Categories
Business Taxes

Can Business Owners Write Off Gas for Their Car on Taxes?

With tax season 2018 in full swing, business owners are scrambling to get their records in order to make sure they not only stay compliant, but that they write off everything they are legally able to.

And an area that often causes confusion with self-employed people is that of how to write off the expenses for their vehicle. A lot goes into that topic, such as if the vehicle is used exclusively for business, and if not, how much of it is used for business?

So Can I Expense What I Pay for Gas?

In a word, yes. However, it may not be beneficial for a lot of business owners to do this.

You see, you get to choose between the actual expense method and the standard mileage method. You’ve likely heard of someone tracking their mileage for business. The reason they do this is they get to expense a certain amount of money for each business mile driven.

In 2018, that amount is 54.4 cents a mile driven.

For most business owners, this method is much easier than having to track the actual expenses and then determining afterwards what percentage of their expenses were from business and which were for personal.

So Should I Expense the Money I Spend on Gas?

That question gets to the root of the problem. Should you? Most accountants will argue that using the standard mileage rate is not only easier for record-keeping, it usually will give a bigger deduction for the year because the standard mileage rate is meant to include an average for cost of fuel and depreciation, something that is not easily tracked otherwise.

Your best bet is to speak to a professional, however, and determine together which will be the best route. Depending on how much business driving you do and what type of vehicle you own, one method or the other will likely be significantly more beneficial.

 


This article is not meant to be tax, legal, or financial advice. For help with your situation, please consult a local professional.

Categories
Taxes

Can I Claim My Student Loan Interest If I Don’t Itemize?

The government wants to help promote education through certain means, and one of those means is through tax benefits.

If you have paid over $600 in student loan interest in 2018 the organization servicing your loan must provide you with a 1098-E statement. This statement will serve as proof of the amount you’ve paid in interest for the year.

So What Do I Do With This Statement?

The tax benefit associated with paying student loan interest is it is deductible against your income subject to tax. This will be subject to certain limitations, such as income limitations. Single filers with $80,000 in income or married filers with $160,000 in income are unable to deduct their interest payments.

In addition, being claimed as a dependent excludes you from being able to deduct your student loan interest.

If you are using tax software, there will be a place to fill out this information and match it to the form that you received. The software will likely be able to take care of the rest without any further intervention from you.

Can I Take This Deduction Even If I Don’t Itemize?

For the uninitiated, taxpayers have the choice of either itemizing their deductions (claiming deductions based on what they actually paid) or taking the standard deduction. For tax year 2018, the standard deduction is $12,000 for single filers and $24,000 for taxpayers that are married filing jointly.

Taxpayers will take the greater of their itemized deductions or the standard deduction.

Luckily, student loan interest is deductible whether you itemize your deductions or not. Student loan interest is a deduction for adjusted gross income, not from it.This makes it incredibly powerful, as it can be added on to the standard deduction.

 


This article is not intended to be tax, legal, or financial advice. For information regarding your specific situation, please consult your local professional.

Categories
Medicare

What Is Medicare Part A?

The two parts of Original Medicare are Parts A and B. As Americans get older and get closer to retirement age, they look more and more into what Medicare is, what it covers, and how to apply for it.

Therefore, it is important to know what the two primary parts of Medicare are and what they cover. For now, we’ll only be reviewing Medicare Part A and we will review Parts B, C, and D in a future article.

So What Is Medicare Part A?

Medicare Part A is hospital insurance. This means that it covers inpatient care and hospital fees. However, it does not cover doctor’s services. That is where the other parts of Medicare come into play.

What is Inpatient Care?

While the definition of inpatient care may vary by hospital, it primarily relates to a patient who will at least be admitted overnight.

If the patient would be released same day, generally they would be considered outpatient.

So is There Anything Else that Medicare Part A Covers?

Aside from covering the hospital fees themselves, Part A covers: skilled nursing care facilities, short-term nursing home care, hospice, and home health care.

Great, So How Much Does Medicare Part A Cost?

