Claiming Homebuyer’s Credit on your 2010 Tax Return

Written by on February 8, 2011 in Uncategorized - No Comments

Question:   I was wondering what documentation you are suggesting your clients submit to claim the $6,500 home-buyer’s tax credit.

Answer:  Here is what I would do for a client

  • Paper file return
  • Properly complete Form 5405
  • Copy of HUD Settlement Statement showing signature of buyer and seller
  • Copy of mortgage statements from the last 5 years you lived in your previous home

If you follow this guideline and your claim is legitimate, you should not have a problem receiving your refund.  Keep in min you will probably need to wait 6- 8 weeks to get your refund, so please be patient.  For more information, please visit http://www.irs.gov/newsroom/article/0,,id=204671,00.html.

Services Offered By Step By Step Financial

Written by on February 8, 2011 in Uncategorized - No Comments

I often get asked to give a brief summary of the services I offer here at SBS.  With that in mind, I have written the following blog post.  Enjoy and please comment!

At this time, we have three predominant services we offer to individuals and businesses:

1.  Fee-Only Financial Planning Retainer Service for Pre-Retired Married Couples and Entrepreneurs

Step By Step Financial is a fee-only financial planning firm in the metro-Tulsa, OK area. What makes us different from many financial firms is that we offer professional, objective tax and financial planning services on a one-to-one personal level. We are an independent firm whose complete focus is on the client.

We work with a small number of individuals in order to best serve each one, remaining focused on the needs of our clients. The only compensation we receive is directly from our clients. We do not receive commissions, referral fees or third-part incentives. 

2.  Individual and Business Tax Planning and Preparation

Along with the holistic financial planning services we offer to our clients, Step By Step Financial, LLC also services the tax preparation needs of many individuals and businesses. Kevin Jacobs, CFP®, EA is enrolled to practice before the IRS.

The fees for tax preparation are very straightforward. We serve the needs of our tax preparation clients on an hourly basis. For individual clients, the hourly rate is $75/ hour for the first four hours and $37.50 for each additional hour after the initial four. For business returns, the hourly rate is $75/ hour. There is a minimum fee of $75 for all returns.  If you are looking for a second opinion on your individual or business return, we also offer that service at our standard business tax preparation rate.  There are no additional charges for e-filing or document preparation.

3.  401k Retirement Plan for Small (as few as one participant) to Medium-Sized Companies

If you are looking to start a 401k plan for your company or if you are not happy with your current provider, please contact me so we can discuss the benefits of a multiple employer plan.  Most small businesses do not know the liability they take on in offering a plan to their employees.  On top of that, the fees charged by most providers are astronomical for the small to medium-sized businesses.  You have nothing to lose by setting up an initial consultation for us to discuss your company’s retirement plan.

Common “Do-It-Yourself” Tax Preparation Mistakes

Written by on February 6, 2011 in broken arrow, Enrolled Agent, fee only, financial adviser, Financial Planning, Tax Planning - 1 Comment

I find three of the most common “do-it-yourself” tax preparation mistakes include capital gains, business asset depreciation and  rental home cost basis.

 Many people do not know the  difference between short-term (1 year or less) and long-term (1 year and 1 day+) capital gains tax treatment.  I have met individuals who had to pay more in tax then necessary because they sold their asset within a day or two of it becoming a long-term asset.  Knowing the difference between short-term and long-term capital gains can save you up to 20% or more on your federal return.  If you receive an inherited asset, it is deemed to be a long-term capital gain and it receives a step-up in basis.  This means your basis is what it was worth on the day the grantor died.  If you have capital gains on your return and/ or your received an inherited asset, I strongly encourage you to seek out a professional and competent tax professional.

Moreover, another area worth significant tax savings on your return is calculating and planning your business asset deprecation correctly.  I have had to amend many returns to correct their depreciation schedules.  It is important you keep your purchase documentation for business assets and allow your tax professional to determine the best course of action in preparing your depreciation schedules.  Many times, if I have a start-up business, it is more advantageous to depreciate business assets rather than taking a Section 179 expense deduction.  If your business is showing a loss even before you have calculated depreciation, it is probably not in your best interest to expense the asset.

Finally, cost basis tracking on rental properties is another area where I see common mistakes.  This is especially evident with converted personal to rental property.  If you convert your home from a personal residence to a rental, your basis for depreciation is either the FMV (Fair Market Value) or adjusted basis at the time the property was converted.  The adjusted basis is the original purchase price of the home in addition to many improvements and purchasing expenses.  The basis for your rental property is the lower of these numbers (current FMV or adjusted cost basis). 

