by NFS | Dec 18, 2020 | Archives, Blog Posts
Certain energy-efficient home improvements can cut your energy bills and save you money at tax time. While many of these tax credits expired at the end of 2016, tax credits for residential and non-business energy-efficient solar technologies do not expire until December 31, 2021. Here are some key facts that you should know about these tax credits:
Residential Energy Efficient Property Credit
- This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
- Qualified equipment includes solar hot water heaters and solar electric equipment placed into service on or after January 1, 2006, and on or before December 31, 2021.
- There is no maximum credit for systems placed in service after 2008.
- The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
- If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
- At least half the energy used to heat the dwelling’s water must be from solar in order for the solar water-heating property expenditures to be eligible.
- Solar water-heating equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
- The home must be in the U.S. It does not have to be your main home.
- Use Form 5695, Residential Energy Credits, to claim the credit.
Equipment costs such as assembling or installing original systems, on-site labor costs, and costs related to wiring or piping solar technology systems are considered final when the installation is complete. For a new home, the placed-in-service date is the occupancy date.
The maximum allowable credit varies by the type of technology:
Solar-electric property
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
Solar water-heating property
- 30% for systems placed in service by 12/31/2019
- 26% for systems placed in service after 12/31/2019 and before 01/01/2021
- 22% for systems placed in service after 12/31/2020 and before 01/01/2022
If you would like more information about this topic please contact the office today.
by NFS | Dec 17, 2020 | Archives, Blog Posts
Congratulations! Your child is headed off to college. The acceptance letters are in—and so are the financial aid packages. Now comes the tough part: How do you know exactly how much each school is going to cost?
It would be great if all higher learning institutions listed their financial aid packages the same way, making an apples-to-apples comparison simple. Unfortunately, they don’t. Here’s a guide on what factors to consider when comparing your various financial aid packages.
Find the estimated cost of attendance. Some schools will make it easy and total up all of the expenses in one place on the offer letter; others may require you to hunt around to gather all of the costs and add them up on your own. Remember, the big ticket expenses are: tuition and fees, room and board, books and supplies (including computer costs), and commuting/transportation. If you know that your child will have additional expenses (such as club memberships or travel needs), add them on.
Break down the assistance offered. You may have three distinct buckets of aid, plus your own and your child’s contributions. Remember, the total aid offered is only for the upcoming school year. Each year could be substantially different, influenced by factors such as your income level, family changes, and financial hardships.
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- Grants and scholarships: These are awards based on merit or need that do not have to be paid back. As you will have to fill out a FAFSA every year, you need to find out if these awards are single year or multi year. Also, be sure to determine which awards are firm and which are estimated.
- Loans: Break these out by Stafford loans (paid by the student) and PLUS loans (paid by the parents). Also be sure to note which Stafford loans are subsidized and which are unsubsidized. The U.S. Department of Education pays the interest on subsidized loans as long as the student remains in school, for the first 6 months after leaving school, and in case of deferments. There is no grace period for unsubsidized loans; repayments start while the student is still in school.
- Work-study programs: Most schools will offer a federal work-study option, which caps earnings at the amount listed. Does your child want to work? Do you think he or she can earn more by bypassing the program and finding a part-time job independently?
Parent/student out-of-pocket payments: This is typically the leftover amount that the school feels you should be able to pay on your own, whether from a college savings plan (such as a 529), through private loans, or from other sources.
Make a spreadsheet that details all costs. Putting the costs in a side-by-side format can help you weigh the pros and cons of each offer. A few things to remember:
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- The cost of college keeps rising. Factor in at least a 2% increase year over year when doing your overall comparison, as the cost of tuition and fees at a 4-year public institution has increased by an average of 2.2% over the past 30 years.
- A four-year education is a thing of the past. Most students take between five and six years to graduate with a bachelor’s degree. Have you saved enough for six years? It’s a good idea to sit down with your child and discuss your finances so they have a clearer understanding of who will pay for what.
Not satisfied? You can appeal. If your child wants to attend a certain college, but the financial assistance offer you received still makes it too expensive for you to consider, contact the school’s financial aid office.
