How I Save Hundreds of Dollars a Month with Freshbooks

Zac Johnson writes: Freshbooks is an awesome online invoicing platform for freelance marketers, businesses and anyone in between. I’ve known about them for a few years now, but it wasn’t til earlier this year that I actually started using. I’ve already made hundreds of dollars (in savings) by using their service and in this post I’m going to show you how you can do the same.

Who needs Freshbooks?

If you accept payments online, need invoicing and want to create a directory of all your clients/advertisers, then Freshbook is likely a great solution for you. I’m not the best book keeper in the world, but Freshbooks makes this pretty easy for me.

Through ZacJohnson.com and my other sites I get a lot of advertising requests. I will usually follow up to these requests with an email and we will build an advertising package for each client. I used to tell the advertiser my Paypal email address and have them send payment that way. The problem with this is that I was giving Paypal a nice chunk of my money! (more on that later)

Now when I have a new advertiser or something I am getting payment from someone for, I simply head over to my Freshbooks account. Once logged in, all I need to do is enter in their Name and Email along with the invoice details. I then click a button and the invoice is automatically sent to the advertiser and requests their payment.

How Freshbooks is Saving Me Money Over PayPal

The real value in any service really comes down to how much time or money it can save you. Since Freshbooks is already saving me a bunch of time, I will tell you about how it saves me money by issuing invoices through their system, yet still using Paypal to accept payments.

As a Paypal Standard user, when you accept payments you are getting charged 2.9% + $0.30 per transaction. That means if someone sends you $1,000, Paypal is taking a $29 + .30 cut. That can add up to a lot of money!

When you use Freshbook invoicing, you have the option to check off “PayPal Business Payments”, which charges you only .50 for the transaction… no matter how much money you are requesting. The only bad news about this is that the person sending the payment can’t use a credit card… but still, only using this method half of the time will still save you a ton of money!

What does Freshbooks Cost?

If you accept more than $1,000 a month in payments from advertisers, Freshbooks is a no brainer. The monthly membership cost of Freshbooks starts at only $19.95 and allows you to manage 25 different clients. If you are doing quick invoices and don’t expect clients to come back again, you can simply remove them from your account and add new ones. This is what I have been doing and the $19.95 a month plan has been working perfectly for me.

There are plenty of other benefits and feature of Freshbooks that I’m not even using, but I recommend you take a tour through their site and check it out for yourself.

Tax Strategies for a Booming Market / Equity Prices Are Up, but So Are Taxes on Your Gains

Carolyn T Geer for the Wall St Journal writes:  Good news: Stocks are way up this year.

Bad news: Tax rates are up, too, and not just for the super-rich. Here's how to keep more of what you reap.

Retirement accounts: There is a good chance the soaring stock market has caused the percentage of equities in your portfolio to rise, throwing your desired mix of assets out of whack. Retirement accounts are a good place to look first to restore the balance. That is because there are no tax consequences to shifting money from one asset class to another inside a 401(k) or individual retirement account.

If you haven't already maxed out your contributions for the year, you also could add new money to those accounts, steering it to assets that are underweight. This would kill two birds: rebalancing your accounts and reducing your taxable income.

The 401(k) contribution limits for 2013 are $17,500 for those under age 50 and $23,000 for those 50 and older. IRA contribution limits are $5,500 and $6,500, respectively.

If you're not covered by a retirement plan at work, you can deduct the full amount of your traditional IRA contribution no matter what your income. If your spouse is covered but you aren't and your joint modified adjusted gross income is less than $188,000, your contribution is at least partially deductible. Same goes for covered single filers and joint filers with modified adjusted gross incomes of less than $69,000 and $115,000, respectively.

Taxable accounts: Thanks to the continuation of the 0% tax rate on qualified dividends and long-term capital gains for taxpayers in the 10% and 15% income-tax brackets, married couples filing jointly earning $72,500 or less and singles earning $36,250 or less can book gains in taxable accounts with no tax consequences. One strategy is to sell enough appreciated securities to "fill up" your tax bracket and then repurchase them, raising your "cost basis," or the value used to figure taxable gains (or losses) in the future.

