Paying Taxes

Many major life changes, such as buying a new home, changing jobs, getting promoted, starting a business, having a child, and more, will have tax implications. But that doesn’t always mean you’ll owe more to the federal government.

If you plan ahead, you can make decisions that will reduce or at least postpone the tax you owe. The only catch is that you usually need to get everything taken care of by December 31.

As anyone who has ever filed taxes knows, tax season is in high gear from January to April. In January, you’ll start receiving the documents needed to complete your return. You should get a W-2 wage statement from your employer and Form 1099s from each financial institution that paid you interest, brokerage firms where you have earnings or losses, and corporations and mutual funds in which you own shares. As you get these documents, it’s smart to file them in a place where you can find them easily.

Tax day is always April 15, unless it falls on a weekend or holiday. In that case, taxes are due on the next business day. As the date approaches, you can use the information from your inventory to do some initial tax calculations. That will let you predict whether you’re going to get a refund or will owe money. And remember that the earlier you file your return, the sooner you receive a refund, if you’re owed one.

April 15 is also your last opportunity to contribute to your Individual Retirement Account (IRA) for the previous year. After that, the contributions you make will count toward the next year. Contributions to Simplified Employee Pensions (SEPs) and Keogh plans are also due by April 15, unless you have an approved filing extension.

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Did You Know?

As you think about your year-long tax concerns, it’s smart to keep the following things in mind.

Try not to make investment decisions just to escape taxes. For instance, just because a municipal bond pays tax-free interest doesn’t mean it will help you meet your financial goals.

Be sure you understand the difference between tax-deferred and tax-exempt investments. Tax deferred means that you postpone paying taxes on investment earnings until you withdraw them, while tax exempt means you will not owe federal tax on the earnings.

And finally, don’t overlook any tax saving you’re entitled to.

IRS Scams

IRS scams involve criminals impersonating IRS agents, other government employees or debt collectors over the phone, online or via the mail in an effort to trick you into sending them money for taxes, penalties or fees you don’t actually owe.

Scammers are especially active during tax-filing season, and people lose millions of dollars a year due to IRS scams. Don’t be one of them. Here’s a list of recent IRS scams, tips on how to spot one and (perhaps) how to get some revenge.

IRS imposter scams

IRS imposter scams occur when someone contacts you pretending to work for the IRS. The imposter may contact you by phone, email, postal mail, or even a text message. There are two common types of scams (not all inclusive):

• Tax collection – You receive a phone call or letter, claiming that you owe taxes. They will demand that you pay the amount immediately, usually with a prepaid debit card or wire transfer. They may even threaten to arrest you if you don’t pay.
• Verification – You receive an email or text message that requires you to verify your personal information. The message often includes a hyperlink phrase which reads “click here.” Or, you may see a button that links you to a fraudulent form or website.

Learn About Tax ID Theft and How To Avoid It

Tax ID theft occurs when someone uses your Social Security number to file taxes and claim a tax refund. You may not know that your tax ID has been stolen until you:

• E-file your tax return and find that another return has already been filed using your Social Security number, or
• The Internal Revenue Service (IRS) sends a 5071C letter to the address on the federal tax return indicating that tax ID theft has occurred.

Find out what steps you can take after receiving a 5071C letter and how you can avoid or report tax ID scams.

• Never click on an email link
• The IRS doesn’t leave prerecorded voicemails, especially ones that claim to be urgent or are threatening. Also, the IRS can’t revoke your driver’s license, business licenses or immigration status.
• Always use an independently verified telephone number to contact the IRS by telephone

Country Bank proudly reported donations and sponsorships for 2022, totaling more than 1.3 million dollars. The bank’s philanthropic efforts supported local non-profits throughout its communities; more than 350 organizations received grants in 2022. In addition, the bank’s team members volunteered 1,091 hours of service, and 64 team members served on 33 non-profit boards and committees throughout the region.

Recognizing the importance and overwhelming need to help organizations that address hunger – in addition to the 1-million-dollar five-year pledge Country Bank made back in 2021 to The Worcester County Food Bank and The Food Bank of Western Mass, Country Bank provided an additional $100,000 in donations to food programs throughout the region.

Other organizations receiving generous donations included: Behavioral Health Network, The Hanover Theater, Quaboag Valley Community Development Corporation, Revitalize Community Development Corporation, Springfield Rescue Mission, The Children’s Trust, Juniper Outreach, United Way of Central Massachusetts, Ronald McDonald House, and YWCA.

During its annual “Season of Difference” Campaign, Country Bank supported more than 1,000 local individuals with gifts of toys, blankets, hats, and other essential items for those in nursing homes, shelters, local YMCAs, and Boys and Girls clubs.

“As a community partner, we care deeply about the sustainability of our communities. We are honored to support many organizations through donations and volunteerism to help them with their work. Supporting and enriching our communities is not only a part of our mission; it’s who we are as an organization, and we know that it makes a difference for so many,” stated Paul Scully, President and CEO of Country Bank.

