Author: Donohoo Accounting Services

Spring Clean Your Financial Documents

With tax season upon us and the hint of Spring around the corner, now is the perfect time to focus your spring-cleaning efforts on your financial documents and be ready for the year ahead. Here’s what we recommend you do:

Have A System

Store all of your important papers all in one place. A traditional filing cabinet works great, with separate folders allocated for your utility bills, pay stubs, bank statements, credit card statements and investment information.

Keep similar statements together so you can find what you need quickly. Safely store your important documents in a fireproof and water-resistant container.

To Keep Or Not To Keep

You don’t have to keep everything forever. Here are some rules of thumb to guide you.

          • Utility bills. Keep these for about a year in case there is a billing question that comes up.
          • Pay stubs. Hang on to these for a year, too, or until you can cross reference it to your year-end W-2 statement.
          • Bank statements. Keep these for one year unless you plan to apply for a car or home loan, then keep two years of statements. Lenders typically ask for two years’ worth of statements, and many banks give you free access only to the past six months.
          • Credit card statements. You can typically pitch credit card statements that are older than a year unless you’ve used them to pay for home office or home improvement expenses. If they impact your taxes, keep those statements until you sell your home.
          • Investments. You can throw out the monthly or quarterly statements if you have the yearly statements, but hold on to statements that show trading confirmations.
          • Tax records. Keep all of your tax returns and the supporting documents for at least three years. The IRS can challenge returns for the previous six years if they suspect you haven’t reported income, so you may want to play it safe and hang on to them for six years, especially if you are self-employed. Returns that are decades old and several residences in the past will likely not be needed.
          • Other important documents. There are some documents you will keep forever—birth certificates, marriage licenses, estate planning, death certificates, etc. These documents should be kept in a place that protects them from flood, fires and theft.

Shred

When you have identified what you no longer need to keep and store, don’t just throw them in the trash. Shred them. This will protect you from identity theft, an all too common and devastating problem that results when dumpster divers go through your trash in search of personal information. Then they use it to make purchases or apply for new credit cards.

Donohoo Accounting Services is here to help you with your financial paperwork, tax preparation and business and personal tax returns. If you have questions about which financial documents you should keep, which you should get rid of, or if you need help with your taxes, give us a call at 513-528-3982. We would be happy to assist. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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Mortgage Refinancing 101

Even before you’re ready to replace your current home loan with a new loan, you may be asking yourself, “Where do I start? Who should I talk to? What documents will I need?” In other words, the mortgage refinancing process may seem a bit overwhelming. The good news is there are steps to refinancing that are simple to follow. Take a look at the five steps below to begin your walk down the path to refinancing your home mortgage.

Set Your Re-fi Goals

Just like any other journey, the route to mortgage refinancing must have a destination. Some common refinancing goals include lowering your monthly payment, paying down the principal, withdrawing the equity in your home to pay off high-interest debt, and shortening the term of the loan. If you’re planning to move in five years or more, you may have other goals like re-investing the equity in smart improvements to increase your home’s resale value.

Know Your Credit Score

Having a great credit score usually translates into securing an excellent interest rate. That’s why knowing your credit score before you refinance is important. Does your credit score need some work? Take the time and effort to improve it. You may save yourself thousands of dollars over the term of your mortgage by earning a lower interest rate. A full credit report including your credit score is usually available free of charge from your bank and from many online resources.

Determine Your Home’s Equity

Before you refinance, call your lender to determine the payoff on your current mortgage. Then, have a trusted real estate agent show you a list of comparable properties (similar in size, age and updates in your neighborhood) that recently sold. Knowing the current market value of your home and subtracting what you owe on your current mortgage will help you determine the equity you have before you refinance.

Research Interest Rates

Knowing in advance the interest rates offered by various lenders will give you an advantage when you decide to refinance. Rates often differ by what seem like small amounts, but those fractions of percentage points add up over time. As well, depending on the type of loans you may qualify for, different home loan programs, such as VA, FHA, USDA and conventional offer different interest rates. Do your homework: research the best mortgage loans with the lowest rates that meet your needs.

Gather Your Money and Documents

Before applying to refinance your home mortgage, collect the necessary documents and data about your debt and assets, including income tax returns, W2s, bank statements, credit reports and personal identification. Also, be ready to pay closing costs by setting aside money in advance (about two to five percent of the appraised market value of your home).

With more than 20 years of experience helping individuals, small businesses and non-profit organizations with their finances, Donohoo Accounting Services is here to help you with your tax planning, tax filing and accounting needs. If you would like to set up a free consultation, contact us at 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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What’s Different In 2021 About Saving For Retirement

2020 was a challenging year for everyone, but the retirement changes that occurred because of coronavirus legislation did offer some advantages to retirees and retirement savers.

