All posts by TL Wall

I'm the owner of TL Wall Accounting, located in North Syracuse, NY
Tax Preparation

Writing Medical Bills Off Next Year’s Taxes

It’s never too early to start looking at expenses that can be written off taxes, and this time around we’re going to look at medical expenses.

One reason medical expenses might be a bit different this year is because of implementation of the Affordable Care Act. While there has been no official notification of changes to last year’s policy, it’s possible that more people will have the ability to write off something this year.

The policy last year was that in order to write off anything on taxes regarding medical expenses you had to have paid at least 10% of your income. This meant that if you earned $50,000 for the year you had to have spent at least $5,000 to get any benefit.

This year, since more people have purchased insurance via government exchanges, more people are probably going to get close to that threshold, if not surpass it, especially if they didn’t qualify or accept any government adjustments. Since most plans across the country started around $425, this means many people will have paid at least $5,100 in premiums alone. Add to that anything paid out of pocket towards medical bills and there could be significant adjustments allowed this year.

That’s if last year’s 10% holds, and right now it seems to still be out there, although it’s possible there could be an adjustment. It’s doubtful the adjustment would go up, so if the percentage amount goes down even more people would qualify for a tax benefit.

Also, if you’re self employed you get to write off health premiums as a business expense, which is a greater benefit even if you paid it out of your personal bank account.

By the way, medical expenses cover a few things you might not have thought of such as long term care insurance premiums, hearing aids, glasses, contact lenses and solutions, costs for prescription drugs and even band-aids. This means you should keep receipts for almost everything you spend, including dental bills. If you want more information on the types of things you might be able to write off, click here.
 

Tax Preparation

The Thing About Estimated Tax Payments Is…

Anyone who has their own business or works independently knows that there’s this thing known as estimated tax payments. They know that they have to make these payments by certain dates 4 times a year.

What no one really knows is why.

If you take a good look at the IRS page on estimated tax payments, you’ll see that they tell you to make these payments by the assigned dates (without telling you what those dates are on that page), and that, if you either don’t make payments by those dates, or don’t pay enough on those dates, that you could incur a penalty.

Does that sound ominous or scary? I wouldn’t ever go that far but it does sound like government lawyer speak, which in essence is nonsense.

In essence, there are a couple of reasons why the federal government wants you to make estimated tax payments.

The first is because if you were working for a large corporation someone else would be taking money out from you and making those payments. So, because you’re self employed and there’s no one else doing it for you, they want you to do it; kind of a self reporting.

The second is more selfish. They want your money so they can earn interest off it instead of letting you do it, if you were predisposed to do so. This makes more sense because our government always seems to be in a deficit, so it needs to find other ways to generate income. Also, they know that not many employees know that they can actually add more than just the number of dependents in their family and, in essence, pretty much hold onto all of their money until tax time. This means individuals and families can do what the government does; it’s just riskier doing things that way.

The truth is that it makes sense to make some kind of payments, but how much? This one I can’t answer for you because it depends on a number of factors. One is your income. Another is your expenses. The last is how your income is generated.

Income itself is easy enough. You might know that you’re going to make a specific amount based on the previous year, thus it’s easy to estimate how much you might want to pay each quarter.

Expenses is a wild card because often smaller business generate income but because of expenses run their business officially at a loss. In these instances the business might not have to make any tax payments at all or minimal, and you end up getting money back or having your accountant tell you that you’re good. However, it’s dicey because even in a normal year you might have to buy some expensive equipment that helps your bottom line, or maybe you have lots of travel expenses this year as opposed to the previous year, even though your income is the same.

How your income is generated is another tough one to deal with. If your income is project based, it’s possible that maybe you get two large contracts a year that last only a couple of months each time. This means you might want to make two large payments a year instead of something every quarter, or maybe you figure out what your normal yearly income is and spread out the payments. But what if you get one less contract or fit one more in? The fewer contracts might mean you paid too much, the more contracts might mean you didn’t pay enough, in which case the IRS tells you to figure out your income again and make adjustments.

What are the penalties? Who knows? Truthfully, unless you’re making six figures on a consistent basis there probably won’t be any penalties at all. Also, if your business often runs at a loss you probably won’t have anything to worry about either. In either case, it pays to have an accountant looking at your income on a regular basis and following their advice. They’re not going to steer you wrong because it would make them look bad, and their advice could keep you penalty free or even put money back in your pocket.

Those aren’t bad choices.
 

Finances

Ways To Track Expenses

If you’re in business or if you have a lot of expenses that you could possibly write off, you know you’ve had to deal with tracking expenses in many different ways. Most of us try to keep our receipts, which can be problematic because you could have tons, and they’re easy to lose. Therefore, here are some ideas you might want to think about to help with the process.

First, if you have a smartphone you can think about taking pictures of your receipts. These can be transferred to your computer electronically and you can create folders to put them in. Even if you lost your phone, you probably have your backup program set up to move everything to the cloud every night, so you’d be able to recover them pretty easily.

Second, pick one credit card and use it for all of your business expenses. This way, even if you miss receipts you’ll have a record of your purchases all in one place. Some accountants would rather look at your credit card statements anyway, and if you decide to use your business debit card they can use your statement to help track your money for the year as well.