Keep an especially close eye on the timing of mutual-fund distributions, which promise to be sizable this year. Most funds pay year-end distributions—dividends, capital gains or both—in December—at which point the fund's share price is reduced by the amount of the distribution.

If you are planning to buy fund shares before year's end, it might make sense to wait until after the fund has distributed its gains. Similarly, if you are planning to sell, you might want to do so before the distribution. Check the fund's website for the latest distribution estimates.

Tax-loss carryforward:

Taxpayers subject to either the 15% long-term capital-gains rate (joint filers with $72,501 to $450,000 in income; $36,251 to $400,000 for singles) or the new, higher 20% rate (joint filers with more than $450,000 of income; $400,000 for singles) should look to see if they have any "loss carry forwards," says Ida Yarbrough, an accountant in Los Angeles.

In any given year, you can use capital losses to offset capital gains dollar for dollar on your federal tax return. You can also deduct up to $3,000 in additional losses against ordinary income.

Net capital losses beyond that can be carried forward indefinitely to help offset capital gains and income in future years. This process continues every year until you've used up all of your losses.

"A lot of my clients still have humongous loss carryforwards to use," courtesy of the 2008 financial crisis, says Ms. Yarbrough.

Note: Carryforward net capital losses from pre-2013 transactions, which would have offset capital gains only at the old maximum 15% rate, now automatically offset gains at the new, higher rates, says Mark Luscombe, principal federal tax analyst for Wolters Kluwer.WTKWY +0.75%

Surtax on investment income: This year marks the start of a 3.8% surtax on net investment income. Although widely regarded as a tax on high-income earners, it kicks in at a lower income threshold than the top ordinary income and capital-gains rates. Specifically, it hits the lesser of net investment income (interest, dividends and capital gains) or modified adjusted gross income above $200,000 (for individuals) and $250,000 (for joint filers).

The threshold isn't adjusted for inflation, "so over time [the surtax] will catch more and more people," says Mr. Luscombe. Spread the recognition of income between 2013 and 2014 where feasible, and beware of income spikes that could put you over the threshold.

A common trap: Income from Roth IRA conversions isn't considered investment income for purposes of the surtax, but it is included in modified adjusted gross income.

12 Smart Tax Moves to Make Now

Kiplinger for NASDAQ writes:-end tax planning should be easier this year than last. Thanks to the new law enacted in January, you won't have to wait to see whether Congress will reinstate popular breaks that have expired.

But don't break out the bubbly just yet. If you're a high-income taxpayer, there's a good chance you're going to owe more for 2013, and that makes year-end planning more important than ever.

1. Feed Your 401(k)

A good place to start is with your 401(k) or similar employer-based retirement plan. Money you contribute to your plan (if it's not a Roth) is excluded from your income, lowering your tax bill.

If you're not yet on track to max out your contributions by year-end, you can direct some extra dollars to your retirement plan during your last few pay periods -- or, if you get a year-end bonus, use it to fatten your savings.

This year, workers can contribute up to $17,500 to employer-based plans. Workers 50 and older can contribute up to $23,000.

2. Safeguard Your Refund (By Shrinking It)

When you file your tax return each year, the amount of tax withheld from your paycheck or submitted through estimated quarterly tax payments ideally should match the amount of tax you owe. In reality, that seldom happens.

The majority of Americans are addicted to refunds. More than 75% of U.S. taxpayers give Uncle Sam an interest-free loan year after year, with an average refund of about $3,000 -- that's $250 per month. Wouldn't you rather get your money when you earn it instead of waiting a year for a refund? What's more, that fat refund represents a security risk -- identity thieves have been filing fraudulent returns and stealing the refund.

There's an easy fix. Just file a revised Form W-4 with your employer. The more "allowances" you claim on the W-4, the less tax will be withheld.

If your current financial situation is similar to last year's, just use our Tax Withholding Calculator . Answer three simple questions (you'll find the answers on your 2012 tax return), and we'll estimate how many additional allowances you deserve -- and how much your take-home pay could rise.

