Why Home Insurance Premiums and Tax Deductions Don’t Go Together
Among the great side benefits of buying a home are the tax deductions you also acquire once you sign on the bottom line – and sign and sign and sign. You’ll have to itemize next year to get them, of course. But it’s well worth the time you’ll spend on it. But not everything related to your home, particularly when it comes to home insurance, is deductible.
It really doesn’t follow: Many of the other things related to buying and owning a home are deductible. That includes your mortgage interest payments, your real-estate taxes and, in many cases, your private mortgage insurance payments. Private mortgage insurance usually is required by lenders when the buyer puts down less than 20%. It’s best to check with your tax accountant on whether this deduction is available to you.
But homeowners insurance isn’t deductible. Nor are any closing costs you paid when you buy a home. Nor are utilities, including water, electricity and natural gas.
That being said, the mortgage interest deduction is substantial, particularly in the early years of homeownership, when much of your payment goes toward the interest on your loan. You can reduce your tax liability substantially through using it.
The home business exception
There is one situation in which home insurance premiums – or at least a portion of them – can be deducted. That’s when you operate a home business. This is an extremely complicated area – you should work closely with a tax specialist before you choose this path because there are a number of conditions you must meet before you can qualify.
If you do wind up being able to use the home business option, remember that you’ve now established that you are running a business out of your home. This means you need some form of business insurance – home insurance in most cases will not cover claims related to a business you operate from home. If customers visit your home or if you perform a service that could result in a malpractice or similar claim, you could be vulnerable.
Home insurance premiums and your tax refund
With any luck, however, homeownership means you’ll get a tax refund – possibly a larger one than you were expecting. Now you’ve got a new question: What should you do with that money?
Your options are numerous – you could blow it on something you want, for example. But most people know that’s not necessarily a great idea. Here are some better spending choices that could even save you some money:
- Buy something for your home. Maybe your appliances are wearing out. You could invest in a new refrigerator or dishwasher or water heater. In some cases, if you buy an Energy Star certified model, you could qualify for a tax credit on next year’s taxes.
- Start a roof replacement fund. You likely could get a break on your home insurance premium when you install that roof.
- Pay your home insurance premium in a lump sum using your refund. You’ll likely get a discount for paying in full, and you’ll have peace of mind for the coming year.
This article was contributed by Arthur Murray, who writes for HomeInsurance.com. Arthur has more than 30 years of experience writing for newspapers and magazines. He graduated from the University of North Carolina in 1979 with a bachelor’s degree in Journalism.
How New Farmers Can Save on Taxes
Farmers looking to purchase a farm and start a business or even farmers in their early years of production all have the ability to save more money on their taxes, rather than a well-established farm. New farms tend to have more tax leniencies when it comes to tax credits due to the importance of food security and the high barriers to entry.
If you’re looking to start a farm, have already made the purchase or are already a few years underway, then you can take advantage of certain tax credits that only apply to you or are more likely to occur in the early stages of a farming business, such as losses and start-up costs.
Deduct Start-up Costs
Farmers can deduct up to $5000 in start-up costs, as long as they were acquired or paid after October 22, 2004. This is great for new farmers, since the initial start-up can be quite burdensome. For large farm investments, $5000 may not even put a dent in the initial cost, but for smaller farms this is very beneficial. Nonetheless, it’s still worth deducting.
Average Income
Farms early on may find it difficult to get the swing of things, just like any business, but there seems to be such an initial investment that it may be awhile before actually earning a profit. If this is the case, then farmers can average out their income over the past three years to potentially lower taxes for the current year.
Deduct Loan Interest
The interest paid from loans taken out for farming operations can be deducted. Keep in mind, using the cash method, this does not apply to interest paid by using another loan and the interest can’t be deducted if paid before the year it’s due, but only during the year it’s due. Using the accrual method, only interest accrued during the tax year can be deducted and must be allocated to either one of the following categories:
- Trade or business
- Passive activity
- Investment
- Portfolio
- Personal
Employment Tax Credit Benefits
Hired hands are oftentimes a must for farming operations, especially organic or sustainable farms, since they require more physical labor. This is beneficial since labor costs can be deducted. You can even deduct health insurance, workers’ compensation, along with other labor costs.
Rental & Crop Share Write Offs
Some farmers might benefit more if they rent equipment when starting their farming operation. Such instances are if there is greater risk involved and the farmer doesn’t want to purchase equipment. If this is the case, you deduct payments, but only if it is a lease and not a conditional sales contract. This will be determined as part of the agreement. If it is a conditional sales contract, then damages, repairs, interest and maintenance can be deducted.
