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.

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…

Avoiding the Extremes

Written by on April 18, 2010 in Uncategorized - No Comments

I believe one of my greatest responsibilities is to help my clients avoid extremes.  It seems like there is a lot of “extreme” talk right now.  I hear it everywhere.  Regarding politics, this is either the worst time in American history (if you are a conservative) or this is the beginning of a new era of Enlightenment (if you are liberal).  I hear it with sports as well.  How many people said the last Super Bowl between the Saints and Colts was the best Super Bowl ever?  How many times did you hear reporters ask Coach K if he thought this year’s Duke team was the best ever?  How many people are already comparing LeBron James to the all-time greats of NBA history?  On the other hand, how many people would watch “Makeover:  Home Edition?”

The reason why I say this is to show you how all this “extreme” talk effects people’s view of their finances.  When people believe the investments they own will either go to one extreme or the other, then they will make an irrational decision not based on the facts, but based on fear or foolishness.  It is my job and the job of any Financial Advisor worth the fee you pay him to help you avoid the “extremes” regarding your financial life and financial decisions.  It is okay to be concerned about the future of the economy and to invest more conservatively or to feel a need to invest more aggressively because you think the market will go up.  However, it is not okay to go extreme!  The saying is true:  Do not put all your eggs in one basket.  The basket is your emotions and it is important to know the facts and to make decisions based on facts, not the latest idea conjured up by the talking head on TV or the “guru” you read about in the paper.

If you are looking for financial guidance, I encourage you to seek out a Financial Advisor that can help keep you from making “extreme” decisions about your money.  You do not want a “yes-man” who is only looking out for themselves but rather, you need to look for an advisor that will keep you and your emotions in mind, so you do not make inappropriate long-term financial decisions.

Revisiting Financial Security

Written by on April 5, 2010 in Economics, Financial Education, Investing, Motivational, Security, Tax Planning - No Comments

When I first started this blog, I wrote an entry about defining and achieving financial security.  As I talk to more and more people about their experiences over the last 18 months during what the popular culture has called the “Great Recession,” I am witnessing some common themes of concern:

1.  The stock market is up considerably since its low in March of 2009, but how do we know it won’t “crash” again tomorrow? We don’t know! It used to be common knowledge and belief that you knew you would have some ups and downs in your investments, but in the long run you would achieve profits by investing in market.  From the conversations I have had with many people, it seems like there is this general sense they are waiting for the “next shoe to drop.”  It reminds me of the weeks and months after 9-11 where I was glued to the cable news networks waiting to hear about the next terrorist attack.  I sense an underlying fear in most individuals and business owners.  They are waiting to see how everything works itself out.  The danger of this view is that you become a market timer and try to “guess” what your latest stock holdings and the economy as a whole will do.  The danger is you get so consumed with things you can’t do anything about and fail to make a difference in your life and the lives of those you care about the most.

2.  What will higher taxes do to my future plans? I have been hearing this one especially since the passing of the health reform bill.  There is a general confusion of what is and what is not in the legislation and I think people are skeptical of what may happen to their individual tax situation in the future.  For the clients I work with, I tell them there is one thing for sure:  their taxes will go up!  How much their taxes will go up we do not know yet.  I tell them it is important we continue to plan and make the best tax and financial planning decisions we can at the time with the information available to us.

3.  How do I know I have reached financial security? I hear this quite often.  An individual may also say, “how do I know I will not run out of money?”  These are important questions to address no matter what the economy and the stock market are doing.  Where many people fail in their quest to achieve financial security is they fail to define what financial security is for themselves and instead they allow the “talking-heads” on TV or the magazine covers to define it for them.  Until you define what is most important to you and lay out a plan to achieve it, you will never reach financial security.

So these are some of the concerns people have right now is these difficult times, however, with all the chaos it is important to remember you are in control of your situation more then you believe.  You need to control the things you can, such as how much you save, how much you spend and what you invest in and let everything else take care of itself.

Control the Things You Can

Written by on January 18, 2010 in Financial Education, Security - No Comments

“Control the Things You Can” was written by Tedd Oyler, a member of the Alliance of Cambridge Advisors who practices in Saugatuck, Michigan.  This article was originally published as the second part of a series on how to do a financial check-up.

The lament of the powerless goes something like this: “It doesn’t matter how hard I work–the bills just keep piling up; the stock market and the cost of living are killing me; the politicians are ruining everything.”  You may have had these, or similar, thoughts before.  This is sad, for it is unnecessary to feel like you have no control over your financial future.

Our information culture offers a range of financial data and “advice,” ostensibly to help you take control of your financial life.  Perhaps you listen to daily (or even hourly) market reports.
Perhaps you are concerned that the Fed is changing interest rates.
Perhaps you care about the pundits’ predictions as to what the economy will do over the next quarter, or year, as if what they think matters.  Perhaps you even read books on investing, and there are certainly enough of those.  If we take seriously the notion that we can do something about our financial health, and if we acknowledge that money is but a tool that we can learn to master, then we are ready to look at what things we CAN control in our financial lives.

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

Your Greatest Asset: Yourself!

Written by on August 26, 2009 in Motivational, Security - 1 Comment

What do you think of when you think of your greatest asset?  You may think of your home, investment accounts, vehicles or a family heirloom.  In reality, you have an asset that is far greater than any of the aforementioned items.  The greatest asset you have is yourself and the ability you have to earn an income.

When I worked for a commission-based financial advising firm, we would lead with the first question above to begin the long-term disability sales process.  We have insurance for all of these tangible assets (house, vehicles, etc) but many times we do not have any or we are completely ignoring the need to have insurance on our future income earnings.  I want to look at this question a little differently now, though.  I want to look at the “cap” you may be putting on your future income and future well-being at this very moment.

I work with many entrepreneurs and the successful ones have something in common.  They realize that their income and ultimate success is contingent upon their ability to create something of value and then market that item or service so others will pay for it.  I see a lot of people who have comfortable “jobs” working for someone else are putting a “cap” on their potential earnings.  If you are working for someone else, you are allowing them to tell you what your value is to the company or organization.  If you think you need a raise, what you are really saying is that your services are “undervalued.”  I used to think I would only be able to make XX amount of dollars in my previous career.  The thing I soon realized is that my self-esteem and the value I was giving myself was based on someone else telling me what I was worth.  It was not until I looked at my situation objectively that I realized I could provide tremendous value to others and be compensated fairly for it.

Read more…