However, this tool won't be much help if your tax situation has changed since last year because, for example, you got married, had a baby or switched jobs. In that case, you might want to give the more-complicated IRS online withholding calculator a whirl.

3. Penalty-Proof Your Return

If you expect that you'll owe money when you file your 2013 tax return next spring, you can avoid an underpayment penalty by boosting your withholding now.

You needn't pay every penny of the tax you expect to owe. As long as you prepay 90% of this year's tax bill, you're off the hook for the penalty. Or you can escape its reach, in most cases, by prepaying 100% of last year's tax liability. However, note that if your 2012 adjusted gross income topped $150,000, you'll have to prepay 110% of last year's tax liability to avoid a penalty.

Taking these steps to boost your withholding at year-end will shield you from an underpayment penalty on your 2013 return, no matter how much you actually owe when you file your return.

If you have both wage and consulting income and expect to owe money on your tax return, you'll do better by boosting the taxes withheld from your last few paychecks rather than trying to make up the shortfall with your final estimated quarterly payment, due January 15, 2014.

Taxes that are withheld are treated as if they were spread out evenly throughout the year, so that approach sidesteps an underpayment penalty; the estimated-tax-payment approach does not.

4. Plan Your Itemized Deductions

If you expect your income to drop next year -- you plan to retire, for example -- deductions will probably be more valuable this year.

You may want to pay other deductible expenses before year-end, such as your January mortgage, 2014 real estate taxes and fourth-quarter estimated state income taxes. Be careful, though: If you're a candidate for the Alternative Minimum Tax, some of those deductions could be disallowed.

On the other hand, if you expect your income to increase next year, you'll want to defer charitable gifts and other deductible expenses because they'll be more valuable.

5. Review Your Portfolio

Allowing taxes to dictate your investment strategy is rarely a good idea. But if you're already considering selling appreciated securities or other assets -- even if you don't have losses to offset them -- cutting them loose by year-end could save you money (you can harvest losses to offset investment gains, plus shield up to $3,000 of ordinary income from taxes).

Offsetting gains is particularly important to taxpayers in the 39.6% tax bracket (income over $400,000 for singles; $450,000 for married couples), because they face taxes of up to 23.8% on dividends and long-term capital gains, not the 15% rate that applies to most investors.

If you're in the 15% tax bracket, you'll pay 0% on long-term capital gains. In 2013, you're eligible for the 0% capital-gains rate if your taxable income is $36,250 or less if you are single, or $72,500 or less if you are married filing jointly.

If you think your tax rate is going to rise sometime in the future, converting to a Roth makes a lot of sense. Withdrawals from traditional IRAs are taxed at your ordinary income tax rate, while all withdrawals from Roths are tax-free and penalty-free as long as you're at least 59½ and the converted account has been open at least five years. You do have to pay taxes on any pretax contributions and earnings in your traditional IRA for the year you convert.

Worried about not being able to pay the tax bill? Don't be. When you convert to a Roth, you can change your mind. You have until October 15, 2014, to undo the conversion and turn your Roth back into a regular IRA.

7. Beware End-of-Year mutual fund purchases

Sometime in December, many funds pay out dividends and capital gains that have built up during the year, and the payout goes to investors who own shares on what's known as the ex-dividend date. It might sound like a savvy move to buy just before that day so you get a whole year's worth of income.

That's not how it works, though. Yes, you'd get the payout, but at the time of the payout, the share price falls by exactly the same amount. If you get $2 a share in dividends, for example, the share price drops by two bucks. In effect, the fund is simply refunding part of your purchase price.

But the IRS doesn't see it that way. You have to report the payouts as income on your 2013 return -- and pay taxes on them -- even if the money is automatically reinvested in extra shares. (The tax threat does not apply to mutual funds held in 401(k) plans or other tax-deferred retirement accounts.)

Before you buy shares for a nonretirement account in December, check the fund company's Web site to find out exactly when the dividend will be paid.

8. Give to Charity

This is a great time of year to clean out your closets and garage, but you can write off donations to a charitable organization only if you itemize deductions. A few bags full of gently used clothes and household items can add up to hundreds of dollars in tax deductions, but valuing those donations can be difficult. (Try Turbo Tax's free tool ).