Crop shares are percentages of crop harvests paid by the renting farmer to the land owner for using his or her land. This expense is deductible. However, if you pay rent in crop shares it can’t be deducted if you deduct the costs of raising the crops.
Deduct Damages & Depreciation
Buildings, equipment and even property have a depreciation factor to take into account when operating a farming business. As mentioned above, if renting, make sure to verify it as a conditional sales contract or a lease in order to know how to properly deduct the depreciation, as well as other deductibles.
Damages are covered through insurance. These can typically be deducted as a business expense and are include as fire, storm, crop, theft and liability damages.
These expenses don’t come close to what will be experienced or accrued by a farmer, but you can go on the IRS’s website and search for publication 225. This form will somewhat clearly tell any farmer what they need to know.
About the author
Sam Ott writes for Absolute Auction & Real Estate Co, who offers farms for sale in Northern Missouri. Visit their website for more information on listings in Northern Missouri.
4 Eco-Friendly Ways Homeowners Can Get Higher Tax Deductibles
The end of the tax season is near. If you’re a homeowner who supports green energy and are running late on filing your taxes, then you have the chance to obtain higher tax deductibles. Not only does green energy save you money in the long run, but it can also save you money now.
At this point, your home either utilizes green energy or it doesn’t. If it doesn’t it’s too late to acquire higher tax deductibles for the past year, but don’t let that stop you from installing green energy and getting those deductibles for the following tax season, since some of these opportunities won’t be available by the end of 2013. For those who do have certain eco-friendly forms of energy installed in their homes, then get ready for some savings.
Water Heating (Solar & Non-Solar)
Solar water heaters use the sun’s energy to heat water, but there are other energy efficient water heaters that have tax credits. Up to 30% of cost for solar water heaters can be reclaimed, which includes the installation of the property.
Requirements for solar water heaters:
- No less than 50% of the energy generated must come from the sun.
- Water must be used strictly within the household.
- Solar Rating and Certification Corporation (SRCC) certified or through an entity certified by the government.
- Installed and in service by December 31, 2016.
Non-solar water heaters have a $300 tax credit. Here are the requirements for gas, oil and propane water heaters:
- Energy factor must be greater than or equal to .82
- OR it must have a thermal efficiency of at least 90%
- Installed and in service by December 31, 2013.
Requirements for electric water heaters:
- Energy factor must be greater than or equal to 2.0
- Installed and in service by December 31, 2013.
- You can find all of the qualified EnergyStar solar, gas, oil, electric and propane water heaters on the EnergyStar.gov website.
Wind Energy
Wind turbines collect kinetic energy from wind and convert that energy into electricity. Up to 30% of the cost of the property, including installation is eligible for a tax credit.
Requirements:
- Its nameplate capacity must be no more than 100 kilowatts
- Installed and in service by December 31, 2016.
Metal Roofs
Metal roofs are energy efficient and environmentally friendly. Depending on a home’s location, homeowners can save up to 40% in yearly energy costs. They have a cheaper life cycle and are more durable, meaning less maintenance is needed and less landfill waste. Metal roofs utilize a special coating technology that improves a home’s energy output, plus they are made from 30-60% of recycled material.
The tax credit amount for metal roofs is 10% of the cost up to $500, but does NOT include installation.
Requirements:
- Must have an appropriate pigment coating.
- Installed and in service by December 31, 2013.
Solar Panels
Similar to solar heat pump, solar panels generate energy from the sun and convert into electricity, rather than water heating. Up to 30% of the cost of property, including installation can be reclaimed.
Requirements:
- If photovoltaic system, electricity must be solely used by the residence.
- If photovoltaic system, must meet fire and electrical code requirements.
- No less than 50% of the energy generated must come from the sun.
- Water must be used strictly within the household.
- Solar Rating and Certification Corporation (SRCC) certified or through an entity certified by the government.
- Installed and in service by December 31, 2016.
Green investments save you money in the long run and the government has incentivized homeowners who support and invest in green energy. People looking to purchase real estate and invest in green energy have the choice of saving even more money on their taxes. Initial homeowners can take advantage of all the green tax breaks in the beginning of a real estate purchase, while some can also deduct mortgage interest rates from their loans. What better way to start and save than to start green.
About the author
Sam Ott writes for Assist-2-Sell Realty, an honest and experienced real estate company in Kirksville, MO. Visit their website for more information on honest and experienced real estate service.
