House Mortgage Interest Deduction

Catching up with the house Mortgage Interest Deduction

A house is the foremost valuable plus many folks own. So, it’s vital to stay awake to the tax impact of home possession and to rigorously track the debt you incur to shop for, build or improve your home-known as “acquisition indebtness.”

Among the most important tax perks of shopping for a house is the flexibility to deduct your mortgage interest payments. However, this deduction has undergone some changes recently, therefore you’ve got to do some catching up.

mortgage interest RIBefore the passage of the Tax Cuts and Jobs Act (TCJA) late last year, a payer might deduct the interest on up to $1 million in acquisition indebtness on a principal residence and a second home. And this still holds true for mortgage debt incurred before December 15th, 2017. However, the TCJA tightens limits on the itemized deduction otherwise.

Specifically, for 2018 to 2015, it typically permits a payer to deduct interest solely on mortgage debt of up to $750,000. The new law typically suspends the deduction for interest on home equity debt: For 2018 to 2025, taxpayers can’t claim deductions for such interest, unless the payoff is to build or well improve the taxpayer’s principal or second home.

Step rigorously if you own a second residence and use it as a rental. For a home to qualify as a second home for tax functions, its owner should use it for over fourteen days or bigger than 10% of the amount of days it’s rented out as honest value (whichever is more). Failure to satisfy these qualifications means that the house is subject to totally different tax rules.

Please contact our firm for help in properly deducting mortgage interest and to see how other aspects are impacted for your personal tax planning.

Gentile Stephen T CPA
109 Airport Rd, Warwick, RI 02889
(401) 739-6110

3 Strategies for handling estimated tax payments

From the Warwick Bookkeeping experts at Gentile Stephen T CPA.

In today’s economy, many individuals are self-employed. Others generate income from interest, rent or dividends. If these circumstances sound familiar, you might be at risk of penalties if you don’t pay enough tax during the year through estimated tax payments and withholding. Here are three strategies to help avoid underpayment penalties:

1. Know the minimum payment rules. For you to avoid penalties, your estimated payments and withholding must equal at least:
*90% of your tax liability for the year
*110% of your tax for the previous year, or
*100% of your tax for the previous year if your adjusted gross income for the previous year *was $150,000 or less ($75,000 or less if married filing separately).

2. Use the annualized income installment method. This method often benefits taxpayers who have large variability in income by month due to bonuses, investment gains and losses, or seasonal income – especially if its skewed toward year end. Annualizing calculates the tax due based on income gains, losses and deductions through each “quarterly” estimated tax period.

3. Estimate your tax liability and increase withholding. If, as year-end approaches, you determine you’ve underpaid, consider having the tax shortfall withheld from your salary or year-end bonus by December 31. Because withholding is considered to have been paid ratably throughout the year, this is often a better strategy than making up the difference with an increased quarterly tax payment, which may trigger penalties for earlier quarters. Finally, beware that you also could incur interest and penalties if you’re subject to the additional 0.9%. Medicare tax and it isn’t withheld from your pay and you don’t make sufficient estimated tax payments. Please contact us for help with this tricky tax task.

Gentile Stephen T CPA
109 Airport Rd, Warwick, RI 02889
(401) 739-6110

Developing a Household Budget

Tax tips from Warwick RI accountants Stephen T. Gentile C.P.A.

When developing a household budget, the first thing to do is to summarize what you are currently spending. You generally want at least three months summarized, but six to twelve months is better. You can develop this summary in one of several ways: 1) pencil, paper and adding machine, 2) a spreadsheet such as Excel (there are some templates that might help), or 3) one of several programs like Quicken. The primary purpose of this exercise is to identify where you are currently spending your money.

You should then classify the items you are currently spending into three basic groupings: 1) Recurring Expenditures (such as mortgage, utilities, food and other recurring monthly expenses). 2) Financial Goals (such as funding your 401k or IRA, health insurance, college expenditures) and 3) Discretionary Spending (such as recreational items and hobbies).
Look for benchmarks to use as a guideline. Below are some suggested benchmarks for categories of spending. The percentages are expressed in relation to total household income. However I offer this warning, “one size does not fit all.” These percentages are only suggestions and care should be used when considering your personal financial circumstances.

1. Housing 25%
2. Utilities 8%
3. Food 14%
4. Clothing 4%
5. Medical/healthcare 6%
6. Charity 4%
7. Savings/Insurance 10%
8. Entertainment/Recreation 5%
9. Transportation 14%
10. Other debt or discretionary 10%

In most families, developing a budget can be a difficult matter. A budget, however, is an important tool to set financial goals and realign spending that will ultimately help to achieve your financial goals.

For more information of this topic or any other financial or tax matter, please call (401) 739-6110, email us or visit our website here http://gentilecpa.com/.

Gentile Stephen T CPA
109 Airport Rd
Warwick, RI 02889
(401) 739-6110

Financial Planning

  • Families with young children can save for college with an account established under the Uniform Transfers to Minors Act. A child’s investment account can potentially earn up to $2,100 annually without incurring any tax liability.
  • If the investment account earns higher amounts of income, the “kiddie tax” may apply, subjecting the income from the account over $2,100 to tax at the parents’ top marginal rate. The kiddie tax may apply to children 18 and older if their earned income does not exceed one-half of their support for the year.
  • The annual gift exclusion can be used for parents to gift as much as $14,000 annually ($28,000 if two parents split gifts). In most states, the property in the investment account must be distributed to the child when he or she reaches age 21.
  • Another college savings vehicle, a Sec. 529 plan, exempts earnings from investments in the plan from current taxation, and distributions from the plan that are used to pay the beneficiary’s qualified higher education expenses are also not taxed. Investing through a Sec. 529 plan may yield a more favorable financial aid calculation, since assets in a plan are counted as owned by the parents.

If you need any additional information on the information contained in this article or if you have any other questions please feel free to contact out offices, click here to visit our website.

 

Gentile Stephen T CPA
109 Airport Rd
Warwick, RI 02889
(401) 739-6110

 

Ford, Allen Ph.D & Wiebe, Zac. “Financing for college with the Uniform Transfers to Minors Act.” Journal of Accountancy July 2015: Page 58. Print.

Avoid Gift Treatment by Paying Expenses Directly

RI CPABrought to you by Stephen T GENTILE CPA

The annual exclusion for gifts remains at $14,000 for 2015(married couples can gift up to $28,000 combined). This limit applies to the total of all gifts, including birthday and holiday gifts, made to the same individual during the year. However any payment made directly to the medical care provider or educational organization for tuition is not subject to the gift tax and, therefore, is not included in the $14,000 limit.

So when paying tuition or large medical bills for parents, grandchildren or any other person who is not your dependent minor child be sure to make the payment directly to the organization or service provider. Don’t give the funds to the parent or other individual first and have them pay the school, doctor or hospital. By doing so, you have made a gift to that person, subject to the $14,000 limit. In summary, make direct payments to schools or medical providers and avoid taxable gifts that could be subject to the gift tax or reduce the payer’s unified credit.

Caution: Direct payments of tuition reduce the student’s eligibility for financial aid on a dollar-for-dollar basis. However, if the gift were made directly to the student, only 20% of the gifted assets would be counted as assets of the student for financial aid purposes. Accordingly, careful analysis of the trade-offs between the gift tax exclusion and impairment of financial aid eligibility should be considered.

Gentile Stephen T CPA 109 Airport Rd Warwick, RI 02889 (401) 739-6110