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Tax Tips for Homeowners

If you own a home, you may already know that you can deduct the
mortgage interest you pay on your home, but what other tax advantages are
lurking in that house?
One of the biggest challenges of owning a home is dealing with the tax
laws, especially those around points and cost basis. Just a little bit of
knowledge can really clear up these frequently confusing terms. Below, we will
talk about mortgage points, cost basis, and capital gains.
Points
According to IRS, Points also called Loan discount or Discount Points,
describe costs which are a form of prepaid interest. Each mortgage discount
point paid, lowers the interest rate on your monthly mortgage payments.
In general, points to obtain a new mortgage, to refinance an existing
mortgage, or paid on loans secured by your second home are deducted
ratably over the term of the loan.
But IRS said you can deduct all the points the same year you paid them if all
of the following are true:
1. You must use cash method of accounting, meaning that you report income in the year you receive them and deduct expenses in the year you pay them.

2.The mortgage must be to buy, build, or improve your principal residence.
3.Your principal residence secures your mortgage.
Paying points is an established business practice in the area where the loan was made.
4.
The points paid weren't more than the amount generally charged in that
area.
5.
You cannot have borrowed the funds to pay for the points from the
mortgage lender or broker.
6.
The points were computed as a percentage of the principal amount of the
mortgage.
7.
8.The amount shows clearly as points on your settlement statement.Capital gains
If you owned the home (and lived in it) for at least two out of the last 5
years and sold it:
A single person doesn’t pay tax on capital gains of up to $250,000. For
married couples and qualifying widow/widower, the limit is $500,000.
So, as a married couple, you could purchase a home for $100,000 and sell it
for $600,000 and not owe any tax on the proceeds.
There are circumstances under which the two-year requirement is waived,
such as health issues, divorce, change of employment or an unforeseeable
event.
In these cases, the amount of the exemption is based on the number of
months the home was lived in. For example, if you were single and lived in the
home for 12 months, you would be entitled to an exemption of $125,000, or
half of the deduction allowed if you had lived there the required two years.
Cost Basis
Cost basis is the original value of an asset for tax purposes. The cost basis is
quite easy to calculate; it is simply the price you paid for the home plus any
capital improvements that have been made. Then you would subtract any
seller-paid points, depreciation, and losses.
Capital improvements would be anything that increases the home's value
such as swimming pools and adding a room and more.
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What can be deducted as business expenses?

If you're hoping to start a business or you are already in business,
whether it's full-time or an additional stream to your current income,
maximizing and understanding your deductions can help you keep more
of your hard-earned money.
According to IRS, Business expenses are the costs of carrying on a trade
or business, and they are usually deductible if the business is operated to
make profit.
For a business expense to be deductible, it must be both ordinary and
necessary.
An ordinary expense is one that is common and accepted in your
industry.
A necessary expense is one that is helpful and appropriate for your
business.
So, an expense does not have to be indispensable to be considered
necessary.
Even though an expense may be ordinary and necessary, you may not be
allowed to deduct the expense in the year it has been paid or incurred.
And in some cases, you may not be allowed to deduct the expense at all.
Below are some of the common business expenses that may be partially
or fully tax deductible:
Startup costs

What can be considered as Start-up costs

Starting a business is more than choosing the business name,
registering the business with the State, getting the EIN and more. It also
requires planning and budgeting. Most people use their own money, get
some funds from friends and family, or even use their pension from
Social Security in the beginning to pay for some ordinary and necessary
business expenses. All eligible costs incurred before beginning to
operate the business are called start-up costs.
What are Start-up Costs?
According to IRS, Start-up costs are amounts the business paid or
incurred for creating an active trade or business, or investigating the
creation or acquisition of an active trade or business. Start-up costs
include amounts paid or incurred in connection with an existing activity
engaged in for profit, and to produce income in anticipation of the
activity becoming an active trade or business.
Start-up cost is recoverable if it meets both of the following
requirements:
• It's a cost a business could deduct if they paid or incurred it to operate
an existing active trade or business, in the same field as the one the
business entered into.
• It's a cost a business pays or incurs before the day their active trade or
business begins.
Start-up costs include amounts paid for the following:
• An analysis or survey of potential markets, products, labor supply,
transportation facilities, etc.
• Advertisements for the opening of the business.• Salaries and wages for employees who are being trained and their
instructors.
• Travel and other necessary costs for securing prospective distributors,
suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar
professional services.
Start-up Costs Deduction
IRS limits how much you can deduct for LLC start-up costs.
• If your start-up costs totaled $50,000 or less, you are entitled to deduct
up to $5,000 for start-up costs for the first year and the remaining will be
amortized over 180 months.
• If your start-up costs are between $51,000 and $54,000, your first-year
deduction decreases by $1 for every $1 you spent over $50,000 meaning
that, if you incur $53,000 in start-up costs before launching your
business, you’ll only be able to deduct $2,000 in the first year ($5,000
minus $3,000). After your first year, you can amortize the remaining
costs over 180 months.
• If your startup costs are $55,000 and more, you won’t be able to deduct
any of those costs in the first year, but instead, you’ll need to amortize all
of them over 180 months.
Special Rules
The LLCs that are set up with two or more members can amortize their
startup costs. One-member LLCs are not permitted to do so.If your LLC has only one member and your start-up costs are $5,000 or
less, you may deduct up to $5,000 in startup costs in your first year but if
your costs exceed $5,000, though, you must capitalize all of these
expenses, but they are not deductible until you sell or dissolve your
business.
The bottom line
Proper Tax planning, good Recordkeeping and Tax preparation will help
apply all the deductions, you are entitled to and set your business for success