Unless you have a very simple tax return, I strongly encourage you to seek out the advice of a competent professional.  Tax preparation work is very tricky and can cost you in the long run if it is not done correctly.  If you have capital gains, business depreciation or rental property on your return, I would consult with either a CPA or Enrolled Agent before filing your own return.  The value of a good professional should far outweigh any fee they may charge.

R U Ready for 2011? “Retool” Presentation Notes from BA Lead$ Summit

Written by on January 27, 2011 in broken arrow, Enrolled Agent, Tax Planning - No Comments

Below are my notes and questions I used for the Lead$ Summit today at the Broken Arrow Chamber of Commerce.  Use these notes to help you “retool” for the New Year!  Feel free to leave comments below.

Retool

 Presented by:  Kevin Jacobs, CFP®, EA

Owner of Step By Step Financial, LLC

 Definition of Character

  • “The ability to meet the demands of reality.”
    • Dr. Henry Cloud, Integrity, pg. 24

Aspects of Character

  • “The ability to connect authentically (which leads to trust).”
  • “The ability to be oriented toward the truth (which leads to finding and operating in reality).”
  • The ability to work in a way that gets results and finishes well (which leads to reaching goals, profits or the mission).”
  • The ability to embrace, engage, and deal with the negative (which leads to ending problems, resolving them or transforming them).”
  • The ability to be oriented toward growth (which leads to increase).”
  • The ability to be transcendent (which leads to enlargement of the bigger picture and oneself).”
    • Dr. Henry Cloud, Integrity, pg. 35

http://www.drcloud.com/index-5.html

 With knowing the definition of character, now we can progress at evaluating our life and retooling for the future.

General

  • Are there things you want to do that you haven’t done yet?
  • What is not working in your life?
  • Is your life in balance? 
  • Do you have enough leisure time, vacations, travel, hobbies, and fun in your life?
  • What is your “top ten” list and what are you doing do achieve them?
  • What are 10 things you most love doing?
  • Are there any big adventures you want to have?

 Physical

  • How’s your health?  Are there changes you want to make?
  • Do you want to reduce stress or increase your level of fitness?

 Educational

  • Are there areas of personal growth that you would like to pursue?
  • Is there a degree or professional designation you want to receive?  What steps are you taking to achieve it?

 Social

  • Are you as involved as you would like in your community?
  • Are your friendships what you would like them to be, in terms of both quality and quantity?

 Vocational / Business

  • Are you happy in your current career or profession?
  • Is it rewarding for you?
  • Do you want to increase your income?
  • Is your business profitable?
  • Do you want to start a business?
  • Are there planning or marketing ideas you would like to pursue for your business?
  • Are you working a reasonable number of hours?
  • Have you set your 2011 business activity and income goals?

 Financial

  • What priority does money take in your life? 
  • What are you building wealth for?
  • How much do you need?
  • Are there changes you would like to make in your income, expenses, cash flow, debt, savings, reserves, emergency funds, investing, taxes, or net worth, for example?
  • Are you making the progress toward your retirement / financial independence that you would like?
  • Are there any impending financial decisions that you need to plan for?
  • Is college education funding for your children / grandchildren satisfactory?
  • Are there any changes or improvements you need to make to your home?
  • Is your estate planning up to date?  Are you on track to leave the end-of-life gifts you want to make?
  • Have you reviewed your insurances recently?

 Family

  • Are there family goals you have – trips, more time together, for instance?
  • How is your relationship with your spouse?
  • How are your relationships with your children?
  • How are your relationships with other family members – siblings, parents, confidants?
  • Are your family members taken care of for the future?
  • Do the important people in your life know how much you love and care for them? 

 Philanthropy/ Charitable Giving

  • Do you want to volunteer more – or differently?
  • Are your charitable contributions at the level you would like?
  • Are you satisfied with the legacy you plan on leaving?

 Spiritual

  • Are there things you want to simplify or consolidate in your life?
  • How is your spiritual / religious life?  What can you do to improve it?
  • Are there any spiritual growth activities you want to participate in?

Proactive Tax Planning Strategies

Written by on November 12, 2010 in Enrolled Agent, fee based, fee only, Financial Planning, Investing, Tax Planning - No Comments

Many people fail to plan when it comes to taxes.  You can save significant amounts of money regarding your tax liability if you are willing to be plan.  Below you will find some proactive tax planning strategies:

 1.  Learn the range for the marginal tax brackets.  You can find these at http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm.  With some planning, you may be able to reduce your taxable income so as to be taxed at a lower marginal rate.