Depending on the college, you may need to write a letter stating your situation or you may be able to make a case directly to a review panel. You will need to provide documentation for any special circumstances you feel will bolster your appeal.
Regardless of your situation, your financial professional can help you budget and save for college.
by NFS | Dec 16, 2020 | Archives, Blog Posts
If you’re thinking of starting a nonprofit organization, there are a few things you should know before you get started. First, is understanding how nonprofits work under state and federal law. For example, two things you should understand is that state law governs nonprofit status. Nonprofit status is determined by an organization’s articles of incorporation or trust documents while federal law governs tax-exempt status (i.e., exemption from federal income tax). Whether you’re starting a charity, a social organization, or an association here are the steps you need to take before you can apply for tax-exempt status.
1. Determine the type of organization.
Before a charitable organization can apply for tax-exempt status, it must determine whether it is a trust, corporation or association. Here is how each one is generally defined:
- A trust is defined as a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. It is formed under state law.
- A corporation is formed under state law by the filing of articles of incorporation with the state. The state must generally date-stamp the articles before they are effective.
- An association is a group of persons banded together for a specific purpose. To qualify under section 501(a) of the Code, the association must have a written document, such as articles of association, showing its creation. At least two persons must sign the document, which must be dated. The definition of an association can vary under state law.
2. Gather organization documents.
Each application for exemption – except Form 1023-EZ – must be accompanied by an exact copy of the organization’s organizing document, which is generally one of the following:
- Articles of incorporation for a corporation
- Articles of organization for a limited liability company
- Articles of association or constitution for an association
- Trust agreement or declaration of trust for a trust
Organizations that do not have an organizing document will not qualify for exempt status. If the organization’s name has been legally changed by an amendment to its organizing documents, they should also attach an exact copy of that amendment to the application. State law generally determines whether an organization is properly created and establishes the requirements for organizing documents.
3. Understand state registration requirements
Next, you will need to take a look at your state’s registration requirements for nonprofits. State government websites have useful information for tax-exempt organizations such as tax information, registration requirements for charities, and information for employers.
4. Obtain Employer ID numbers.
Finally, once your organization is legally formed you will need to obtain employer id numbers (EINs) for your new organization. Organizations can apply for an EIN online, by fax, or by mail using Form SS-4, Application for Employer I.D. Number. International applicants may apply by phone.
Third parties can also receive an EIN on a client’s behalf by completing the Third Party Designee section. Don’t forget to have the client sign the form to avoid having to file a Form 2848, Power of Attorney, or Form 8821, Tax Information Authorization.
One final thing to note, is that nearly all organizations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. Once an organization applies for an EIN, the IRS presumes the organization is legally formed and the clock starts running on this three-year period.
Questions about starting a nonprofit? Help is just a phone call away.
by NFS | Dec 15, 2020 | Archives, Blog Posts
When COVID-19 struck last March, employers quickly switched to a work-from-home model for their employees, many of whom began working in a state other than the one in which their office was located. While some workers have returned to their offices, many have not. If you’re working remotely from a location in a different state (or country) from that of your office, then you may be wondering if you will have to pay income tax in multiple jurisdictions or whether you will need to file income tax returns in both states.
Generally, states can tax income whether you live there or work there. Whether a taxpayer must include taxable income while living or working in a particular jurisdiction depends on several factors, including nexus, domicile, and residency.
Many states – especially those with large metro areas where much of the workforce resides in surrounding states – have agreements in place that allow credits for tax due in another state so that you aren’t taxed twice. In metro Washington, DC, for example, payroll tax withholding is based on the state of residency allowing people to work in another state without causing a tax headache. Other states such as Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania tax workers based on job location even if they reside in a different state.
Remote Working in Multiple Locations
Let’s say you live in Florida. During the pandemic a mandatory office closure allows you to work remotely from your vacation home in North Carolina – a state that is not your domicile (i.e., your home). Next spring, you will need to file a nonresident income tax return on income earned in North Carolina (your remote work location, but not your domicile) in addition to your usual tax returns.
However, in all the pandemic confusion, it’s likely that your employer may not have known you were working remotely from NC and did not withhold tax from your pay (income earned). If that’s the case, then you may owe money.