If you donate a used car worth more than $500 to charity, your deduction will be limited to the amount the organization receives when it sells it. But you may be able to claim a bigger deduction based on the vehicle's fair-market value if the charity uses it to deliver meals, for example, or gives it to a needy individual. The charity will list the vehicle's sale price, or whether an exception allowing a higher deduction applies, on Form 1098-C, which you must attach to your tax return. Because of previous abuses, donations of used cars and other noncash items may attract extra scrutiny from the IRS. So keep scrupulous records.

Send cash donations to your favorite charity by December 31 and hang on to your canceled check or credit card receipt as proof of your donation. If you contribute $250 or more, you'll also need an acknowledgment from the charity.

9. Give Really Big to Charity

If you plan to make a significant gift to charity this year, consider giving appreciated stocks or mutual fund shares that you've owned for more than one year. Doing so boosts the savings on your tax return. Your charitable-contribution deduction is the fair-market value of the securities on the date of the gift, not the amount you paid for the asset, and you never have to pay tax on the profit.

Individuals age 70½ can make a tax-free distribution of up to $100,000 from their IRAs directly to charity. The IRA-to-charity strategy is particularly helpful for people who have accumulated a lot of money in their IRAs but don't need the money to live on -- and would have to pay a big tax bill when they take their required withdrawals. The charitable transfer lets you give the money to charity and count it as a required minimum distribution but avoid taxes on the withdrawal. Not including RMD in adjusted gross income can also help you stay under the income cutoffs for the Medicare Part B and Part D high-income surcharge or taxable Social Security benefits. This tax break is scheduled to expire on Dec. 31, 2013, although Congress has extended it several times in the past.

10. Give to Your Family (Or Other Lucky People)

You can give up to $14,000 to as many individuals as you like before Dec. 31 without filing a gift-tax return. If you're married, you and your spouse can give up to $28,000 per recipient.

The case for using the annual gift-tax exclusion for transferring wealth to adult children (or other lucky recipients) isn't as strong this year as it has been in the past. The estate-tax exemption is now $5.25 million (and twice that for married couples), indexed to inflation. Only a handful of ultra-wealthy families need to worry about the estate tax at that level. But 21 states and the District of Columbia impose some type of estate or inheritance tax , and most come with much lower exemptions. Rhode Island, for example, taxes estates valued at more than $910,725 at a maximum rate of 16%.

If you're feeling really generous, you could do it all over again on January 1, 2014, when you can give up to $14,000 per person.

11. Give the Gift of Securities

If your adult children or parents are in the 10% or 15% tax bracket (taxable income of up to $36,250 for singles, $72,500 for married couples), they qualify for the 0% tax rate on long-term capital gains. When they sell the securities, profit that would have been taxed at a rate as high as 23.8% on your return will be tax-free on theirs. Children under 18 and full-time students under age 24 are subject to the "kiddie" tax. Investment income that exceeds $2,000 will be taxed at the parent's higher rate.

To qualify for the special rate for capital gains, the securities must have been held for at least 12 months. For securities given as gifts, though, the holding period includes the time you owned them.

12. Spend Down your Flex Plan (If You Need to)

The Treasury Department and IRS changed the rules so employers can allow people to carry over up to $500 in their accounts from one year to the next. Companies can choose to make this change before the end of 2013, but they're not required to do it.

If your employer won't make the change by year-end and doesn't offer a grace period, it's time to clean out your account. Remember that you can no longer use flex funds to pay for over-the-counter medicines, such as aspirin, ibuprofen or allergy meds, without a prescription (except for insulin). But that restriction does not apply to other nonprescription medical items, such as crutches, contact-lens solution or bandages. (For a list of what is allowed by law, see IRS Publication 502 .) The same rules on eligible purchases apply to health savings accounts.

At Yahoo we read: 

How should I optimize my tax benefits with my retirement?

