October 9, 2018 § Leave a comment
It has become normal to live paycheck to paycheck with monthly debt payments consuming a greater share of your take-home pay. Debt payments have become a part of our lives whether it’s for a home, vehicle, student loans, or other debt. What would your life look like with no payments? Wouldn’t it be nice to invest in your future instead of paying for past purchases?
There are many ways you can improve your personal financial picture through tax and financial planning. However, I’d like to focus on one of the biggest purchases you’ll make in your lifetime. Your home and the mortgage that comes along with it.
You search Zillow, find your dream home, your offer is accepted, and a lender approves you for a mortgage. All you need now is to rent a moving truck and tune-in to HGTV for decorating ideas. For the rest of the article I’m going to assume you purchased a $375,000 home, put $75,000 down to avoid private mortgage insurance (smart), and took out a $300,000 mortgage at 4.75% with a 30-year term.
Things are going great in your new home. You’ve met the neighbors, unpacked most boxes, and just received the first mortgage statement in the mail. Your first payment due is $1,565 with roughly 75% of that going to the bank in the form of interest. After the first 12 payments, you’ve paid $14,150 in interest and reduced your loan by roughly $4,630. Over the course of the 30-year loan you’ll give the bank close to $263,400 in interest and pay $563,400 in total (187.8% of the original loan balance).
Let’s say you took out a 15-year mortgage instead with a 4.25% interest rate. Rates are lower due to the reduction in risk that the lender assumes with the shorter payback period. The mortgage payment is now $2,257 ($692 more), but you’ll save yourself $157,155 in interest and eliminate 15 years of payments.
What if you stayed with your 30-year mortgage but added $500 to your monthly principal payment (for a total payment of $2,065)? The additional $500 per month in principal payments would cut 12 years off the loan and reduce your interest paid by $116,000. You now own your home outright and no longer have a mortgage payment. The amount you were paying towards the mortgage is now available to invest, spend or give however you’d like.
What if you invested the same $2,065 each month over the remainder of the original 30-year note (12 years) in an investment earning a 7% annual return? At the end of those 12 years you’d have over $466,000 in that investment. That’s a $582,000 swing if you consider the $116,000 you would have paid in interest.
Now consider the tax deductibility of mortgage interest. The reality is most taxpayers will no longer benefit from tax deductibility of mortgage interest under the new Tax Cuts and Jobs Act law. The Tax Policy Center estimates that only 10.9% of taxpayers will be able to itemize deductions for 2018, down from 26.4% in 2017.
Some would argue that you should invest excess funds instead of paying extra on your mortgage since you can “earn a greater return”. Market returns are not guaranteed and investing involves risk. However, paying additional principal on your mortgage yields a guaranteed return in a shorter loan payback period, reduction of total interest paid, and a quicker path to owning your home outright.
Should you stop everything and pay off your home as quickly as possible? It depends. In our profession, there is no one-sized-fits-all answer. I’m simply trying to illustrate how you can improve your financial picture by being intentional and telling your money where to go instead of wondering where it went. You determine what your dreams and goals are, and we can help you develop a plan on how to get there.
Michael Jensen, CPA, CFP®, Manager
September 27, 2018 § Leave a comment
In our first video of the #RevRec series, Wendy Moran, CPA, Assurance Partner gave an overview of the new Revenue Recognition Guidance that is required for all non-public companies for years beginning after December 15, 2018. This new guidance requires a 5 step analysis of revenue and additional reporting disclosures. Check out this video by Wendy for an in depth discussion of step 1 – identifying the contract with the customer.
Stay Connected. Stay Informed. A Step Ahead. #MHCSCPA
September 10, 2018 § Leave a comment
There is new Revenue Recognition Guidance that is effective for all non-public companies for years beginning after December 15, 2018. The new guidance requires significant changes in financial reporting and accounting including a five-step analysis of revenue and additional reporting disclosures.
Check out this video by Wendy Moran, CPA, Assurance Partner for the five steps and a brief overview of each.
Stay Connected. Stay Informed. A Step Ahead. #MHCSCPA
September 5, 2018 § Leave a comment
McGowen, Hurst, Clark & Smith, P.C. Promotes Wendy Moran to Partner
WEST DES MOINES, IOWA (September) – McGowen, Hurst, Clark & Smith, P.C. (MHC&S), a certified public accounting and professional services firm, recently announced the promotion of Wendy Moran, CPA from Director to Partner overseeing Assurance within the company effective immediately. She assumed the role earlier last month and will continue to work from the firm’s West Des Moines office location.
