4 Ways to Keep Your Taxes Down If You Are Self-Employed

Self-employment has its perks, but being your own boss can lead to headaches come tax season. In addition to the income tax, you’ll need to pay self-employment taxes that support the Social Security and Medicare programs.

But there are ways to reduce the amount you owe.

At the start of the new year, you may receive a 1099-NEC tax form or 1099-K tax form. You also may have received other income in the form of cash or checks for work performed in the previous year from being self-employed.

One of the best ways to lower your taxes paid on self-employed income is to increase your business expenses. As a self-employed taxpayer, you can write off expenses and take certain deductions against that income to help reduce your tax liability.

However, it is very important to hold on to all receipts for any business expenses related to purchases or professional services received and to keep accurate, up-to-date records of your business’s activity.  

Here are four easy ways to keep your taxes down if you are self-employed.

1. Driving expenses

If your self-employed income is from operating a ride-hailing or delivery business through platforms such as Uber or Lyft, you will be able to take a vehicle expense deduction. This allows you to recover some costs associated with wear and tear on your vehicle to operate your business.

Be sure to keep track of your business miles, personal miles and commuting miles as you will need to provide this information to take the deduction.

2. Home office expenses

Home office expenses is another deduction that you can take advantage of if you utilize part of your home as your office space to conduct business. A home office deduction can be calculated using the simplified deduction method, which is a prescribed rate of $5 per square foot of your home that is used for business up to 300 square feet.

Or you can use the actual expense deduction method, which allows you to write off a percentage of expenses related to rent, utilities, mortgage interest, property taxes and repairs and maintenance.

Other common deductible expenses related to your home office include website services, computer software, merchant fees, electronics and other supplies needed to run your business. 

You also can deduct communication expenses, such as a portion of your internet and cellphone bill, as long as those costs are directly related to your business. For example, if 20% of your time on the phone is spent on business, you could deduct 20% of your phone bill.

3. Depreciation deductions

If you purchase equipment, such as a laptop or a leaf blower for your business, you can categorize it as an asset and take a depreciation deduction — which allows you to spread the expense over the useful life of your asset.

For example, let’s say you purchased a new ergonomic office chair at the beginning of the year for $400. You will be able to classify this as an asset and take a $57.14 depreciation expense deduction each year over a useful life of seven years, which is standard for office furniture.

You can also take a Section 179 election to fully expense and deduct the asset in the current year — instead of depreciating it — to further reduce your tax liability. This is an annual income tax deduction taken by filling Form 4562 with your tax return.

4. S Corp election

Another way to keep your taxes down is by changing your business structure into an S Corp election with the IRS. You can make the S Corp election for your corporation or limited liability company.

For example, when operating your business as an S Corp, if your business income is $100,000 per year and you pay yourself a reasonable salary of $60,000, all income that exceeds your salary — $40,000 in this case — is not subject to self-employment taxes. Only the salary of $60,000 is subject to self-employment taxes. However, if operating your business as a sole proprietor, self-employment tax is due on the entire amount of $100,000 business income.

Financial Reviewer, RetireGuide.com

Ebony J. Howard is a certified public accountant and financial reviewer for RetireGuide.com. Her background is in accounting, personal finance and income tax planning and preparation. Ebony holds a dual degree bachelor’s and master’s in accounting from Clark Atlanta University. She is passionate about making an impact in the community, sharing her knowledge in financial literacy and empowering people to achieve greater financial freedom.

Source: kiplinger.com

What Does it Mean to Rent to Own?

Some things you don’t want to rent to own. Bowling shoes, for instance. But a home? Yes indeed, that’s a great option for many people.

A rent-to-own agreement is a solid option for people who long to live in an honest-to-goodness home, but who can’t get a mortgage or don’t have a lot of down payment money. Any legal agreement requires intense scrutiny and understanding, so read up on the basics of rent to own before going any further. It’s for your own good, promise.

What does rent to own mean?

The phrase “rent to own” is fairly straightforward.

Renters pay a set amount per month in rent. On top of that, the renter also pays a preset amount. These extra funds go into an escrow account for future use as a down payment on this particular home. This is also known as a rent credit or rent premium and is usually 20 percent above-market rent.