 2.  Evaluate your investments and make sure you not only have them allocated appropriately, but also determine if they are in the most tax-efficient vehicle.  See previous blog entry regarding asset location at http://stepbystepfinancial.org/blog/2009/06/14/asset-location-an-often-overlooked-aspect-of-investing/

 3.  Fund your available retirement plans as much as possible.  Don’t just contribute what the company gives you as a match! 

 4.  Document the non-cash charitable contributions you make to organizations, such as Goodwill and Salvation Army.  You give more than you realize.

 5.  Keep track of miles for business, unreimbursed employee expenses, charity and medical. 

 6.  Use your investment losses in your non-retirement accounts to offset gains.

 7.  Be mindful of potential state tax deductions for contributions to 529 college savings plans.

 8.  Consider Donor Advised Funds for charitable purposes.

 There are many other potential tax planning strategies so I encourage you to speak to your tax professional for ideas and suggestions.  Tax preparation is nothing other than “documenting history.”  Tax planning is where the real money is saved.  I encourage you to take some time before the end of the year to see how you can proactively plan to reduce your 2010 tax liability.

Important Information Regarding Roth IRA Conversions

Written by on October 26, 2010 in Financial Planning, Investing, Tax Planning, Uncategorized - No Comments

Below you will find a blog entry from Bert Whitehead, a mentor of mine, with the Alliance of Cambridge Advisors.  This is important information to read and to do something about sooner then later.   I use this information with permission from the author.

Roths Now Make the Tax Code Your Friend!

Bert Whitehead, M.B.A., J.D.©

Starting in 2010, the Tax Code opens up vast opportunities to increase Roth IRA participation for many taxpayers. As I will explain, you will need to consider at least 11 issues or possible strategies to make the most of this and determine the final formula that will reduce your long-term income tax bill and address other financial goals. But I caution you from the outset…Roth conversions are a hot topic with brokers and investment advisors who want to use this as an asset gathering gimmick or earn commissions from transactions. It is a complicated opportunity, and demonstrates how a comprehensive Financial Advisor who handles your taxes, investments, and estate planning is able to add value.

Here’s a review of some Roth IRA basics.

You probably know that if you work and your overall income is low enough, you can contribute to a Roth IRA as one of your annual IRA contribution choices. Your contribution is taxable (that is, you cannot deduct it on your tax return) when it is made. Age 70 ½ distributions are not required and, if taken, withdrawals in later years are totally free from income tax. Depending on your circumstances, this can be a huge advantage. A Roth IRA contribution of $5,000 can grow to $80,000 if invested at 7% over your working career, and you would save taxes on $75,000!

The only way to fund a Roth IRA other than an annual contribution based on earned income is to “convert” an existing IRA (or similar pre-tax retirement account) to a Roth IRA and pay tax on the current IRA distribution now rather than at age 70 ½. . In the past, your total adjusted gross income (AGI) had to be under $100,000 to avail yourself of this option. This is the big change this year.

Starting in 2010, you can convert any of your IRA’s to a Roth IRA no matter how high your income. While you do have to pay the income taxes now, remember that future withdrawals from your Roth IRA are tax-free! The reason why 2010 is a big year is two-fold; 1) there is special relief when paying the income taxes that result from any 2010 Roth conversion and 2) we are all facing the threat of rising income tax rates.

Here are some points to ponder and strategies to consider. Again, these can be complicated so you should expect to discuss whether these apply to you during the year when you do tax planning with your ACA advisor (i.e. a member of the Alliance of Cambridge Advisors).

Read more…

IRS Tax Tips

Written by on January 11, 2010 in Uncategorized - No Comments

If you are looking for some tax tips directly from the IRS, you can check out the website below.  I find these “tips” to be very helfpul.

http://www.irs.gov/newsroom/content/0,,id=104608,00.html

Proposed Tax Preparer CE and Competency Requirements

Written by on January 6, 2010 in Economics, Financial Education, Tax Planning - No Comments

It looks like the IRS has finally put together some proposed recommendations for tax preparer continuing education and competency requirements.  These requirements are for unenrolled tax preparers.  If your tax preparer is an Enrolled Agent, CPA or attorney they are already required to fulfill similar requirements based of their professional status.

Check out the IRS proposed requirements at http://www.irs.gov/newsroom/article/0,,id=217781,00.html