Finances

Self-employed? Showing Proof of Income is Easier Than You Think

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You’ve found the home of your dreams. Your credit is excellent, and you’ve saved enough for a generous down payment. But when the loan application asks for proof of income, you start to panic. Fortunately, qualifying for a mortgage doesn’t require a nine to five or a weekly paycheck.

For the 57 million freelance workers in the United States, proving an income can be challenging. But with some extra effort and preparation, you’ll be able to demonstrate a stable financial history — and get that mortgage, apartment lease or car loan approval even without a W-2 form or biweekly pay statements. These strategies can help:

  • Use an online payment service. To document income, an online payment service like com records and tracks who pays you, how much money is disbursed and where the money is coming from, so the information is easily accessible when you need it.
  • Ask your bank for an ACH report. An Automated Clearing House (ACH) report can serve the same purpose as a ledger from an online payment service. The ACH report will show when payments were made, along with the amount of each payment for easy tracking.
  • Hold on to your past tax returns. Once your taxes have been filed, keep copies of your returns for at least three years (preferably 7-10). This will help ensure that your income is reported accurately year in and year out.
  • Save your 1099 forms. You may have dozens of clients over the course of a year. To make your life easier, set up a filing system for all those 1099 forms. Take it a step further and scan each form as it’s received, keeping electronic versions on file as well.
  • Average your monthly income. It’s not uncommon for freelancers to have peaks and valleys in income. Over time, you may detect an earning pattern despite the variations. If you hope to qualify for a loan, track your monthly income carefully, averaging out the numbers to reflect your true annual earnings.

Freelance work offers a unique freedom and flexibility, while still affording you the opportunity to make a comfortable living. And if you check all the boxes of meeting a loan’s requirements, proving your self-employment income doesn’t have to be a daunting process. The expert CPAs at Magone & Company assist self-employed workers with our extensive tax and business knowledge. Contact us today (973) 301-2300 for more information.

 

The Proposed Tax Hike’s Effect on Families: Even Those Not Considered “Rich”

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President Joe Biden’s address earlier this week confirmed many of the plans that were being laid out in the preceding months; specifically, as they relate to real estate, capital gains and estate taxes.

Although the proposals have a long way to go before becoming law, a Democratic majority in the House and a tie-breaking vote in the Senate held by Vice President Harris creates a scenario in which the proposal will pass — provided the Democrats are able to hold their members in line.

There are three provisions which affect real estate in the Biden administration’s tax proposal.

The first, which has been talked about extensively, is the increase in the capital gains rate from 20% to 39.6%. This proposal is directed toward households making over one million dollars.

In the northeast, it doesn’t take a lot to push households to this level given residential and commercial real estate prices. This could mean an individual could pay as much as 43.4% in federal taxes alone and possibly over 50% when factoring in state taxes.

The second is the proposed elimination of the 1031 tax-free exchange when gain on a property is greater than $500,000.

This tax break allows owners of investment and business real estate to defer the gain by enabling them to purchase like-kind property within 180 days of the sale of the original property. This has been an often used technique to allow property owners to defer the entire gain on the sale of their property.

Finally, included in the tax proposal is the elimination of the “step-up“ in cost basis for inherited property.

Although we’re speaking about real estate, this applies to all property such as stocks, bonds, etc. The concept of stepping up the original cost to the fair market value at the date of the death of the owner has been in the tax law for decades, and ensured that beneficiaries who sold inherited property paid little if any capital gains tax on the immediate sale of the inherited property. This substantially reduced the tax burden for beneficiaries upon sale of the property.

Based on the likely passing of the above in some form, if you are contemplating a sale of investment or business property, careful examination should be given to the tax effect.

In prior administrations, when the capital gains rate was changed there was a cut-off date established for gains subject to the new and old rules when passed in the same year. More importantly, review your current will to ensure it is tax efficient, and consider further planning to take advantage of current estate and gift laws prior to potential changes.

Now is not the time to delay sales of property you may have been considered selling, especially real estate with a 1031 exchange.

The above is not tax advice. Please consult with your tax professional for guidance specific to your particular financial circumstances.

Paying Off Student Loan Debt: What They Didn’t Teach You in College

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Once college ends, graduates prepare for life in the real world. Their focus shifts from writing papers and studying for exams to finding a place to live and beginning a new career. But just like the memories of college and the many lessons learned, there’s one more thing that will stay with them for years to come: student debt.