So, a person could pay $1,000 per month in rent, plus $250 per month for the eventual down payment. Think of it as forced saving, if you will. It’s also standard for the renter to put down 3 to 5 percent of the home’s value as a nonrefundable deposit before taking residence.

Rent-to-own agreements can vary in length but are usually one to three years.

A rent-to-town lease agreement A rent-to-town lease agreement

Types of rent to own agreements

Don’t make the mistake of assuming that legal mumbo jumbo sounds the same, so it means the same. In fact, that’s a pretty financially perilous error. There are a number of different ways to structure a rent-to-own agreement. These are the two most common.

Option to buy agreement

This type of agreement lets the tenant choose whether or not to buy the home at the end of the agreed-upon period. The risk here is that if the renter chooses not to purchase the home they forfeit any accrued rent premiums, not to mention the option fee. Ouch. This is also known as a lease-option agreement. In order to proceed at the end of the agreement, the renter must obtain a mortgage. The owner cannot sell the home out from under the renter during the agreement. The renter can also opt not to buy the home at the end of the agreement. The purchase price is usually frozen at the beginning.

Obligation-to-buy agreement

Also known as a lease-purchase agreement, there’s no wiggle room here. This type of contract means that you will buy the home once the lease expires. Hence, the word “obligation.” If you don’t buy the house, you’ll lose any premiums paid during the process. There might also be legal ramifications. Clearly, this is a much riskier option.

How to rent to own

So you want to rent to own. How do you go about it? Here are some solid options.

Find a real estate agent

It might be tempting to do the legwork yourself, but a great agent can save you tons of time and money. First, they have access to search resources and property networks that you don’t. Second, they work with sellers all the time and can spot crooks from a mile away. They are also adept at helping to negotiate a contract that’s reasonable to both the tenant and the seller.

Find a rent-to-own program

Companies have emerged in recent years that will actually buy the home you’re interested in, and agree to lease it to you for a period of time. After which you can choose whether or not to purchase. Renter and seller choose a purchase price at the beginning, which is a big boon for the renter if the market trends upward.

One of the most well-known such companies is Home Partners of America, which doesn’t even require the renter to build equity during the process. This is ideal in areas where rentals are scarce, such as good school districts.

Approach the landlord directly

Perhaps you’re already renting a home that you love. Ask the landlord if he’s interested in selling in the future. Who knows? He might be about ready to cash out. Or, keep an eye on the real estate listings. If a home hasn’t sold after a long time with no movement the owner could entertain other options.

A backyard of a blue house. A backyard of a blue house.

Things to remember before you rent-to-own

Whether you use an agent or not, denote in the contract if the landlord or the tenant (you) is responsible for home maintenance, repairs, landscaping, homeowners association dues, property taxes and so on. Failure to do so could cause some nasty and expensive surprises.

Also, complete a thorough home inspection before you sign the contract. No one wants to rent to own a home with a major foundation or other pricey problem. While you’re at it, check out the seller’s disclosure to find out about any hidden past problems.

Lastly, make sure to discuss your situation with a future lender. You’ll need to be able to afford the home in one to three years. Are you on the right path? If not, what needs to change?

Pros and cons of rent-to-own

  • Pro: A rent-to-own agreement with a rent credit forces the renter to put away money. Saving for the future is a good thing!
  • Pro: Rent to owns are a good way to break into a desirable area.
  • Pro: The purchase price is typically set at the beginning of the agreement, so this could be great if the market explodes.
  • Pro: A contract leaves little doubt as to who’s on the hook for what.
  • Con: If a renter chooses not to purchase the home they forfeit rent credit money (and any deposit).
  • Con: Many rent-to-own homes are not located in such desirable areas, so it might take extra legwork and patience to find one.
  • Con: The market could also tank, leaving you to weigh whether to pay more than the current value of the home or not.
  • Con: Be sure to follow your contract to a “t,” so that you don’t wind up losing a deposit or get fined.