Here’s why:
If the tax rate in the remote location is higher than the taxpayer’s home state or the home state doesn’t impose income tax but the state they are working from does, the tax credit in the worker’s home state may not be enough to offset all – or any – tax owed.
- During the pandemic, 13 states have agreed not to tax workers who temporarily moved there because of the pandemic including Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island, and South Carolina.
- Keep in mind, however, that these waivers are temporary and in some cases may only in effect during a mandated government shutdown. South Carolina’s waiver, for instance, expired on September 30, 2020, but was extended through December 31, 2020.
Necessity or Convenience
Another important factor to consider is whether a worker’s remote work location is due to necessity or convenience. If there is a mandatory government shutdown, then it is a necessity. If the option to go back to the office exists, but the worker chooses not to because of health concerns, then the state could view it as convenience.
Keeping Good Records
Keeping good records is always important when it comes to your taxes, but even more so when there are so many unknowns. As such, it’s a good idea to keep track of how many days were worked in each state and how much money was earned.
Help is Just a Phone Call Away
Tax laws are complex even during the best of times. If you’ve been working remotely during the pandemic in a different location than your office, then it pays to consult with a tax and accounting professional to figure out your tax liability and recommend a course of action to lower your tax bill such as changing your withholding.
by NFS | Dec 7, 2020 | Archives, Blog Posts
If you are working from home for the first time in 2020, you may be wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.
Here’s a quick look at the basic requirements to be able to deduct your home office expenses, along with some suggestions for how to qualify for the deduction if you’re currently working for your company as an employee.
The Basics
There are two requirements for having a tax-deductible home office:
- Your home office is only used for business purposes. Your home office must be used exclusively for operating your business. It can’t double as the family media center or living room. To meet this requirement, set up your office in a separate area of your house. Then if you get audited by the IRS, there is no doubt that your office is used exclusively for business purposes.
- Your home office is your primary place of business. You need to demonstrate that your home office is the primary place you conduct your business. The IRS has clarified that you can meet clients and conduct meetings at separate office locations, but your home office must be the only location where your administrative work is completed. So if you meet with clients or work on any part of your business away from your home office, keep a journal of each specific activity undertaken and describe how it doesn’t violate the primary place-of-business rule.
Looking at these two criteria, everyone that is now required to work from home probably meets both qualifications. If you’re a W-2 employee, however, you can’t deduct your home office expenses on your tax return.
Solving The Problem
Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.
- Become an independent contractor. The easiest way to deduct your home office expenses is by switching from being an employee to an independent contractor. With a number of firms cutting pay and hours due to the pandemic, it may be worth exploring. There’s a big warning label if you go this route, however. You will need to account for lost benefits such as health insurance, and the additional cost of self-employment taxes. If you can meet the IRS requirements for becoming an independent contractor, it may be worth doing the math and considering all the deductions your home office may make available to you.
- Start a side business. If becoming an independent contractor for your current employer isn’t an option, consider starting a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. If you go this route, ensure your home office is in a different location in your home than your other work space.
- Consider your entire household. Even if you don’t qualify for the home office deduction, maybe someone else living in your home does qualify. So look into your options to see if a family member can take advantage of the home office deduction.
What if none of these options for deducting home office expenses are feasible for you? While you won’t be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.
Get Reimbursed By Your Company
There’s no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. They do this by setting up an accountable plan. With financial pressures on businesses, this might be a tough subject to broach, but if the system is already in place you may be able to find a way to get some of your home office expense reimbursed.
So if you’re stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.
Figuring out how to properly deduct your home office or get reimbursed by your employer can be a lot more completed than it appears. If you need help, please contact the office and we can help.
by NFS | Nov 28, 2020 | Archives, Blog Posts
Today marks the 10th anniversary of Small Business Saturday and we are celebrating at NFS!!
Looking for that unique gift for that special someone – give them the gift of Income Tax Preparation!! The Northeast Financial Strategies e-Gift card can be used towards any of our income tax, accounting or bookkeeping services. You can purchase the e-gift card in pre-determined amounts or you can customize it with any amount you want to give. Don’t have anyone to buy for, treat yourself and pre-pay your services now while supporting small business!