If you’re feeling the stress of student loan debt, here are some tips to help you deal with this often overwhelming financial obligation:

  • Make additional payments. Sure, it might not be an easy thing to pull off, especially when you’re just starting out in the job world. But if you can swing it, extra payments here and there can have a huge impact on the time it takes to settle your debt, as well as the money you’ll save in the long term. Make sure your lender applies the additional amount to the principal balance to reduce the amount of interest you’re paying.
  • Set up automatic payments. Many lenders will offer discounted interest rates for using autopay. It may not make a substantial difference — perhaps a few hundred dollars — but it’s something.
  • Start a dedicated account for student loan payments. Creating a fund reserved for paying off student debt ties into another tip: budgeting. When you get paid, have a portion automatically deposited into this account, and don’t touch it. If you keep this account as a “walled garden”, you’re more likely to resist the temptation to use it for other interests. Shop around for high-interest savings accounts to give your money a boost.
  • Seek out companies or careers that offer student loan forgiveness incentives. Some government and nonprofit agencies, for example, may offer student loan forgiveness programs for employees. And after working for a certain amount of time, you may qualify to have your student loan balance canceled.
  • Refinance — with care. Refinancing your debt can be a good option if your loan carries a high interest rate, or if you have multiple loans that you want to consolidate. Bear in mind, if you refinance a federal student loan, you give up eligibility for government student loan forgiveness or other potential money-saving options.

When it comes to student loans, pitfalls can arise when you don’t know all the rules for managing long-term debt. Advice from a knowledgeable financial resource can save you headaches, complications and most importantly, money as you begin your post-college journey.

 

6 Millennial Money Mistakes That May be Hurting Your Wallet

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By 2025, Millennials will make up 75% of the workforce. This generation — composed mostly of twenty- and thirty-something children of Baby Boomers — is unique in that it faces the most uncertain economic future of any generation since the Great Depression.

But thanks to factors like massive student debt and a fondness for immediate gratification over long-term savings, Millennials also have a reputation of succumbing to some avoidable mistakes when it comes to finances.

Whether you’re a Millennial or not, be aware of the following six behaviors before they get in the way of your financial goals:

  1. Assuming too much credit card debt on too many cards. Building a credit history is an important step to obtaining a mortgage, car loan or apartment. But letting it get out of control can be risky. Stick to a couple of major cards with reasonable terms.
  2. Not maintaining a rainy-day or emergency fund. A rainy-day fund saves you when there’s an unexpected car repair or plumbing backup — a short-term blip. An emergency fund, however, will get you through a job loss, an injury or a pandemic. Most experts recommend stashing away three to six months of living expenses to create adequate emergency savings.
  3. Making big splurges without considering the consequences. It can be tempting to treat yourself to the best of the best while you have the cash. But buying too much too soon can set you up for future regret. Strike a balance between what you can live with now and your goals for the future.
  4. Failing to put away money for retirement. Yes, it may seem far away, and you’d rather use the money to pay for things in the present. But a retirement plan offered by your employer is free money your future self will be grateful for.
  5. Thinking you can save later. Saving is a habit that’s harder to start as you get older and life gets more expensive. By starting early and living beneath your means, you’ll have more time to build a larger nest egg.
  6. Not making — and sticking to — a budget. There are three main categories: needs, wants and nice-to-haves. You need to pay your rent or mortgage, but a luxury car would be just that — a luxury. Knowing what you should and shouldn’t be spending your money on is key to a financially secure future.

The road to financial security can be a long one for any generation. But it’s not impossible when you’re committed to making smart money decisions. With smart strategies for tax planning, the knowledgeable CPAs at Magone & Company can help keep you focused on financial success. To learn more, give us a call today: (973) 301-2300.

Going Solar: Commercial Building Owners Could Save $1M-$7M Over the System’s Life

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If you’re like most New Jersey residential and business building owners, you’ve become accustomed to multimedia messages prodding you to switch to solar power. Maybe you haven’t acted because you think it’s too expensive. Or maybe you find the incentives confusing.

Interestingly, with some of the top incentives in the nation, New Jersey has become one of the most successful solar locations in the United States. According to SEIA, the national trade association for the US Solar Industry, New Jersey ranks seventh in the nation for cumulative solar electric capacity installed through Q3 2020.

This boom has been fueled by a federal tax credit, thriving state incentives and the decreasing cost of installing solar in comparison to the utility costs NJ building owners are used to.

This is especially true for building owners with large flat roofs and high electricity usage on site.  Aside from the obvious environmental benefits of solar power (reduced air pollution, decreased water usage, better control of climate change), these recent incentives make an investment in solar something that New Jersey building owners might want to consider.

What makes solar a good investment in New Jersey?