There’s no place like a rent-to-own home

The path to homeownership has changed tremendously just in the last decade or two. As long as you consult with trusted experts and weigh your individual situation carefully, selecting a rent-to-own home is a great route to take.

The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.

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Source: apartmentguide.com

5 Expenses Homeowners Pay That Renters Don’t

Thinking about buying? Be sure to include these five items in your calculations.

Homeownership may be a goal for some, but it’s not the right fit for many.

Renters account for 37 percent of all households in America — or just over 43.7 million homes, up more than 6.9 million since 2005. Even still, more than half of millennial and Gen Z renters consider buying, with 18 percent seriously considering it.

Both lifestyles afford their fair share of pros and cons. So before you meet with a real estate agent, consider these five costs homeowners pay that renters don’t — they could make you reconsider buying altogether.

1. Property taxes

As long as you own a home, you’ll pay property taxes. The typical U.S. homeowner pays $2,110 per year in property taxes, meaning they’re a significant — and ongoing — chunk of your budget.

Factor this expense into the equation from the get-go to avoid surprises down the road. The property tax rates vary among states, so try a mortgage calculator to estimate costs in your area.

2. Homeowners insurance

Homeowners insurance protects you against losses and damage to your home caused by perils such as fires, storms or burglary. It also covers legal costs if someone is injured in your home or on your property.

Homeowners insurance is almost always required in order to get a home loan. It costs an average of $35 per month for every $100,000 of your home’s value.

If you intend to purchase a condo, you’ll need a condo insurance policy — separate from traditional homeowner’s insurance — which costs an average of $100 to $400 a year.

3. Maintenance and repairs

Don’t forget about those small repairs that you won’t be calling your landlord about anymore. Notice a tear in your window screen? Can’t get your toilet to stop running? What about those burned out light bulbs in your hallway? You get the idea.

Maintenance costs can add an additional $3,021 to the typical U.S. homeowner’s annual bill. Of course, this amount increases as your home ages.

And don’t forget about repairs. Conventional water heaters last about a decade, with a new one costing you between $500 to $1,500 on average. Air conditioning units don’t typically last much longer than 15 years, and an asphalt shingle roof won’t serve you too well after 20 years.

4. HOA fees

Sure, that monthly mortgage payment seems affordable, but don’t forget to take homeowners association (HOA) fees into account.

On average, HOA fees cost anywhere from $200 to $400 per month. They usually fund perks like your fitness center, neighborhood landscaping, community pool and other common areas.

Such amenities are usually covered as a renter, but when you own your home, you’re paying for these luxuries on top of your mortgage payment.

5. Utilities

When you’re renting, it’s common for your apartment or landlord to cover some costs. When you own your home, you’re in charge of covering it all — water, electric, gas, internet and cable.

While many factors determine how much you’ll pay for utilities — like the size of your home and the climate you live in — the typical U.S. homeowner pays $2,953 in utility costs every year.

Ultimately, renting might be more cost-effective in the end, depending on your lifestyle, location and financial situation. As long as you crunch the numbers and factor in these costs, you’ll make the right choice for your needs.

Related:

Originally published August 18, 2015. Statistics updated July 2018.

Source: zillow.com

3 Things to Do When Your Neighbors List Their Home for Sale

The sign just went up next door. How does your neighbor’s impending sale affect you?

Most people think their real estate concerns end once they’ve closed on and moved into their new homes. But when a neighbor’s house goes on the market, there can be some important implications for you.

Here are some tips for staying real estate aware.

1. Document important disclosure items

For the most part, good fences make good neighbors. But sometimes the folks on the other side of the fence don’t cooperate, and unresolved neighbor conflicts tend to arise when one of the homes goes on the market.

Have a property line dispute? Or an issue with a broken fence and you want the new buyer to know about it? While sellers in most states have a duty to disclose issues to potential buyers, not all areas require this.

Do your new neighbor-to-be a favor and alert the seller’s agent to anything the buyer needs to know about your neighbor’s property.

2. See things differently

Open houses allow buyers to spend some time exploring a home, but these events also present you with a chance to see your home from your neighbor’s perspective.

