Tax Tips

Thinking about retiring?

Early retirement is an option for many taxpayers. However, before making the decision, you need to be aware of a few facts.

It’s important to understand that the more years of work you put in after the age of 62 (the earliest possible social security retirement age), the more social security benefits you’ll have to look forward to. Retiring at the age of 62 means that your benefits will be about 25 percent lower than they would be if you waited until you reached full retirement age.

If you still decide to go ahead with retirement at the age of 62, be sure to apply for your benefits about three months before the date you’d like them to start. You’ll apply online at www.ssa.gov, by phone at 1.800.325.0778 or in person at your local social security office. During the application process, you’ll need some or all
of the documents below:

  • Your social security number.
  • Your birth certificate.
  • Your W-2 forms or self-employment tax return from last year.
  • Your military discharge papers, if applicable.
  • Your spouse’s birth certificate and social security number if he or she is applying for benefits.
  • Your children’s birth certificates and social security numbers if you’re applying for children’s benefits.
  • Proof of U.S. citizenship or lawful alien status if you (or a spouse or child applying for benefits) were not born here.
  • The name of your financial institution, the routing number and your account number so that benefits can be deposited directly into your account.

Note: All documents must be original documents or copies certified by the issuing office. You can mail or bring these documents to your local social security office.

Because your age of retirement ultimately impacts the amount of social security benefits that you can expect to receive, it’s absolutely crucial for you to consult me about the options you have available. The social security website also contains countless resources to help you make the most informed decision possible.

Making your most important business decision

If you’re starting a business, one of the most important decisions you’ll make is choosing what type of entity to operate as. Be sure to weigh your options, because an informed decision at the beginning can save you a great deal of time and expense later. Following is a list of the different entities.

  • entitySole proprietorships are the easiest type of business to form and to terminate. As a sole proprietor, you are the owner of all business assets and are liable for all business debts.
  • Partnerships consists of two or more individuals who make a voluntary contract to carry on a trade or business. They are separate legal entities from their owners and are not taxable entities.
  • Corporations are separate legal entities apart from their owner. A corporation is responsible for all of its own transactions and can be sued separately from its shareholders.
  • Associations are unincorporated businesses that are taxed as corporations for federal tax purposes, even though they may not qualify as a corporation under state law. An association is treated as a partnership unless it elects to be taxed as a corporation.
  • Limited liability companies (LLCs) are business entities separate from their owners and provide the LLC member with a limited amount of liability, which is usually only common to corporations.
  • Limited partnerships follow most of the partnership rules, but limited partners are not (and cannot be) active in the business, as they are simply “investors” who share in the profits and losses of the business.
  • S corporations follow most of the rules of a corporation, but income and losses are passed through to shareholders, thus avoiding double taxation.

Since understanding the tax consequences and operating procedures under each form of organization is vital to your success as a business owner, please turn to me for information regarding entity considerations for your specific situation.

Things to know about income and deductions

Investing in rental property can be a smart financial move, but when it comes to your federal tax responsibilities, it’s important to be aware of what is considered rental income and the associated expenses that can be deducted from your rental income.

What’s considered rental income?

Anything received as rent must be reported as part of your gross income for the year you received the payments. Besides rent payments received from tenants, other rental income includes advance rent, security deposits, payment for breaking a lease, expenses paid by a tenant, property or services received as rent and payments received under a lease with an option to buy agreement.

What are your eligible deductions?

You may deduct mortgage interest, property tax, operating expenses, depreciation and repairs. However, you cannot deduct the cost of improvements (i.e., anything that adds to the value of your property).

What records should you keep?

Keeping good records of rent, rental repairs and travel expenses incurred for rental property is essential to tracking deductions, preparing tax returns and supporting items reported on the returns. It’s also important to keep documentary evidence, such as receipts, canceled checks or bills to help substantiate certain elements of expenses so you can deduct them.