incur penalties for late payment or failure to file returns. However, taxpayers who fall into these two categories will have to fill out the IRS Form 4868 to ask for an extension.

Under the Fresh Start initiative, eligible taxpayers will have up to 15th October to pay their taxes. Self-employed individuals who have seen their income drop by more than 25 percent due to the economic crisis in 2011 can also qualify for this deadline extension.

Tax Breaks for Homeowners: Are You Missing Out?

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There are many tax breaks that get overlooked, but homeowners often overlook the most obvious deductions. The truth is, as a homeowner, you stand to save hundreds if not thousands off your taxes. However, it all boils down to knowing what you qualify for. The following are just some of the tax breaks homeowners may be missing out on.

Mortgage Interest

The interest you pay on your mortgage should be one the first tax breaks you take advantage of. Those filing single can deduct mortgage interest on homes up to $500,000 ($1 million for married couples). This will require a bit more work because you will need to itemize your deductions, which means you should see an accountant.


Sometimes people are required to pay points on their mortgage to get better rates on their loan. These points may offer a tax break if they meet certain requirements. First of all, points must be allowed in the area where the home was purchased. Second, the mortgage must be for a home that is being bought or built as a main residence. The deduction must also be taken the year the loan to buy a home was obtained and the points cannot be out of the normal range.

Property Taxes

Each year, for as long as you own your home, you can deduct the amount of your property taxes. With most loans these taxes make up a percentage of your monthly payment and are set aside to be paid once a year. You will receive information on the cost of these taxes when you receive information about the interest from the lender.

Mortgage Forgiveness

The Mortgage Forgiveness Act extends through 2012 and allows those that fell into foreclosure the ability to not pay taxes on the forgiven amount. In most cases, forgiven debt is taxed as income. Those that restructured their loan also qualify. The amount forgiven is up to $2 million for married couples and $1 million for single homeowners.

Tax-Free Capital Gains

A capital gain occurs when something is sold for a profit. With most capital gains, the seller is taxed on the amount gained. However, with residential real estate, the homeowner may qualify for a tax break on the first $250,000 ($500,000 if married) of the gain.

Energy Saving Improvements

Last, but certainly not least, homeowners making improvements to their property, in order to have a more energy efficient home, can also take advantage of tax breaks. There are a number of items that qualify ranging from windows to roofing and you may be able to deduct up to 30% of the costs from your taxes up to $1500.

As a homeowner, it pays to take advantage of these tax breaks. While this may mean getting the assistance of a professional accountant, it also means saving hundreds, if not thousands, of dollars.

About the Author: Dennis Allenbaugh is a mortgage specialist who loves seeing people benefit from homeownership each year. He recommends sites like Home Loans Australia and others to those looking to qualify for a home loan. Now’s the time to start thinking about purchasing a home.

Essential Tax Tips for Freelance Writers

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The career of a freelance writer can be very rewarding. However, the career can quickly lose its appeal when tax time arrives and you owe several thousand dollars. Thankfully, there are things you can do to reduce your tax bill and prevent owing such a large sum at once. The following are just five essential tax tips for freelance writers.

Pay Your Estimated Taxes

This cannot be stressed enough. Freelance writers need to pay estimated taxes in April, June, September and January of the following year. These payments will ensure that you don’t get penalized for paying your taxes late and will help ensure you don’t have a large tax bill come April. There are a number of easy to use resources online that will help you determine the amount of your estimated taxes.

Setup a Home Office

If you’re working from home, you should be able to deduct part of your rent/mortgage and utilities. However, when setting up a home office, it needs to be an area that you use solely for the purpose of your business. This does not have to be an entire room. It may even be a small corner of your home. The biggest thing to remember is to save this area for work.

Understand Your Deduction Rights

As a freelance writer, you can deduct many different things. It may be books you purchased to help teach you how to write a novel or even office supplies. Take the time to find out what you can deduct and how much of a deduction you can take. For example, you may be able to deduct part of your internet costs as long as you have proof of the percentage of time that the internet was used for work purposes.

Keep Each and Every Receipt

It doesn’t do you any good to purchase books, pens and other office items if you don’t keep the receipts. Without these receipts, if you get audited, you will be in big trouble. You need to be able to account for each and every item you count as a business expense. You should also start a filing system that keeps the receipts in order based on the type of expense.

Take Advantage of Deductions

Being self-employed means that you can deduct items that most people might not be able to deduct. For example, you can deduct the cost of health insurance. You can also setup an IRA and deduct up to $5,000 a year. Do your homework and see which items can get you the biggest deductions.

It can be hard to pay your taxes when you’re self-employed, but the good news is you may not have to pay as much as you originally thought. Follow these tips and you’ll have an easier time staying on top of the taxes and getting the biggest return.

About the Author: Wendi Ginter is an accountant who offers tax support to a wide variety of freelancers and small business owners. Make sure you talk to your accountant about any and all deductions you wish to make to ensure you’re listing them legally and properly.