Once at a busy open house in San Francisco’s Noe Valley neighborhood, an open house visitor made a somewhat obvious beeline for the back of the house. He immediately got on the phone and started talking with someone about where he was standing, giving orders to move left and right.

It turned out this visitor lived in the home behind, and he was checking to see the neighbor’s view into his home.

The open house is your chance to check your home’s paint job from the neighbor’s yard or simply to see your home from a different perspective.

3. Know and learn the market in real time

Typical sellers claim and save their home online, but they also keep searches going after the fact. Why? To keep tabs on the market, see the comps and have a real-time sense of what’s happening nearby.

Just like when you were a buyer, knowing about the area and types of homes in the market is a good move for any homeowner. Take a neighboring home for sale as an opportunity to see what the market bears. You can also learn about the latest trends in home design.

Speaking to a real estate agent can keep you informed of changes to property taxes or how assessments are changing in your town. A smart real estate agent, working their listing, will be an incredible resource to would-be clients down the road. Leverage their experience when your neighbor sells.

Take note when your neighbor goes to sell their home. It’s not just a time to nose around, but to document, inspect or learn from the home sale. Some homes get listed once in a lifetime — take advantage of the opportunity.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published October 31, 2016.

Source: zillow.com

Why Downsizing is Good for You

If your kids have moved out and you no longer want or need a big house, chances are you’re going to downsize at some point in your life – maybe more than once. The good news is this: Going smaller is good for you! Here are five reasons bigger isn’t always better:

1. You’ll save money

This one’s obvious: In general, smaller spaces are less expensive. Downsizing to a smaller house or apartment is good for your wallet:

  • Cheaper monthly payments for mortgage or rent
  • Lower heating and cooling costs
  • Less space to fill means less money spent on furniture and decorations
  • Fewer things to fix around the home
  • Lower property taxes (or none at all, if you rent)

Housing costs take up most of our income. Lowering your monthly expenses leaves you more money for saving, investing or spending on things you enjoy.

purging is invigoratingpurging is invigorating
Lowering your overhead gives you more time for pleasure, plus downsizing can be very invigorating.

2. It’ll re-energize you

Downsizing forces you to start a new chapter in your life – one that’s simpler and less cluttered. You could think of yourself as a potted plant: If you leave it in the same pot for a long time, it becomes root-bound and stops growing. A smaller living space means a change in lifestyle, which keeps life from getting stagnant and reduces your stress level. And think of the peace of mind you’ll gain from not having to worry about monthly bills.

3. You’ll have more time for fun stuff

According to IKEA data, Americans spend an average of 55 minutes per day looking for things. If your home is smaller and less cluttered, imagine what you could do with all that extra time! Taking care of a big home occupies a big chunk of your life, but if you move to a smaller abode, all that time spent cleaning and fixing things can be spent on hobbies, spending time with loved ones, getting creative with DIY storage projects, or curling up with a good book.

Wondering what to do with a small closet? Check out our Pinterest board: Small Closet? No Problem

4. Purging unwanted stuff will remind you of what’s really important

It’s no secret that we spend a lot of our lives accumulating possessions. How many of these things do you really want or need anymore? It can be therapeutic to go through your mountains of things – it’ll remind you of where you’ve been and where you want to go from here. And once you get rid of the things that aren’t useful or sentimental to you, you’ll feel as though a giant weight has been lifted off your shoulders.

Wondering what kind of housewarming present a small-space friend would enjoy? We’ve got 10 ideas here.

5. It’s better for the environment

Smaller homes require fewer materials to build and less energy to heat and cool, which puts less stress on our planet. So chalk up some karma points for yourself on that front.

Have you downsized recently? How did it improve your life? Share in the comments below.

 

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Source: apartmentguide.com

The Scariest Things to Happen to Your Budget

I’ve been kicking around an idea for a scary movie. The main character leads a fairly normal life with a stable job, an affordable apartment and a partner to share expenses with. Things are going well.

Then one day, they try to make a deposit at the bank – and there’s no record of an account by that name. When they show up to their job, that position no longer exists. Every trace of financial identity has vanished, and the character’s life spirals out of control until they eventually end up in a homeless shelter.