Start by defining your goals. Consider where you want to live, the features you’re looking for, what you can afford, and a realistic date for having the money you’ll need. Then apply your knowledge to making this key decision.

The Cost of Buying

The actual amount you’ll spend to buy a home depends on the part of the country you live in and the type of home you want. While the dollar amount will vary, certain guidelines apply wherever you buy.

It’s likely that you will need cash for a down payment and will get a mortgage—a long-term loan you use to buy a home. Traditionally the down payment has been between 10% and 20% of the sale price, though there are some government sponsored programs that let you put a smaller amount down. But the less you put down, the larger your mortgage payments will be and the greater the risk that you will default, or not be able to make your payments.

What a mortgage costs depends on three factors: the principal, or amount you borrow, the finance charge you pay for using the money, and the term, or length of time the mortgage lasts. You should also expect to pay an up-front interest charge to your lender, of one or more points. A point is usually 1% of the mortgage amount.

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Mortgage Requirements

When you apply for a mortgage, you will have to qualify to be able to borrow. Typically, lenders require you to spend no more than 28% of your monthly income to repay the combined total of your mortgage loan, property taxes, and homeowners’ insurance. For example, if your gross pay is $54,000 a year, or $4,500 a month, your housing expenses could be up to $1,260.

Most lenders also consider your other financial responsibilities, including car payments, personal loans, college loans, and other debts. They don’t want these expenses—plus your housing costs—to be more than about 36% of your monthly income. In short, they want to be sure you’ll be able to pay your mortgage before they let you borrow.

Be aware that affordability and qualification are not the same thing. Just because you qualify for a certain mortgage doesn’t mean it’s wise to borrow that amount of money. Establish a set budget to ensure that you can afford this new commitment and prepare an emergency fund to help bridge the gap if something unexpected happens.

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If you’re unsure where your credit stands, check your credit report. Everyone is entitled to one free credit report each year from each of the three major credit reporting agencies. You should check with potential lenders to find out which agency they use to determine your credit health, since scores from different agencies tend to vary.

What If You’re Turned Down?

If you’re turned down, ask why. The lender should tell you which credit score and credit report they used to check on your credit history. If there are any obvious errors, follow the instructions on the report to have them corrected and check up on your request. If the negative information is correct, and your credit history has flaws, at least you’ll know the factors that may be blocking your application and can begin to strengthen your credit credentials.

It is illegal for lenders to consider your age, race, gender, marital status, or religion as factors when evaluating your mortgage application. If you believe you’ve been discriminated against, take action. File a complaint with the U.S. Department of Housing and Urban Development, report the violation to the appropriate government agency provided by the lender, or check with your State Attorney General’s office to see if the creditor violated state laws.

Using a Real Estate Agent

A real estate agent can provide valuable assistance in buying a home. An agent knows what’s available in a particular neighborhood, what the price trends are, and how current asking prices relate to actual sales prices.

You can look for an agent the same way you look for a financial planner or other professional. Ask your friends and family for recommendations, check out your local resources and various real estate websites, and interview several people before you decide on the person to work with. It could turn out to be an extended relationship, and you want it to be a productive one.

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Traditional real estate agents and the real estate firms that list homes for sale are paid by the seller and represent the seller’s interest. That doesn’t mean that, as a buyer, you can’t establish a good relationship with sellers’ agents or use them to find a home at a price you can afford. Some buyers, though, prefer to hire buyers’ agents to represent their interests and negotiate the sale price and contract terms.

Renting versus Buying

Because purchasing a home is a huge investment, you need to take the time to weigh the benefits of renting versus buying a residence.

Renting may be a smart financial move for these reasons:

• You probably won’t pay property taxes and upkeep directly, though your rent may reflect these expenses.
• With no money tied up in real estate, you should have more cash or savings to invest, which can produce more growth than real estate.
• You run no risk that the value of your property will decline.
• Renting gives you more mobility to take advantage of a job opportunity in a different area.

Buying a home has its advantages ­as well:

• You can deduct the interest on your mortgage and your local property taxes on your tax return, which can reduce your taxes and free up cash for investing. You can decide between taking the standard deduction (In 2023, that’s $13,850 for single filers, $20,800 for heads of household, and $27,700 for married taxpayers filing jointly) or itemizing.
• You build equity as you pay off your mortgage, increasing your share of the property’s value.
• You may be able to get a home equity loan or line of credit where you borrow against the part of your home that you own. These options generally have lower interest rates than personal loans and you can often deduct the interest you pay on your taxes.
• If your house increases in value over time, you may make a profit when you decide to sell.
• While the effects are harder to measure, owning a home has enormous emotional advantages.

To learn more, join us February 23rd, 2023 for a First Time Homebuyer Live Seminar! To learn more, click here.