Generally, for most taxpayers Medicare Part A is completely free. The reason for this is we’ve been paying into it for most of our working lives so it is what is referred to as an entitlement.

The logic is similar to Social Security. We paid into the system while we worked and we get to take from the system when we retire.

So There is No Deductible Either?

When we say free, we mean that there is no premiums. There is, however, a deductible when you use Medicare, just like any other health insurance plan. The maximum will vary by year, so check with cms.gov to ensure you know the maximum you would have to pay out of pocket.

 


This article is not intended to be financial, tax, or legal advice. For help regarding your specific situation, please consult your local professional.

Categories
Budgeting family finance

How Much Should I Have in an Emergency Fund?

We’re all on the path to better ourselves financially, and a big part to that is having a safety net. When it comes to our finances, that safety net takes a few different forms; but usually this boils down to a form of insurance.

And an emergency fund is insurance against going into debt.

A question we get a lot is: “How much money should I have in my emergency fund?”

The good news and the bad news is the same in this case: There is no right answer. Everyone is going to be different. At its core, the answer to this question is “however much money you need to have saved up not to go into debt in the case of an emergency.”

But What Do the Experts Recommend?

Financial planners generally recommend that you save up three to six months worth of expenses in an emergency fund. It is important to remember that we’re talking about three to six months worth of expenses, not income.

Look at your budget and determine how much money you have going out in expenses that are required to live every month. This does not include money going toward savings, investments, charities, etc. That income is strictly surplus money in the budget.

What Do You Recommend?

Generally, we recommend the same as the experts. Three to six months should suffice most financial catastrophes. But we like to call the number that works for you and your spouse the Sleep at Night Number.

What number in your savings account helps you sleep at night? What number in your account helps you not worry about what your investments are doing? What number helps you and your spouse not feel stress about money?

That number is your sweet spot.

What number helps you sleep at night? Do you agree with the experts with three to six months or do you have a different idea of what should be in your savings account?

 


This article is not intended to be financial, tax, or legal advice. Please consult a local professional for help with your specific situation.

Categories
Budgeting family finance

Should I Pay Off Debt and Invest at the Same Time?

We all want to pay off debt. And we all want to put more money into our retirement plans (401k’s, IRA’s, etc.). But do these two things conflict?

They shouldn’t. They’re both working towards the same goal: a better financial future for yourself.

So Do I Invest While I Pay Off Debt?

We hear the argument made all the time: “Why would I pay off debt at 3-4% interest when my investments make an average of 6-7% every year? I can make the minimum payments on my debt and invest and come out ahead.”

Look, we get that you can crunch the numbers. But this is personal finance. And it is important to remember that nothing in personal finance makes mathematical sense. Personal finance is almost entirely psychological, not numerical. And that statement alone is enough to make a person with a finance degree cringe.

If we made personal financial decisions based on what made numerical sense, we wouldn’t have debt in the first place.

So I Shouldn’t Invest While Paying Off Debt?

Yes. Saving and paying off debt are conflicting goals. This has nothing to do with the numbers making sense or that both of these actions help work toward your future.

They conflict because you can only do one thing aggressively at a time. If you try to pay off your pile of student loans at the same time you are trying to grow your investment portfolio, you will lose your mind. You will get burnt out and give up.

It is so important to feel small victories when working on yourself financially, just like it’s important to have small victories when dieting or exercising. This is where the psychological side of personal finance comes into play.

The balance in your 401k won’t matter when you have hundreds of thousands in student loan and credit card debt. The stress will pile up from the debt and your IRA won’t be there to comfort you until you turn 59 ½.

But what do you think? Have you gotten out of debt at the same time you invested? Do you think it’s more beneficial to focus on paying off debt before investing in mutual funds?

 


This article is not intended to be financial, tax, or legal advice. For help regarding your specific situation, please consult your local professional.

Categories
Taxes

Can I Claim My Girlfriend as a Dependent for Taxes?

Ever wonder who you can claim as your dependent for tax purposes? Your children, parents, friends, etc might be potential dependents.