Moran is originally from Woodward, Iowa and graduated from Iowa State University with her Bachelor’s and Master’s degrees in Accounting. She joined the firm in 2015. With over 15 years of experience, Moran is among a group of eight partners at the firm and will continue to specialize in audits, reviews, agreed-upon procedures and consulting engagements related to financial statements and controls. The firm works with over 5,300 clients that are among several different industries including transportation, non-profit, distribution and contractors that Moran will focus her time.
“Wendy’s professionalism, insight and approach is a perfect fit with our culture of meeting and exceeding client expectations and creating a great work environment for our team members. We look forward to Wendy being part of the MHC&S leadership for many years,” says Dan Schwarz, CPA, Co-Managing Partner.
The firm, MHC&S, was founded in 1946, employs 75 associates within two locations and remote workers. The firm has earned the distinction of being named one of the Best Accounting Firms To Work For in the nation by Accounting Today, Des Moines Business Record’s annual Best of Des Moines Event-Accounting Category, as well as Des Moines Register’s top 100 Workplaces in Iowa in Small Business and Best Company in Iowa for Work/Life balance.
Media Contact: Gina David, Marketing Director at (515) 288-3279 // firstname.lastname@example.org
August 15, 2018 § Leave a comment
On August 8, the IRS released proposed regulations around the Qualified Business Income Deduction (“QBID”) which allows certain taxpayers to claim a 20% deduction on their qualified business income (“QBI”) from sole proprietorships, S corporations, and partnerships that pass-through income to the owners. All passthrough businesses will qualify for the 20% QBI deduction if taxable income is below $157,500 for single taxpayers and $315,000 for married filing joint taxpayers. The 20% QBI deduction for specified service trade or businesses (addressed below) starts to phase out once taxable income is above these amounts and the deduction is reduced to zero if taxable income reaches $207,500 for single taxpayers and $415,000 married filing joint taxpayers. These regulations provide much needed guidance around the deduction and clear up many questions that arose when the Tax Cuts and Jobs Act was signed into law in December of 2017.
Here are some of the areas where the IRS addressed outstanding questions that many tax professionals had:
- Aggregation of Activities – A taxpayer is permitted to aggregate activities for purposes of the QBID, but those activities must meet certain tests.
- Basis of Property – The unadjusted basis of property used for the QBID is determined before any bonus depreciation or Section 179 immediate expensing.
- Previously Suspended Losses – If a taxpayer carries forward previously suspended losses and uses that against income, those losses are not factored into the QBID.
- Specified Service Trade or Business – The IRS addressed many of the concerns tax professionals had and defined many of these businesses in detail. Specifically, the IRS gave detail into the following fields that are not eligible for the 20% QBI deduction if the owner’s taxable income exceeds the thresholds mentioned above: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment and investment management, trading, and dealing in securities.
- W-2 Wages – For purposes of calculating the QBID, wages paid through a common paymaster or Professional Employer Organization (PEO) do count.
- 1231 Gains/Losses – To the extent these gains or losses are treated as capital gains or losses on the individual’s return (after netting), they are not included in the QBID. If the 1231 gains or losses are treated as ordinary income/loss, they are included in the QBID.
While these proposed regulations provide many answers to questions, there are still outstanding issues to work through. However, this is a great start that can be used for planning opportunities today. Please contact us to see how we can help you maximize this potential deduction. We will continue to provide communication in future weeks as issues are resolved.
August 2, 2018 § 1 Comment
WEST DES MOINES, IOWA (August 2, 2018) – McGowen, Hurst, Clark & Smith, P.C. (MHC&S) was recently named as one of the 2018 Accounting Today’s Best Accounting Firms to Work for. Accounting Today has partnered with Best Companies Group to identify companies that have excelled in creating quality workplaces for employees.
This survey and awards program is designed to identify, recognize and honor the best employers in the accounting profession, benefiting its economy, workforce and businesses. The list is made up of 100 firms.
To be considered for participation, firms had to fulfill the following eligibility requirements:
- Must be an accounting firm;
- Have a facility in the United States;
- Have a minimum of 15 employees working in the United States;
- Must be in business a minimum of 1 year
Firms from across the United States entered the two-part survey process to determine Accounting Today’s Best Accounting Firms to Work for. The first part consisted of evaluating each nominated company’s workplace policies, practices, philosophy, systems and demographics. This part of the process was worth approximately 25% of the total evaluation. The second part consisted of an employee survey to measure the employee experience. This part of the process was worth approximately 75% of the total evaluation. The combined scores determined the top firms and the final ranking. Best Companies Group managed the overall registration and survey process, analyzed the data and determined the final ranking.
“The firms on this list represent the best workplaces in the accounting profession,” said Accounting Today Editor-in-Chief Daniel Hood. “They are outstanding places to build a career.”
