The Tax Benefits of Homeownership

The Tax Benefits of Homeownership

There are many tax benefits that people who own homes can reap. One of the main tax benefits of homeownership is that they don’t have to count the rental value of their home as taxable income—also called imputed rent. This means that their home can be a source of income that is not taxed. Here are some more tax benefits that homeowners get:

Mortgage Interest Deduction.

Homeowners who itemize deductions can reduce their taxable income by deducting the interest they pay on a home mortgage. Taxpayers who don’t own homes don’t have this benefit. This tax break was further defined by the Tax Cuts and Jobs Act. 

Property Tax Deduction.

These homeowners can also reduce their taxable income when they deduct their property taxes, as this will effectively be a transfer of federal funds to jurisdictions that impose a property tax, which lets them raise property tax revenue at a lower cost to their constituents. 

Profits From Home Sales.

Generally speaking, when a taxpayer sells an asset, they must pay capital gains tax on any profits, but homeowners may exclude from taxable income up to $250,000 (or $500,000 for joint filers.) if they meet the criteria as follows:

  • They must have owned and occupied the home for 2 years of the preceding 5 years as a primary residence.
  • They may not have claimed the capital gains exclusion in the past two years for the sale of another home, with some exceptions.

These deductions and exclusions are generally worth more to taxpayers in higher tax brackets. Compared to homeowners in lower-income tax brackets, those with higher incomes face higher marginal tax rates and pay more property tax and mortgage interest. This means that they will most likely itemize their tax deductions on their tax returns.

How Financial Statements help you plan for 2021

financial statements

Creating financial statements can seem tedious and complicated, but preparing these documents is a vital part of planning for the year ahead. Financial statements make up a large part of the projections and planning for your business’s future and can give you strategic guidance on crucial changes to make to ensure sustained success. 

How financial statements can help you plan for the year ahead 

While you are preparing your financial statements, you will become more aware of the status of your business’ finances, the progress you are making towards your goals, and will give you a clear view of any issues you might face down the road. 

Financial status overview 

Keeping close tabs on the financial status of your business is a must. The financial statements offer a summary of your business’s financial position. They can provide you with the information you need to help you set goals and understand where you might need to change your budget. If you regularly work through your financial statements, you will pick up any issues at an early stage, and you can make small changes before the finances go off the rails. 

Relating business goals into specific business targets 

The financial status overview is a powerful tool to help you create specific targets that will drive your business strategy towards achieving the goals you have set out for any given year. The adage goes that failing to plan means planning to fail, and it holds true in a business context. 

Measured targets will help to keep your business on track and will provide employees with structured outcomes to work towards. By creating specific targets, you can practically set out a roadmap that will lead your business to its goals, instead of making decisions on the fly without proper planning to back up actions. Through specific targets, you will be able to create a sustainable pace for the business while leaving room for direction changes necessitated by external factors that influence the business strategy. 

Measuring progress

Your financial statements contribute to most planning and strategic decisions and can help you measure the progress within your set of goals. If you have carefully set out specific business targets, the progress measurement process will be easier to manage. The business’s financial statements can give you a higher-level overview of the progress, even if you do not measure specific targets. When comparing the financial statements across several years, you can track how the business is progressing towards its goals on a year-by-year basis, giving you valuable insights into the overall development of the company. 

Identifying potential issues 

When you study the financial statements for the previous years, you can compare the financial situation to your business forecast to see if you might run into problems relating to cash flow and inventory, among others. It is especially important to use your financial statements when planning the goals you want to achieve in the business to identify shortfalls and plan out budgets to cover the activities you plan to undertake for the following year. 

If you need assistance from our accounting service experts on your financial statements, taxes, and other financial planning activities, contact Georgen Scarborough Associates, PC, for more information. 

Five Accounting Tips for Startups

Accounting tips

Business accounting does not have to be a daunting process with these practical and straightforward accounting tips. At Georgen Scarborough Associates, PC, we have helped small businesses to get their financial statements, tax preparation, and payroll off to the best start. Here are our top accounting tips for startups:

Top accounting tips for managing a startup  

There are countless resources online with tips and plans for getting your start up’s accounting in order. Not all of these tips have been created by accounting service experts, and the wrong advice can cost you time and money and get you into a lot of trouble with the law. Here are the tips you need to keep your books in tip-top shape.

Keep business and personal finances separate

You might be tempted to put everything together in the same account and treat your business accounting like your personal accounting. Mixing the two is a quick way to create a lot of trouble in the long run. We recommend opening a dedicated business account from day one. The little bit of extra effort, in the beginning, will help you to keep everything in order and will save you a lot of frustration as your business grows.

Record expenses, income, and payments meticulously

Now that you have a dedicated business account, it will be much easier to keep a thorough record of income, expenses, and payments you make for the business. If you deal with a lot of physical paperwork, you should invest in a filing system to keep your records organized and safe. We recommend that you read up on record keeping requirements in your industry and area so that you don’t unknowingly expose sensitive information to unauthorized parties. 

Stay on top of financial matters

If your records are in order, it will be a reasonably simple task to stay on top of your finances. Remember to stay updated on regulations, legal requirements, and developments that might impact your business accounting. For business owners, this requirement is especially critical when it comes to taxes and payroll matters that affect employees.

Use professional software tools

Modern digital accounting tools can make the accounting process incredibly simple for startups. We recommend using a cloud-based accounting tool that will help you organize your accounting process and access your information anywhere. We recommend that you research a few different options and reach out to an accounting service expert before investing in a paid plan for your business. 

Hire an expert

Suppose you are unclear about your business accounting, or you don’t want to spend your time managing your accounting. In that case, we recommend reaching out to one of our accounting service experts. We have the knowledge, experience, and resources to assist you with all your business accounting needs. Our professional staff members provide a variety of services for your startup, from payroll to taxes. 

For more accounting tips or help with your startup accounting, contact Georgen Scarborough Associates, PC, in Virginia for more information.