• bbqmon asked 19 hrs ago - 
  3 days left to answer

I'm going to have a fair bit of taxable income (20k?) over the 146K married filing jointly 25% / 28% tax bracket this 2013 year. I've been maxing out a Roth 401K and Roth IRA each year, but now I'm wondering if it would be wise to make it so I keep my taxable income within the 25% range and avoid paying some of it in the 28% range. I know it all depends on what my tax bracket will be when I retire so it's all somewhat a swag. I'm 41 years old and plan to retire around 59. At what age should I consider starting leverage more pre-tax 401k and IRA over Roth or does it ever make sense if I plan on being in a higher tax bracket when I retire? Assuming I plan to pay myself around 80% of what my salary is at retirement which will lower my tax bracket some, does it make sense for the last 5-10 years to shift from contributing to post-tax over to more pre-tax retirement saving options?

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  A Hunch answered 19 hrs ago

  Someone who is earning $146K+ would generally contribute more to a traditional 401K not a ROTH 401K. Do you think you will be receiving $146K per year in retirement, probably not. Unless your expenses were exceptionally high for a retiree, you would keep it in the plans instead of withdraw more than you need (after age 70, you have to withdraw more due to life expectancy).

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  NA answered 18 hrs ago

  Okay, congratulations on you and your wife being high income. Kudos on your expectation that your income will stay at that level for the forseeable future.
  
  Also contratulations on your expectation that you can retire at 59 and still have 80% of your income to spend.
  
  And, wow, you expect to be in a higher tax bracket? Do you have that much to pay in capital gains, etc? Or do you just expect the tax rates to climb form the rates today?
  
  When you say you have been maxing out your 401K each year, you are putting in $17500 for you in your 401K and if your wife works, she's putting 17500 in hers? Adding in the $5500 for the Roth IRAs, that's $45000 a year. (Unless your company is top heavy and you hit the HCE [highly compensated employee] rules and can't put in the full $17500.)
  
  Please don't think *all* of the above is sarcasm. The problem is, you just don't know. Nobody knows, all they can do is guess and my crystal ball has bubbles in it.
  
  I'm further along than you, but I also hope to retire very early and have an income that is pretty much equal to what I have now. However, from 41 to my age now, I have encountered the following:
  
  1. Layoff from a high paying job. I was unable to find a job in the same field, so after a year of unemployment, I took a job that paid half as much.
  
  2. Family issues. I switched to part time to have more time to take care of ailing parents, then continued part time to have time to work on an estate, and finally realized that my job stress was such that I wanted to stay part time.
  
  3. When I had the high paying job, I aimed to put 25% of my pay into the regular 401K. That was at a 25%-28% tax rate. I also put whatever I was allowed to into a traditional IRA. I did NOT use the Roth variations because they didn't exist when I started saving. I *also* put even more money into plain old vanilla savings. My regular savings are roughly 2/3rds of my assets and my retirement accounts are the other 1/3rd. (I don't count the house as anything other than a place to live.)
  
  When the Roths came along, I toyed with switching to all Roths. For a young person starting out, I'd push 50/50 for the first 10 years. At lower incomes, the savings from a deduction aren't that much, but if you screw up and need the money, the Roth contributions can be taken out penalty free. If using a 401K, I'd make the 401K pre-tax and the other half a Roth IRA.
  
  4. When I was laid off and had no income for a year, I rolled a substantial amount of money into a Roth IRA. I used up my 0% tax bracket (personal exemptions and itemized deductions), the 10% bracket and the 15% bracket. Since I'd put the money in at 28%, I felt I'd at least saved on the taxes. This quasi-income-averaging only works if you have money to roll over and other savings to you don't spend it. (Once you hit 59.5 years of age, the penalty goes away.)
  
  5. My plan from when I retire (soon) to age 62/66/70 (when I go to collect SSA benefits) is to systematically roll money from the IRA/401K to Roth accounts such that I use up the 15% tax bracket. Again, possible because I have money in these accounts and other money to live on.
  
  6. I've done the math. The 15% tax bracket is the best I can do. I have simply organized my life to spread my income out so I don't pay 25%. (I currently like Muni bonds--as the income is tax exempt-- but I don't know if I'd suggest that to some who is young. If that income was not tax exempt, I'd be in the 25%-28% bracket.)
  