But have you ever wondered whether you claim your boyfriend or girlfriend? The rules for dependency claiming and exemptions do extend to and cover whether you can claim a boyfriend or girlfriend.

So Can I Claim My Girlfriend as a Dependent?

The short answer to this question is yes, you can claim a boyfriend or girlfriend as your dependent.

But nothing in tax warrants a short answer. Your boyfriend or girlfriend will still have to pass the dependency rules just like any other potential dependent.

What Rules Apply in this Case?

Seeing as your boyfriend or girlfriend is not a qualifying child, they will have to pass the tests laid out for qualifying relatives.

What Tests Are Those?

Let’s start with the support test: you must provide over half of the support for your boyfriend or girlfriend throughout the year in order to claim them.

Next, they must meet the relationship/member of household test. Seeing as your boyfriend or girlfriend will not be directly related to you (hopefully), they must be a member of your household for over half of the year.

After the relationship test is the gross income test. This means that your boyfriend or girlfriend must have gross income under the filing threshold. In 2018, this would be $4,150 for the year.

What Benefits Do I Get for Claiming My Girlfriend?

While claiming a dependent for 2018 and 2019 will not yield an exemption, it will generate a credit for the taxpayer.

For claiming your boyfriend or girlfriend, you will get the Other Dependent Credit, yielding a $500 credit.

Remember, a credit is a direct reduction of your tax. This is much more powerful than a deduction or exemption of the same amount, because these only reduce your taxable income

 


This article is not intended to be legal, tax, or financial advice. For help regarding your specific situation, please consult your local professional.

 

Categories
Business finance Taxes

Do I Get A Tax Deduction for Saving Into My 401K?

The government wants to help encourage its citizens to save for things it thinks are beneficial, such as: retirement, healthcare, and college. And one of the ways it does this is by making certain plans and savings vehicles “qualified.”

All that the term “qualified” means is that the savings vehicle is tax advantaged in some way. These include things like Health Savings Accounts, Individual Retirement Accounts, and yes, your employer’s 401k.

So What Kind of Advantage Do I Get for Saving Into My 401k?

Aside from saving money for retirement and letting it grow, you do get other advantages. Money going into a normal 401k goes in pre-tax. This term means that the money going into the account is excluded from income subject to federal income tax.

So the Money Goes in Completely Untaxed?!

But this does not mean that the money is not taxed at all. This only means it is not federally taxed when it initially goes into the account.

The money is still taxed by Social Security, Medicare, State, and local taxes. You only get to exclude this money from your income subject to federal income tax. This distinction is incredibly important to make, however it does not delegitimize how impactful saving into a retirement account can be.

On top of these taxes hitting the contributions to a 401k, the distributions in retirement are then taxed at your federal income tax bracket.

So How Much Can I Save Into My 401k Every Year?

You can save the lesser of your earned income at a given employer or $18,500 for 2018, every year in your 401k. It is important to note that only wages can be saved into a 401k as contributions.

The only other money going into a 401k account can be from rollovers from a different qualified plan, such as an IRA or a 401k or 403b at an old employer.

 


This article is not intended to be legal, financial, or tax advice. For information regarding your specific situation, please consult a local professional.

Categories
Business Taxes

Is Your Cell Phone a Business Expense?

The deductibility of certain expenses can be called into question come tax season. And a question we get a lot revolves around whether a small business owner can deduct the cost of their cell phone.

Just to specify, we will be discussing whether you can deduct the cost of your cell phone for those individuals that are self-employed, not for those that are employees. The reason being is that employees are no longer able to deduct their unreimbursed business expenses on their tax return as of 2018.

So Can I Deduct the Cost of My Cell Phone on My Tax Return?

For those that pay a monthly service fee for their cell phone’s data plan plus the cost of the cell phone, they can deduct a certain percentage of these monthly costs on their tax return.

How Do I Know How Much to Deduct?