The CARES Act (Coronavirus Aid, Relief and Economic Security Act) was a $2.2 trillion economic stimulus package that sent stimulus checks to many Americans and boosted unemployment benefits. Here’s a summary of the CARES Act “silver lining” for retirees:

Required Minimum Distributions (RMD)

The CARES Act gave retirees a pass on the required minimum distribution, which would normally require them to withdraw money from an IRA and pay income tax on it. The free pass ended in 2020 however, and retirees will have to resume taking their RMDs in 2021.

Retirement Plan Withdraws

Another positive outcome of the CARES Act is it allowed up to $100,000 of retirement account withdrawals with no penalty as long as the person was younger than 59½. It also gave permission to spread out the tax on any retirement plan withdrawals over three years, and replace the money if they wanted to as long as the withdrawal was related to COVID. The early withdrawal penalty is reinstated for 2021, and any income on withdrawals will have to be counted as income unless the person qualifies for the COVID-Related Tax Relief Act (COVIDTRA) of 2020.

Retirement Loan Plans

In 2020, savers could borrow up to $100,000 from their 401(k) accounts without making payments on those loans for 12 months. In 2019 they could only borrow $50,000. This change could continue into 2021 if the retirees qualify for the COVIDTRA.

IRA Limits for Deductible Contributions

There is no change in the amount you can contribute to an IRA in 2021, but the income limits on contributing to a Roth IRA or deducting a traditional IRA are slightly higher.

Social Security COLA

The Social Security Administration instituted a 1.3 percent cost of living adjustment (COLS) for most beneficiaries that took effect January 2021. There is a $20 average monthly increase in Social Security retirement payment this year to $1,543. For a worker at full retirement age, the maximum monthly Social Security benefit is now $3,148, up $137 from 2020. Full retirement age for those people born in 1955 is 66 years and 2 months. That number rises gradually to 67 for anyone born in 1960 or later.

Do you have questions about saving for retirement during a pandemic and beyond? Or are you unsure about how or if last year’s changes in legislation affect your personal retirement plans? You can trust experienced accounting professionals like Donohoo Accounting Services to answer your questions. We’ve been assisting individuals and businesses with their tax preparation and retirement planning for more than two decades, and we would be happy to help you, too. If you are interested in learning more or scheduling a retirement savings consultation, please call 513-528-3982. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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How Tax Filing Will Be Different In 2021

The coronavirus pandemic brought unforeseen challenges to all aspects of business around the world, so it should be no surprise that it will impact this year’s taxes as well. Coronavirus legislation and inflation adjustments changed some of the most influential tax rules. Here is what you can expect to be different when you file your taxes this year.

February 12 is the opening date, and April 15 is the deadline

The first day to file in 2021 is February 12. We were all given a tax filing extension last year, but we’re back to April 15 for 2021. That doesn’t mean you can’t get an extension; but remember that being granted an extension only gives you more time to file your taxes, not more time to pay what you owe.

Charitable Deduction

The CARES Act allowed taxpayers to deduct up to $300 in monetary deductions in 2020 even if they chose to take the standard deduction. This was the IRS’s way to encourage Americans to contribute more money to charity during the pandemic.

Higher HSA Limits

Contributions limits for HSA-eligible workers who elected to participate in high deductible health insurance policies increased by $50 for self-only coverage (from $3,500 to $3,550) and by $100 for family coverage (from $7,000 to $7,100).

Higher Retirement Account Contribution Limits

Some workplace retirement accounts have higher contribution limits in 2020, so be sure to check yours. To illustrate, 401(k) plans had a base contribution limit of $19,000 in 2019, but that increased by $500 to $19,500 in 2020. For those who are age 50 and older, the catch-up contribution limit increased by $500 also, from $6,000 in 2019 to $6,500 in 2020. This means that if you are age 50 or older, you could potentially contribute a total of $26,000 ($19,500 + $6,500) to a 401(k) plan in 2020.

Higher Standard Deductions

Each year the IRS adjusts the standard deductions for inflation. This reduces the amount of income that is subject to federal taxes. In 2020, the IRS raised the standard deduction by anywhere between $200 and $400. The breakdown is as follows:

  • Married filing jointly: (+400 from 2019) – $24,800
  • Married individuals filing separately: (+$200) – $12,400
  • Head of household: (+$300) – $18,650
  • Single: (+$200) $12,400

Donohoo Accounting Services realizes these changing tax rules are hard to understand and stay on top of. When it comes time to file your 2020 taxes, you don’t have to do it alone. We are here to help you realize and take advantage of every tax deduction you are entitled to. We have been filing tax returns for individuals and small businesses for more than 20 years, so we are well versed in tax laws and rules and can help save you money, time and headaches.

If the thought of filing taxes fills you with dread or stress, please call Donohoo Accounting Services at 513-528-3982. We can handle the details and ensure you are receiving the tax credits, deductions and refunds you deserve. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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