“We are so happy to be recognized again this year with this amazing award. Our firm is an outstanding place to work due to our leaders modeling the way for us in how they serve others on a daily basis,” said Cindy Wubben, MHC&S Director of Human Relations.
Six out of the 100 firms are CPAmerica Members which includes MHC&S. “We are excited to congratulate all of our firms who have been recognized by Accounting Today,” said Alan Deichler, president of CPAmerica. “The commitment that these firms have made to being great firms to work for is very impressive.”
For more information on Accounting Today’s Best Accounting Firms to Work for program, visit http://www.BestAccountingFirmsToWorkFor.com.
As one of the most established and largest local accounting firms in central Iowa, MHC&S (www.mhcscpa.com) has provided assurance and accounting services, tax planning and preparation services, and business consulting services to individuals and businesses for nearly 75 years. In addition to the traditional service, MHC&S offers specialized services including estate planning, fraud detection, deterrence and Red Flag Reporting, QuickBooks consulting, business valuations, cost segregation studies, financial advisory services, succession planning, and more. The firm has earned the distinction of being named one of the Best Accounting Firms To Work For in the nation by Accounting Today for five of the past six years, Des Moines Business Record’s annual “Best of Des Moines Event-Accounting Category” nine of the past eleven years, as well as Des Moines Register’s top 100 Workplaces in Iowa in 2014, 2015, 2016, and 2017 in Small Business. In 2017, we also were named the Best Company in Iowa for Work/Life balance.
For more information, please contact Gina David, Marketing Director, at (515) 288-3279 or email@example.com.
July 30, 2018 § Leave a comment
Thanks to changes made through the Tax Cuts and Jobs Act and the recent Iowa Tax Reform legislation, Iowa taxpayers may now use assets from Iowa 529 plans to pay for qualified tuition expenses (up to $10,000 per year per student) at K-12 public, private, or
According to the College Savings Iowa / IAdvisor 529 Plan K-12 Fact Sheet for Iowans, the following requirements need to be met for distributions to qualify:
- The beneficiary attends an elementary or secondary school in the state of Iowa;
- The elementary or secondary school is accredited under Iowa Code Section 256.11; and
- The elementary or secondary school adheres to the provisions of the federal Civil Rights Act of 1964 and Iowa Code Chapter 216.
So, if you can use 529 plan assets to pay your child’s private school tuition, should you? Like many financial decisions, it depends on your situation. Here are some items to consider:
State of Iowa Tax Deduction:
For 2018, the state of Iowa allows Iowa taxpayers to deduct up to $3,319 in contributions to an Iowa 529 plan account per student/beneficiary. Married couples can each make a deductible contribution to each beneficiary, making the maximum deductible contribution $6,638 (2 * $3,319) per student/beneficiary.
If you don’t currently have a 529 plan set up for your child, but are paying tuition for them to attended a qualified K-12 school, it might make sense for you to open a 529 plan to pay the qualified K-12 tuition expenses. Iowa currently doesn’t have a minimum time requirement that money must be kept inside the plan. This means you could open a 529 account, make tax-deductible contributions to the plan, and then use those funds to pay for your child’s current-year tuition expenses. Please note that there is generally a seven day hold on new deposits and that withdrawals can take several days to process as well.
If you currently have a 529 plan for your child, but aren’t making the maximum deductible contribution, consider maxing out the deductible contribution limit and then pulling out the difference between the amount you want to go to future college funding and the amount for current K-12 tuition.
If you established a 529 plan prior to the federal and Iowa legislation changes, you did so with the intention of helping your child or another beneficiary with future college expenses. Pulling assets from the 529 plan now for K-12 tuition could impact your ability to reach your college funding goals.
On the other hand, if you’ve been contributing at a high level to your child’s 529 plan, you may find that you’re on pace to exceed your college savings goals. If that’s the case, using the surplus funds to go toward K-12 tuition could be a great option.
Tax Free Growth & Investment Risk:
It’s important to remember that one of the great benefits of 529 plans is that the assets inside the plan grow tax deferred from both federal and state income taxes, and withdrawals are tax-free when used for qualified expenses. If you only use a 529 plan to cover immediate tuition expenses, you aren’t taking advantage of these potentially valuable benefits.
As with any investment, it’s always important to take your risk tolerance and time horizon into consideration when choosing the best investment allocation for you and your situation. This is particularly important if you are planning to pull your contributions out of the 529 plan in the near future.
Still not sure what to do?
Reach out. We’d be happy to provide you with a complimentary college expense and 529 account projection to help you guide you through the decision.
Advisory Services offered through Wealth Advisors of Iowa, LLC, a State of Iowa Registered Investment Advisor, and an affiliate of McGowen, Hurst, Clark & Smith, P.C. Certified Public Accountants and Business Advisors