  7. Several models have been done indicating that if your tax bracket is the same in retirement as when you put the money into the traditional IRAs, you still win due to compounding. I'm not entirely sure this is true since it's ordinary income, not capital gain.

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  Ann answered 17 hrs ago

  I would let the Roth continue to grow for the next years and switch over to pre-tax contributions to take advantage of lower tax bracket now, chances are your income is going to continue to increase putting more of it into the 28% bracket. Also when you are 65 you get to claim an extra allowance on your tax return which will lower your taxes as well.

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  Jack answered 17 hrs ago

  Wish I had more time to answer - - but you are still better off in the ROTH accounts.
  
  The main reason - - - ALL of the earnings are withdrawn tax free. Double your money - tax free. Quadruple it - tax free. It's ALL tax free.
  
  The whole "depends on retirement tax bracket" argument is dwarfed in almost every case when you have 10 years or more to grow your investment. Your retirement money is going to be invested for a long time - - more than 40 years if you live to 81. All that growth is tax free from a ROTH.
  
  You are suggesting saving 25%-28% now on your contribution. But you will pay close to that rate or more on ALL your earnings if you go the traditional 401K/IRA route. ROTHs almost ALWAYS win.

Avoid Tax Pitfalls When Donating Your Credit Card Rewards Points or Miles

Gerald Morales for The Fool writes:  Credit card companies are making it easier than ever to donate your rewards points to charitable causes. In fact, most credit card websites with rewards programs allow you to donate online. Choose between thousands of charitable causes and with one click, your rewards points will be used to help those in need.

The holiday season is a time to give back to those who are less fortunate and if you are considering making a donation from your credit cards rewards, be aware of the tax implications involved with this type of donation. The person or entity that makes the actual donation is the one who can claim the tax write-off. In other words, if Generous John wanted to donate the $400 he racked up on his cash back for the quarter but does it directly from the credit card site, the credit card company would most likely be considered the entity making the donation, not John. Credit card companies do not tell you this and could very well take the credit for your generosity.

If you are using a cash back card, you should redeem the cash on it first, and then write a personal check to the charity of your choice. This way, you can take advantage of the tax deduction as you normally would if you donated cash, or old items, such as used clothing or a car.

When are rewards points deductible?If you are interested in donating your airline miles, you can do so for causes such as Make a Wish Foundation. The organization uses the donated miles to help someone in need to travel.

Keep in mind that you will not get the tax deduction if you are using your own miles. If you purchase them for the sole purpose of donation, you can use it as a write-off. Rewards points are only tax deductible if the points were purchased. The only time something is deemed tax deductible by the IRS is when it is paid for.

Rewards points that are acquired for free are not tax deductible because they were not paid for by the person making the donation. This is of course subject to laws within your state. As long as the rewards were purchased, you should be able to claim them on your taxes.

How to easily claim a donationThe simplest way to avoid the hassle of trying to figure out how to claim donated rewards points is to convert the amount to a cash value on your own. As mentioned above, use the amount you receive from your credit card company to cut a check and donate to the charity of your choice. Donations made this way are easily claimable on your tax return.

Save all of your receipts and relevant documentation so you or your tax professional can make the necessary deductions.

When in doubt, contact the IRS or a tax professional yourself to determine what you can and cannot claim on your taxes. For the most part, you can only claim donations made through rewards points if you either paid for the points yourself or got a cash value for the points and donated that money to charity.

Traditional IRA vs. Roth IRA

Jeffrey Glen for InvestorGuide writes:  After deciding to invest in an IRA (Individual Retirement Account) you further have to make the distinction as to whether you want to invest in a Roth IRA or a Traditional IRA. These two investment vehicles have very different tax implications so considering your specific circumstances is important.

Traditional IRAs: These offer the benefit of allowing you to deduct the contributions you make now from your taxable income and reduce your tax bill. You pay taxes later in your retirement when you are withdrawing amounts, so effectively you defer taxes and potentially pay lower taxes if you expect not to have as much income in the future. Traditional IRAs also limit you from withdrawing the account before you turn 60; as if you do you pay large penalties.