Third, you can still get receipts but either scan them all when you get home or purchase a receipt scanner, which will also turn all of your receipts into electronic files. This is nice and clean and, if you use one of those receipt scanners, you can categorize everything so that your accountant more easily knows where everything should go. Of course the problem with this one is you have to find the time to scan everything, because few people get home and immediately scan.

Those are some ideas you might not have thought of. If none of those work for you… at least put all of your receipts in one place so you’re not chasing them all over the house, especially your big purchases. 😉
 

Managing Money

Should You Do Debt Consolidation?

Almost everyone at one time in their lives found themselves having trouble paying all the bills. Even if it wasn’t true, because you hadn’t verified your income versus how much you owed, you probably had some discomfort when it came to a question of whether or not you were managing your money properly.

If you ever find yourself in trouble, you have a few options.

3D Shackled Debt
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Chris Potter via Compfight

One is to ignore it and wait for the phone calls to start coming in; we wouldn’t recommend that.

Another is to borrow money from friends and family. This might be a solution but, unless you don’t have to worry about paying them back, it can end up in family strife and probably isn’t a great option.

The best option is to look at some kind of debt consolidation program or process to help get out of debt, or at least to get some control of your finances so you at least know what’s going on.

We’ve talked in the past about things one should do when you’re having problems with bills, and those are great first steps. Being proactive is always a better option than sitting around feeling nervous and scared and waiting for things to happen.

One thing you can think about doing is, if most of your debt is in credit cards, moving balances to the cards with the lowest interest rate. While this doesn’t quite eliminate debt, it will give you fewer payments, lower total payments overall for a while, and if you can make larger payments you will reduce your debt faster.

The problems here are twofold. One, you might already be close to being overextended, thus this isn’t a viable option. Two, you have to be disciplined enough not to use the cards you clear, which might mean you’d have to do something as drastic as cutting some cards up to stop yourself. You have to do a major self evaluation here; if a lack of discipline is that put you in trouble to begin with don’t even think about this as an option.

Another thing you can do is some credit counseling. You can go to someone like an accountant, who can help you get a handle on your bills and even pay them for you, or set you up to pay things down while putting you on an allowance. Or you can look for free services like Consumer Credit Counseling, who will help negotiate payment terms with your creditors with the caveat that your accounts are closed at the same time. And no, you don’t get to keep a card in reserve, although you can always use your debit card.

A final thing to think about, if you own a home, is a debt consolidation loan via the bank where your mortgage is. This might be harder to do if you have high balances on all of your cards because the bank might not see you as a great credit risk, but if they do extend you credit it’ll end up becoming a part of your monthly mortgage payment, which will be less than what you pay now for your mortgage and bills, and the interest rate will probably be lower also.

The best option overall is to address any potential issues early so you don’t have to consider doing any of these things. Help is always available; you just have to ask for it.
 

Finances

3 Areas You Need Insurance Coverage For

Because it’s the newest topic, we’ve spent a lot of time talking about health insurance around here. However, not only is there other insurance, but some of it it pretty important for you to start thinking about, if not necessarily critical.

We won’t spend any time talking about car insurance because that’s mandatory, at least in almost every state in the nation. We won’t talk about compensation insurance because not every business needs it and not every state has it.

Instead, we will concentrate on insurance for individuals and families, those that we feel are the most crucial to have, even if you don’t think you need it. Part of this also takes into account what you’ll get the most benefit from. That discounts dental insurance where, though you’ll get some coverage, if you need anything serious most of the insurances only cover $2,000 a year, which would barely make a dent in any serious dental work you’d need.

1. Homeowners/rental insurance. If you’re a new homeowner insurance is a mandatory thing, but if you’ve owned a home previously, at least in some states, it’s an option. There’s absolutely no reason not to pay for insurance coverage for your home. All it takes is one bad winter of damage for you to realize how crucial having insurance is to take care of something you never saw coming. Not that you’ll have damage every year but when something happens to your home, minor or major, insurance can help you get those bills paid, if not take care of the entire thing.

The same goes for rental insurance. The fire could come from another apartment and you could lose just 25% of your assets, which usually means furniture or clothing, and the cost of replacing it would be totally on you. The costs are negligible when compared to what you’d have to pay out of pocket to replace things.

2. Life insurance. We hear from people all the time about not needing life insurance because they’re either too young or they’re single. We even know of families where parents don’t buy insurance to protect their kids or spouses.

One of the realities of life insurance is that if you get in early not only will your costs remain low, even if you have health issues later on in life, but if you buy the right type of insurance at a certain point it’ll start paying for itself while still continuing to grow, although you’d probably want to continue putting more into it for your own lifetime protection.

Life insurance could help you make sure your home is paid for if you’re not around anymore. Life insurance can help pay for your burial. Life insurance can give your family a boost to get used to losing your income and allow them time to get on their feet. Do this for those you love, and do it early.

3. Long Term Care insurance. You need to know this now; at some point in your life, you or your spouse might need to either go into a nursing home or need some home care help when you get old. Costs are not only astronomical, but for the majority of people what happens is their assets have to be sold off before Medicaid kicks in.

If you start long term care insurance early, when it doesn’t cost much and you get locked into a rate, there’s the possibility that you could put away enough money to pay for home care and never have to go into a nursing home, while protecting your assets for your family. You certainly help them out greatly.