Maybe that’s a terrible idea for a movie, but financial horror stories do happen. Even if they’re usually not so dramatic, an unwelcome surprise to your budget can ruin the delicate sense of stability we all try to maintain. If you want to stay out of danger, it’s important to stay wary.

Here are a few common scenarios that can make you fear for your budget, and how to avoid them.

Annual Fees

Last month I noticed that my gym, a large national chain, had double charged me. When I went in to ask about it, the manager informed me that I was charged an annual fee on top of my regular monthly subscription.

“What do you mean, ‘annual fee?” I asked. “I’ve only had the membership for three months.”

Apparently, an annual fee is charged three months into the membership, and will be charged every year. I was a little annoyed at being charged a fee for seemingly no reason, but I learned a lesson. Next year, I’ll be prepared for the expense.

Annual renewal fees tend to sneak up on you, throwing your budget into temporary chaos. Common examples include credit card annual fees, Amazon prime renewals, car registration fees and more. Most of us forget about these fees until they’re due.

Solution: Make a list of all the annual fees you have and write down what month they’re due. Next time you work on a budget, go through the list to see if any annual fees are coming up. If you end up finding more, add them to the list.

Seasonal Changes

Do you ever open your electric bill, silently praying that it won’t be higher than what you budgeted? How many times have you opened that bill and been shocked at the total?

I used to dread opening my utility bills for this reason. I hated not knowing how much I’d have to pay, constantly worrying about whether or not I was prepared. There’s nothing worse than wondering what you’re going to cut out of the budget to make up for a huge gas bill.

Solution: I put all my utility bills on budget billing, so I pay the same amount every month. Sometimes that amounts to giving the utility company an interest-free loan, but I prefer knowing that my budget will always stay the same.

Rent Increases

When I was moving out of my one-bedroom apartment into a place with my boyfriend, my landlord asked if I knew of anyone who wanted to take over my lease. I told him I’d ask around. I asked if the rent would stay the same, and his reply shocked me. It would be going up from $625 to $750 –  a 20% increase.

I couldn’t believe it. If I hadn’t already been planning to move out, this increase would have forced my hand. When you’re making a measly reporter’s salary, $125 a month is no small sum.

Solution: Ask your landlord about renewing your lease months before it comes up. Many will only increase between 5-10%, but you never know when your landlord will get greedy. The earlier you find out, the more time you have to scout for new apartments or negotiate for a more reasonable rate.

Income Changes

While most of us hope to move up in our careers and increase our salaries every year, sometimes the perfect job comes along and you have to take a step back financially. There’s no shame in moving backward if it will allow you to move further forward in the future.

But what happens to your budget when your income decreases and your living expenses don’t? If you’re not careful, it can lead to a plummeting credit score and high-interest debt.

Solution: If you take a pay cut, the first thing you should do is reconfigure your budget. Go through the categories and see what you can cut or change, or find a way to make up the lost income with a side job.

Variable Income

I’m a freelance writer, so my pay varies every month. No two months are ever exactly the same, but they usually fall within $1,000 of each other. Because of that fluctuation, my budget can’t be as rigid as someone on a biweekly pay schedule.

If you live on a variable income, it can be pretty scary to experience multiple lower-than-average months in a row. When that happens, I try to trim any unnecessary expenses like going out to eat, buying concert tickets or saving for vacations. Usually the months even out, but it’s always scary when my income dips.

Solution: As a freelancer with variable income, it helps to have an emergency fund with three to six months worth of expenses saved up. That way you’ll never have to skip IRA contributions, bills, and other necessities.

Tax Changes

Anytime the federal, local or state tax code changes, you’ll feel the difference in your take-home pay – and your budget. An increase in property taxes will mean you need to save more in your escrow account or risk a surprise bill at the end of the year.

If you get married, you may discover the “marriage penalty.” This is when couples get married, combine income and are subsequently bumped into a higher tax rate. For many couples, this means their take-home pay actually decreases.

Solution: Pay attention to tax changes in the news. If you’re confused about how they could affect you, ask your accountant or a CPA.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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Source: mint.intuit.com