The answer to this is somewhat subjective, given that the general rule is that the taxpayer has to estimate the amount of time that he or she uses their cell phone for personal use and how much time they use their cell phone for business use.

This is done by picking a reasonable percentage that they believe they used the cell phone for business. They then apply this percentage to the cell phone data cost. This amount is then included as an expense on their tax return.

Is There Any Way I Can Prove That My Percentage Is Accurate?

The way in which you record the amount of time you spend on your phone is going to be different than how another self-employed individual does it.

You could create a complex spreadsheet and track your time you spend on your phone, you could use an app that tracks your time, or you could just use a percentage that sounds pretty good.

In any case, when it comes to taxes it is best to have some type of record or back-up, even if it is something rudimentary. This comes into handy especially if you are picking a high percentage for your estimated business percentage use of your cell phone, like 90%.

 


This article does not constitute legal, tax, or financial advice. For information regarding your specific situation, please consult your local professional.

Categories
Uncategorized

Can I Claim the Earned Income Credit Without a Child?

The Earned Income Tax Credit was introduced as a way to help alleviate the tax burden for lower income individuals and also it is used as a way to help supplement their wages.

The rules for claiming the credit are different given the situation of each individual, but in general the rules can be broken up into the rules for those with qualifying children and for those claiming the credit without any qualifying children.

So I Can Claim the Credit Without Any Children?

Maybe. It depends on your earned income, filing status, and age.

So What Age Do I Need to Be?

For starters, you can only claim the credit without children if you are under the age of 65 or at least the age of 25 by the end of the year.

If you are 24 at the end of the year and your birthday is on January 1st, then your birthday will be considered the 31st of December and you will be considered 25 for the purposes of the EIC.

Likewise, if you are age 66 at the end of the year and your birthday was the 31st of December, your birthday will be considered the 1st of January for the purposes of the EIC and you will be considered 65 years old.

What Filing Status Do I Need to Use?

You will be ineligible to claim the Earned Income Tax Credit if you are filing as Married Filing Separately. You can claim the credit with any other filing status. However, the amount of earned income that applies to or limits the credit will be different depending on your filing status.

How Much Earned Income Do I Need to Claim the Credit?

With no qualifying children and with $15,270 or less of income, individuals filing as single, head of household, or widowed can claim the Earned Income Credit.

If a couple is filing jointly, their combined earned income will need to be equal to or less than $20,950.

Please note that this article only covers the general tests for those claiming the Earned Income Credit without qualifying children.

Please take time to review what constitutes earned income in regards to the credit and also review the rules for the limitations on how much investment income an individual can have before being disqualified for the EIC.

 


This article does not constitute financial, legal, or tax advice. For information regarding your specific situation, please consult your local professional.

Categories
Taxes

What Are The Tests to Determine Who is a Child Dependent for 2019 Taxes?

Before you can determine who is a qualifying child dependent, there are three initial tests that apply to all dependents. Click here to review these. For this article, we will only be reviewing the tests that apply exclusively to qualifying child dependents.

Age Test

The age test is three-pronged. The child must either be under the age of 19 at the end of the year or a full-time student for at least five months out of the year and under the age of 24 at the end of the year or any age and permanently disabled.

If your potential qualifying child fits into any of these categories, then they pass the age test.

Support Test

If you provided more than half of the child’s support for the year then the child has passed the support test. Examples of support include rent, mortgage payments, utilities, groceries, and health insurance premiums.

Residence Test

To be a qualifying child, the child must have lived with you in your home for at least half of the year. An exception to this is if your child is a full-time college student and living on-campus.

Relationship Test

The child must be related to you in one of the following ways: your own child, your step-child, your sibling or step-sibling, a foster child, or a descendant of any of these.

If your child has passed all of these tests without any confusion or questioning, then the child has constituted your child dependent for your 2018 tax return.

If your situation does not fit as neatly into these short examples, then you may need to apply tie-breaker rules to determine who will be able to claim the child on their return.

 


This article does not constitute tax, legal, or financial advice. For help regarding your specific situation, please consult a local professional.