  • Thriving state incentive – The current program in place is the TREC (transition renewable energy certificates) program, paying $152 per MWh of solar produced for 15 years.
  • Energy savings – New Jersey has high utility rates above the national average. New Jersey has a “Net-Metering Program” where you get a full retail rate credit for the amount of electricity you send back into the grid with your solar array.
  • Federal tax credit – Currently you can get a 26% federal tax credit for the total cost of installing solar.

How much can I save?

  • Capital purchase – For commercial building owners with large flat roofs, we are seeing payback periods on a solar project between 2-4 years and can save $1,000,000-$7,000,000 over the life of the system. We have seen IRR between 10-20 percent for many of our customers.
  • Power Purchase Agreement (PPA) rate – For commercial building owners with large flat roofs, you can see PPA rates from 1-4 cents/kWh vs the 9-12 cents/kWh you are currently paying the utility. This can translate into $1,000,000-$4,000,000 in savings over the life of the system.

The size of the system, and ultimately the annual returns of a solar array, are highly dependent on how much space you have on your rooftop, parking lot and/or property, what you currently pay the utility, and how much electricity you use on an annual basis.

Right now, the returns are so lucrative,  if you need a roof replacement and/or repairs, these costs can be paid for and/or financed into the solar project.

So the time just might be right to invest in solar. It’s not as expensive as you may have thought (in fact, it’s likely to be a huge money saver). And the proper partner, such as Pfister Energy, can simplify the once-confusing incentives that make going solar an attractive alternative.

At no cost to you, Pfister Energy can help analyze your property by designing an array, analyzing your utility bill, and presenting you with a financial analysis on how much solar can save you over the next 15-25 years.

Sean Quin is Vice President, Strategy & Business Development for Pfister Energy, Inc. Founded in 2005, Pfister Energy is an industry leader in solar project development, construction and operations.  Pfister Energy has more than 225MW of solar electric power installed in the U.S.

Four Secrets of a Tax Preparer: What You Don’t Know Can Cost You

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Tax time will be here before you know it. If your return is a simple one, you may be up to preparing and filing yourself. But if your situation is somewhat complicated, seeking the help of a qualified professional may be a smart move.

When you look to hire a professional, keep in mind that training, certifications and expertise can greatly vary from one tax preparer to another. And what you don’t know about them can leave you on the hook for a hefty tax bill.

#1. Many tax preparers lack tax-specific training or expertise. Just because an employee of a large tax preparation company is allowed to complete tax returns doesn’t make them an expert. In fact, the only pre-requisite for obtaining the required preparer tax identification number (PTIN) to file taxes on your behalf is the completion of a simple form — one that takes about 15 minutes to fill out.

Before you engage any tax professional, ask questions about their specific training, qualifications and expertise. Find out how long they’ve been preparing returns, ask about audits they’ve been involved in, and share your personal tax situation. Above all, ensure that you’re confident with their ability to handle your tax return properly.

#2. They very likely won’t be preparing your return. It’s an open secret in the world of tax preparers that returns are prepared in stages. That means the owner of the firm or the most experienced professional will probably not be the one who initiates your return. Instead, a junior associate will likely enter your income information and other relevant data, identify potential deductions and tax credits and give your return a quick review. Once that’s done, a senior advisor or tax preparer verifies the return and signs off on it.

The sheer number of tax returns that experienced firms handle during a busy season makes this multi-step process necessary, but it’s important to know how things work. At Magone & Company, we’ve honed a rigorous quality assurance process to ensure your return gets the right level of attention. Read what our tax clients have to say.

#3. They may not research unusual deductions and tax breaks. Your tax preparer will typically apply the most common deductions and tax credits to your return — things like deductions for educational expenses and health care costs, as well as earned income or retirement tax credits, etc. But what they may not do is research more unusual tax credits and deductions, even if they could potentially save you money.

Keep in mind your accountant is not a mind reader. Without documentation and/or mention of situations such as property held in trust or part ownership of a business, it’s difficult to identify the best way to proceed to minimize your tax burden.

Discuss situations like these with your tax preparer. You may need to pay an extra research fee or renegotiate the cost of preparing and filing your return, but the tax savings could be well worth the extra cost.

#4. CPA doesn’t mean tax relief pro. When clients get into tax trouble or get behind on paying their tax debt, they often turn to the very same tax pro that prepared the return. Unfortunately, most CPAs and tax preparers are not skilled in tax relief.

Tax relief means they know all the available IRS programs to settle your tax debt or give you favorable payment terms that don’t drown you in penalties and interest. Even if they think they know, they may not be experienced in negotiating with the IRS on your behalf.

Get tax season off to a solid start
Tax season may look a little different this year, but you can count on the tax professionals at Magone & Company to provide you with straightforward, socially distanced tax preparation. To learn more about our virtual services, call our office at (973) 301-2300.