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Tax Season Prep 101

by The Hat Team


The hustle and bustle of the holidays are over and a new season has begun…tax season. It is never too early to start preparing to complete your 2020 tax return. Here is a list of things you can do this month to make tax time a little less stressful:

  1. Contribute to retirement accounts.  If you haven’t funded your retirement account for 2020 yet, now is the time to do it. For a traditional or ROTH IRA the deadline to do so is April 15, 2021.  For a Keogh or SEP you can get an extension to October 15, 2021.  But if you want to start compounding tax free interest as quickly as possible, make those contributions now!
     
  2. Make a last-minute estimated tax payment.  If you didn’t pay the IRS enough money throughout the year, you may have a hefty tax bill coming your way. You might owe some interest and penalties as well.  If you make an estimated payment by January 15, you can avoid a penalty for the fourth quarter and save money. Try not to pay too much though. It’s better to owe a little money than to get a refund. The IRS doesn’t pay you any interest on money they are borrowing from you.
     
  3. Organize your records.  Yes!  Do it now!  Good organization may not change the amount of money you have to pay, but it will certainly make the process of filing your taxes easier. Prepare a tax checklist to get all your ducks in a row. Have a tax folder or binder in which you keep all documents and receipts. Taking the time to get organized now will save you time and energy when it is time to file your taxes.
     
  4. Find the right tax forms.  You can view and download tax forms on the Internal Revenue Service web site or you can have them mailed to you. The IRS can also provide you with a private web site that lists state government sites where you can pick up state forms and publications. 
     
  5. Itemize your tax deductions. While it may be easier to take the standard deduction, you may save money if you itemize. Especially if you are self-employed, own a home, or live in a high tax area. It is worth the time and effort when you see how much money you can save. Itemized Deductions: A Beginner's Guide
     
  6. Decide if you need help.  Avoid the panic of last minute calls to accountants by preparing in January. You will have plenty of time to determine if you are going to need help completing your taxes and won’t be scrambling for assistance as the deadline looms.

If you are in the market to buy or sell a home, let Sandra Nickel and her Hat Team of Professionals assist you with all your real estate needs! Call them today at 334-834-1500!

Photo Credit: cogneesol.com

The Tax Advantages of Owning a Home

by The Hat Team


Owning a home is part of the “American Dream”.  Working hard, saving money, finding the right house, and going through the mortgage process all pays off when you move into your own home and begin to enjoy the perks that come with what is likely to be your largest financial investment.  Some of those perks come in the form of tax breaks. And with tax season around the corner, it’s time to educate yourself about those tax breaks. You might be surprised to discover that many of your biggest home-related expenses are often tax deductible. Here are the top four tax breaks for homeowners:

  1. MORTGAGE INTEREST

The most significant tax break you’ll get is a mortgage interest deduction, which is nice since a huge part of your monthly mortgage payment goes towards paying off interest for a while after your purchase.All the interest you pay during the tax year will be deductible. However, if you own properties with mortgage balances over a million dollars, the IRS will limit your deductible interest.If you own a second home, your interest for that home is also deductible as long as you are residing there part of the year.If you stay there less than 14 days out of the year or less than 10% of the number of days you rent it out, the IRS may consider it a residential rental property, and in that case, you will not be able to take an interest deduction. Mortgage Interest Deduction

  1. REAL ESTATE TAXES

Another large deduction you get to make as a homeowner is on your property taxes. As a homeowner, you will always have to pay some form of real estate tax.  If you have an escrow account, which most mortgages do, it means you have been paying a portion of your property tax bill for the year as part of your monthly mortgage payment.  At the end of the tax year, your lender will send you a statement, which will tell you what you have paid in taxes and interest and how much went into your escrow account to be used toward taxes.  You will be able to deduct the amount your lender paid from your escrow toward taxes. Escrow

  1. POINTS

When you purchase a home, you have the option to pay mortgage points to your lender to lower your interest rate.A point is typically 1% of the loan price, so if you bought or built a new home that cost $300,000 and you paid your lender for one origination point, this should enable you to deduct the $3,000 in closing costs paid from your taxes for the year of the home purchase.

  1. ENERGY TAX CREDITS

Making improvements to the energy efficiency of your home will not only save you money on energy costs, it may also help you qualify for a tax credit. Tax credits can be better than tax deductions as they are a dollar-for-dollar savings no matter what tax bracket you are in.Things like upgrading windows, roofing, appliances and more with energy efficient equipment will often count toward a tax credit. But since the IRS does change things from year to year, be sure to check with them beforehand so you will know what tax credits you qualify for.

Become a homeowner this year and take advantage of these tax credits! If you are in the market to buy or sell a home, let Sandra Nickel and her Hat Team of Professionals assist you with all your real estate needs!  Call them today at 334-834-1500! 

Photo Credit: tmcfinancing.com

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