Top Ten Most Overlooked Tax Deductions

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Each year the Internal Revenue Service (IRS) reports the most common tax deductions taxpayers forget about when submitting their income tax return.  Among one of the most common mistakes taxpayers make is they forget to place their Social Security number on the form or they make a mistake when entering the information.

It is possible for some taxpayers to be overpaying so it helps to make sure you review deductions available and understand how to claim them correctly to obtain the credit.  Below is a list of the most common deductions overlooked by taxpayers:

  1. State sales tax: Taxpayers who live in a state that doesn’t impose an income tax often forget to claim this deduction.  The IRS has a table that can be used to help you figure out the amount to deduct.
  2. Charitable contributions: This includes charitable deductions from your paycheck, items purchased for a charitable event such as a fundraiser or if you drove your vehicle for charity, the IRS lets you deduct a certain amount per mile.  Save all receipts and if you make a donation of 250 or more, get written confirmation from the charity.
  3. Student loan interest: If mom or dad paid for a student loan for a child not claimed as a dependent, the interest can be claimed on your return.
  4. Moving expenses: If you moved to take a new job, the expenses related may be deductible.
  5. Child care credit: Having a credit can help reduce taxes owed.  If your expense is paid through an account at work, it is easy to overlook but if you pay several thousand for child care it helps reduce taxes owed.
  6. Earned income tax credit: While the rules to this may be complex, many taxpayers don’t claim it.  This is considered a refundable tax credit instead of a deduction.
  7. State tax paid last spring: If you paid state income taxes in quarterly payments or had them withheld, they can be deducted on your current return.
  8. Energy-saving home improvement credit: This is a credit that is 30 percent equal to the cost of energy-saving improvements.  The IRS provides details on qualifications for this credit.
  9. Jury duty payments:  If your employer required you to give them payments you receive for jury duty, you can claim the amount on your return.
  10. Refinancing points: There are points that can be deducted when you refinance your home at one time.  This depends on how many years are on your mortgage and you can deduct points that are remaining if you sell you r home after paying if off or refinance again.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to loans.

Be Ready For Retirement & Plan Your Pension Now

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In your early twenties it is hard to imagine that day when you can stop working for good. However, pensions have been big news recently and regardless of your age you should think about what kind of financial situation you want to be in come retirement.

How to go about setting up a pension

Setting up a pension will require some research as there are many different types of pension options. You should look at whether your company has a pension and also investigate pension schemes offered by outside agencies. In addition, don’t be afraid to go to a financial advisor for advice on which pension options would best suit you. Finally, think about investments if you are young. Buying property to let can be just as effective over a long period as paying additional pension contributions.

Why is it important?

As you grow older, you will inevitably reach an age where your health will prevent you from working. When you are no longer able to work you will need an income and this is where pensions come into play. They can provide you with income security during retirement and allow you to continue living a comfortable life. Having an adequate pension pot will be essential. Pensions also benefit the economy in that they allow people to continue contributing by purchasing products.

Workplace pensions

Many employers now offer a workplace pension that is open to all employees (sometimes after a specific period of working there). There are a number of different types of pension that they might offer, so you might want to research which one will provide you with the best deal. Possible pension schemes include: defined benefit schemes which can be calculated on your final salary or an average of what you have earned over your entire career. Alternatively, they could offer defined contribution schemes, such as money purchase schemes, group personal pension plans and group stakeholder pension schemes.

Private pensions

There is also the option of private pensions which can be purchased from insurance companies, investment organisations and banks. Policy holders contribute money, it is invested by these companies and a fund is built up. When you reach an agreed age, you are able withdraw a certain percentage of the fund and invest the rest. The outcome of these pensions schemes depend on the amount invested, how well investments perform etc.

How much you should be saving

You should start thinking about how much money you are going to need (remember you may have paid off borrowings by this time). There are a number of questions you will need to ask yourself in order to give yourself a rough idea of how much money will need to save. For example, when are you hoping to retire? How much have you already saved? How much do you want to have during retirement? What benefits are you going to receive through social security? There are some useful pension calculators available on the internet which can help you calculate this. When you have decided on plan you will need to stick to it!

Rising retirement ages

Retirement ages obviously depend on where you live, but it is true that in most countries the retirement ages are going up, up, up! Due to the fact that most people will be working way past previous retirement ages, it is important that you have your pension plans in place.

What you could face if you don’t have a pension

Facing old age without any savings is a grim prospect. The likelihood is that you will have to work longer, or if ill health prevents it, have to endure a worse quality of life. Without a pension you could face poverty in old age, so having a plan is vital.

Hannah Wilkie has experience in the field of retirement planning and likes to get her clients to start saving early. If putting money into a pension plan is too inflexible at this point in time then she recommends you search around for the best ISA rates so you get the best returns on your money but you are also less tempted to spend it than if it was in a regular savings account.

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