Roth IRAs: Roth IRAs don’t allow you a tax deduction now, but your earnings and withdrawals are tax free when you take them out later. This can be advantageous if you expect to have a higher tax rate in retirement, so you pay lower overall taxes by paying now. Roth IRAs also allow you to withdraw contributions, but not earnings, whenever you want without penalty.

An added benefit of Roth IRAs is that you aren’t required to begin withdrawing from them when you turn 70, as you are with a traditional IRA. This can be useful if you’d rather leave the funds alone and not be forced to withdraw them. Additionally, as the beneficiaries of Roth IRAs don’t pay taxes when they receive the funds these can be a useful wealth transfer vehicle.

Ultimately choosing the right IRA for you requires you to consider your current and future tax expectations, as well as when you think you may need the funds.

Rental Property Tax Deductions

TJ Woods writes: Rental properties are a great source of income when designed correctly. To maximize the profitability of your property, it is important to understand and utilize tax deductions.

Be sure to keep good records of your rental properties and related expenses. Audits from the IRS are common. The number one rule with properties is not to mess with the IRS.

There are more rental property tax deductions besides depreciation. Many of these are often-overlooked by landlords. Here are some quick tips on rental property tax deductions.

The Difference Between Improvement and Repair

The IRS sees a difference between repairing damage to your property and improving your property by renovation (increasing its value). Not everything done to your property is a deductible expense. Repairs, such as replacing a broken window, maintain the value of your property and can be used as a deductible expense in the year you paid for them. Improvements, on the other hand, such as porch or a deck, increase the value of the property and cannot be used as a deduction when you pay for them. Before using repair as a deduction, you must recover the cost of improvement by depreciating the expense over the expected lifetime of your property.

Security Deposits Are Non-Taxable If Returned

If you intend to return the security deposit to the tenant when they leave, it is not taxable. If needed, the security deposit can be retained for repair purposes when the tenant leaves and written off as a deductible expense.

Home Offices Are Tax Deductible

Rooms in your personal house, or unit, are tax deductible from your personal income. This could be an area of your home you use as an office or a storage and/or repair room. Office supplies and furniture are also deductible, so hold on to those receipts!

Labor and Contractors

All wages are deductible from your personal income, regardless if given to an employee (such as a property manager) or a contractor (such as a plumber you hire for a repair project).

Theft and Damage

Casualty losses, when your property is damaged or destroyed, may be deducted for some, if not all, of your loss. Each scenario is usually determined on a case by case basis. The final amount that can be deducted depends on how much of your property was damaged and what was recovered through insurance claims.

Professional and Legal Services

As long as they are used for related purposes, all fees for accounting services, attorneys, property management companies, financial advisors, and other professional services can be deducted from your personal income as operating expenses.

Interest

One of the largest deductible expense is interest. For example, interest paid on interest payments, loans used to acquire or improve rental property, and interest on credit cards used for goods and service used in a rental activity can be deducted.

Insurance

Almost all types of insurance premiums that are used for your property can be deducted, such as liability, theft, flood, and fire insurance. You employee’s insurance, such as workers compensation and health insurance, can be deducted as well.

If you are currently a rental property owner or are planning to invest in a property, please contact us. You’ll have the peace of mind knowing the talented team at TJ Woods Insurance is there to help you protect your assets every step of the way.

How has your experience been as a landlord? Are you planning to invest in real estate?

Tax tips to avoid a hit this year

Lynn Asinof for the Boston Globe writes: The stock market is up, federal tax rules have changed, and some popular tax breaks are about to expire. That means taxpayers could be in for some big surprises when they file income tax returns in April. Those looking to lower their 2013 tax bills, however, still have a month to take advantage of some year-end tax strategies that could make a difference.

Among those in for the biggest sticker shock are upper-bracket taxpayers who face a variety of new taxes and rate hikes. Ditto for same-sex spouses, who will be filing federal taxes as married couples for the first time. Combine those two categories, and the tax bill may be startling.