Top Five Ways to Avoid Business Tax Debt
Starting a business can be quite a daunting task. Keeping a business profitable can be even more complicated. One very important aspect of keeping a business profitable is understanding how taxes affect your particular type of business, i.e., whether it is limited or non-limited, proprietorship or company, or which niche it is in like health, finance such as ppi reclaim and loans etc. and how to avoid tax debt. Knowing the rules and regulations that affect your type of business entity can save you a great deal of time and money!
The first step in avoiding business tax debt is defining what type of business you have and understanding how it is taxed. For example, if you are a sole proprietor, you will be taxed very differently than an incorporated business. If you incorporate your business, you would need to still decide which type of business entity to form, such as an LLC, S Corporation or C Corporation.
The second way to avoid business tax debt is to understand business financial reporting. More importantly, you must know what reports your business is required to file for taxes and how often you are required to file to avoid back taxes, penalties and interest.
The third way of avoiding business tax debt is understanding what can be taken as deductions for your business and how to properly report those deductions. You would need to know how to keep records for employee payroll and payroll taxes. You would need to also know how to expense such items as health insurance for self-employed individuals, health insurance for employees, vehicle expenses, sales tax and more.
The forth method of avoiding business tax debt is hiring a tax professional. For most business owners, a CPA or Certified Public Accountant is the right choice. CPAs are educated in all matters of taxation and accounting. They can advise you on the correct business entity to choose when setting up your new business, and they can advise you on how to manage your income and expenses so that you avoid business tax debt.
The fifth way to avoid is to file all required tax returns and pay your taxes in full and in a timely manner. This sounds very simple, but this is a very common and costly mistake among many businesses.
Without proper knowledge, it is easy to find yourself and your business in tax debt. It is important to make every effort to be educated about your business and to make as many good decisions as possible, especially when starting a new business.
Author Bio: The guest post was contributed by Lucy, financial guest blogger from Manchester, UK. Find out more about her blogs @financeport.
4 Simple Ways You Could Be Paying Too Much Tax
Whether you’re a self-employed tradesman or a CEO of a famous multinational company, anyone who’s earning a decent wage will be paying tax in the UK. For anyone earning more than £8,105 in the financial year that ends in April 2013, tax is an inevitable, some say unfortunate, part of life.
But did you know that you could be paying too much tax? There are a number of relatively simple ways that your tax could be miscalculated and mis-collected – resulting in too much money leaving your bank account. And so, if you got wise to it, you should be able to reclaim it back from the helpful hands of Her Majesty’s Revenue and Customs.
But what are the simple things you can check? What should you check in order to prevent paying too much tax?
Your Tax Code
We all get assigned a tax code from the Government that establishes exactly how much tax must be paid from our pay or pension. Usually a tax code will consist of 3 numbers and a letter, and most people will have a tax code of 810L. However, tax codes become a little more confusing and ripe for over-payment if you get income from more than one employer, as they’ll probably each use a different code. And because a tax code doesn’t tell employers how much you earn (simply how much should be taken) it could result in too much being paid.
So, make sure that your tax codes correlate, and if you aren’t sure that they’re the correct ones, then contact HMRC with your PAYE reference and your National Insurance number and they’ll ensure you’re paying the right amount.
Your Timing
It’s easy to forget that missing your tax return deadline will add a significant bill to your year’s taxes. For making a paper tax return, you’ll need to file it before 31St October, while internet filers have until the proper deadline of 31 January.
Your Expenses
Many businesses and owners will spend their own money while away on work, or on vehicle running costs on the way to a job or even on utility bills in the workplace, without knowing that they can claim that money back as expenses. As outlays such as this are defined as a ‘business cost’, they’ll be deducted from the profits of your business – ensuring that you pay less tax as a result. So, if you find yourself paying personally for basic business costs, get into the ‘expenses’ habit, and you’ll save tax money.
You’re saving in the wrong place
The vast majority of us will save our money in one way or another – whether it’s stowing pennies and notes away under the bed, or putting them in a mainstream savers account. But some specific accounts, notably cash ISAs, allow you to save up to £11,532 in 2013 before paying tax on it. So if you are putting your savings into a non-ISA, not only would you be paying too much tax, but you’d be missing out on great investments for the future as well.
Author – Payrize offers a wide range of umbrella tax solutions for self-employed contractors across the world. For more information about saving thousands of pounds every year from your tax bill through legal means, contact Payrize today.