“The difference was $10,000,” said Newton-based financial planner and CPA Dana Levit after running one client’s 2012 numbers under the new 2013 rules. “They were shocked.”

For those in the lower-income brackets — less than $200,000 of modified adjusted gross income if filing single or $250,000 if married and filing jointly — year-end planning will largely focus on charitable giving, management of investments, and making use of expiring tax breaks, including home energy tax credits and teacher classroom-expense deductions, Levit says.

Record stock prices, for example, mean that investors looking to lock in gains may want to sell appreciated stock. Moreover, with the stock market continuing its upward march, investors are likely to find their portfolios more heavily invested in equities than they may have realized.

That makes it a good time to sell some stock-market winners and put the proceeds into either fixed-income instruments or investments that have been out of favor.

But before thinking about taking gains or selling to rebalance, investors in all brackets should consider how such sales will increase their tax bill. For example, investors may want to harvest portfolio losses to offset any taxable gains. Or perhaps they can do their rebalancing within tax-sheltered retirement plans, where these sales have no tax implications.

Such strategizing is particularly important to those in upper-income brackets. Last year’s tax-law changes created a variety of income thresholds, each triggering new taxes, higher rates, or loss of tax breaks. But each threshold is calculated differently. That means any taxpayers whose income puts them close to one of these new thresholds needs to pay close attention.

“Think about doing a tax projection for 2013 and beyond to make sure you are not going to be bumping into these new limits,” advises Levit. These limits include:

■ A new 0.9 percent Medicare tax on earned income above $200,000 or $250,000 for those married filing jointly.

■ A 3.8 percent Medicare surtax on net investment income for those with modified adjusted gross income over the $200,000 individual or $250,000 married-filing-jointly threshold.

■ A phase-out of personal exemptions and itemized deductions, which is triggered when adjusted gross income exceeds $250,000 for individuals or $300,000 for couples filing jointly.

■ Higher tax rates, which go into effect once taxable income exceeds $400,000 for individuals or $450,000 for couples filing jointly. The top marginal rate jumps to 39.6 percent, from 35 percent for 2012, while the top tax rate on capital gains goes to 20 percent from 15 percent.

Juggling these isn’t easy, and even the experts say they have a hard time keeping it all straight. “It’s complicated,” says Beth Gamel, a fee-only financial planner and managing director at Argent Wealth Management in Waltham, noting that different strategies may be needed to avoid each of the thresholds.

For example, to stay below the 0.9 percent Medicare-tax trigger, taxpayers may want to defer bonuses or postpone the exercise of company stock options. You can’t avoid this tax by making contributions to IRAs, 401(k)s, or other such retirement plans. But those contributions can be used to dodge the threshold on the new tax on net investment income, since they reduce modified adjusted gross income.

Of course, investors looking to avoid the net investment income tax can opt to delay any securities sales that would put them over limit. Or they can give those shares to family members in lower tax brackets instead of giving cash.

All these techniques work for people trying to hold on to personal exemptions and itemized deductions. Taxpayers worried about phase-outs of these tax breaks, the net investment income tax, and higher tax brackets may want to shift some assets to municipal bonds, which are not counted in calculating these thresholds.

Whatever the strategy, Gamel suggests that people take action soon. Arranging a charitable donation of appreciated stock, for example, can eliminate capital gains taxes on those shares, but it can’t be arranged overnight.

The expiring 10 percent tax credit on up to $5,000 of energy-efficient home improvements may prompt a homeowner to install a new storm door or add insulation before year end, says Jeff Pirner, master tax adviser and a district manager with H&R Block in Boston. One caveat: Homeowners only qualify if they haven’t already used up their credit in past years. Then, too, teachers, who are slated to lose their annual $250 above-the-line deduction for unreimbursed classroom expenses, might want to purchase school supplies before year-end even if they aren’t needed until 2014, he says.

Finally, those over age 70½ who are charitably inclined need to act soon if they want to meet the year-end deadline for making contributions of up to $100,000 directly from their IRA to an IRS-qualified charity and eliminate all income taxes on the withdrawal.