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March 2020 E-Newsletter

What To Know When You Hire A Tax Pro

Hiring someone to complete your tax return is like hiring a mechanic to fix your car or a real estate agent to help you buy a home. While it can take a significant amount of stress out of a complex job, it doesn’t necessarily prevent all problems or absolve you when problems occur.

One-third of Americans plan to use a tax preparer when they file their 2019 income taxes this year, according to a new NerdWallet survey. But the survey also found some of them may put too much trust in tax professionals or believe they’re getting more than just a completed tax return for a fee.

Fifty-four percent of Americans said they believe the tax preparer has to defend any return they’ve prepared to the IRS in the case of an audit. But in reality, it’s you who is on the hook for defending your tax return and paying any additional taxes if your tax professional makes mistakes.

That means it’s critical to find the right preparer.

“Handing over our taxes to a preparer can bring a big sense of relief, but before you relax, it’s important to do the work to find a reputable professional,” says Andrea Coombes, a tax specialist at NerdWallet. “Also, be sure to ask questions — what’s included in the fee, what happens in the event of a mistake on the return — so you know what you’re paying for.”

Here are four crucial facts to get you started in the right direction

1. Not all tax preparers are the same
The tax preparer you’ll find at a pop-up location during tax season may not have the same credentials as the accountant you visit at their own office. Anyone who prepares federal tax returns for payment must have a preparer tax identification number (PTIN). But some — such as certified public accountants, licensed attorneys and enrolled agents — have undergone additional certification requirements, education and/or training. You can ask them for their credentials or look them up in the IRS directory of tax preparers.

Membership in professional organizations such as the National Association of Tax Professionals or the National Association of Enrolled Agents can also indicate additional training, certifications and adherence to codes of ethics.

2. Tax preparers make mistakes, too
Almost half (45%) of Americans who have used a tax preparer in the past five years say they just glance at their return before filing it and “generally trust” their preparer won’t make mistakes, according to the survey. Another 16% sign their return without reviewing it at all.

It’s understandable — you’re paying for a service and errors are unacceptable. But tax preparers are human, and mistakes happen.

3. If your tax preparer makes an error, you're on the hook
Identifying mistakes in your return before you file can save you from headaches with the IRS later. More than one-third (36%) of Americans mistakenly believe tax preparers are responsible for any additional tax payments owed to the IRS if an error is found in a return they’ve prepared, according to the survey.

The IRS will contact you, not your tax preparer, if there is a problem with your return. But a reputable tax preparer may help you figure out how to handle the next steps in resolving the issue. If you signed a contract with your tax preparer (also known as an engagement letter), it likely includes how preparer mistakes will be handled. While some tax preparers may offer to cover fees or submit an amended return if the mistake was theirs, the taxpayer — that’s you — is the only one responsible for any additional taxes.

4. In the event of an audit, the IRS looks to you

The likelihood of an audit is pretty slim — in 2018, the IRS audited just 0.6% of individual returns and in 2019, only 0.45%. But similar to the IRS finding a mistake in your return, if they decide to audit you, it’s you they’ll contact, not your tax preparer.

In addition to the more than half (54%) of Americans who believe tax preparers are responsible for defending a return to the IRS in the event of an audit, 25% of Americans weren’t sure who would need to defend the return. Just 21% of Americans correctly indicated that the preparer would not necessarily have to defend the return.n your credit. You can check it as many times as you want with no impact to your score.

While you can hire a tax attorney or preparer to speak on your behalf to the IRS during an audit, paying for them to complete your taxes doesn’t automatically include audit defense. If you’re unsure, ask so you know where you stand on the rare chance that your file is flagged.

The article, What to Know When You Hire a Tax Prooriginally appeared on NerdWallet.

Check These 6 Elements of Your Financial Health

financial healthYou stop and take your pulse after a vigorous workout — but how often do you stop and take the pulse of your finances?

“It’s important for everyone to do, whether they’re just starting out or they’re nearing retirement,” says David Kring, a certified financial planner and owner of Conestoga Wealth Management in Malvern, Pennsylvania.

Knowing where you stand is especially important before you set a new financial goal, make a plan to pay off debt or build a budget. It can help you decide what’s realistic and see whether you ought to prioritize other money goals instead.

How can you tell if you’re in good financial shape? Here are the areas to consider when assessing your finances — and what you should do once you know where you stand.

Your retirement savings
You won’t likely work forever, which means that one day, you’ll no longer have income the way you do now. That makes saving for retirement a top financial priority. The earlier you start setting aside money in a 401(k), IRA, or other retirement savings account, the better.

We recommend saving at least 15% of your income for retirement, with the aim of replacing about 70% of it when you stop working. At the very least, contribute enough to take full advantage of your company’s 401(k) match if it has one.

Coulee Bank's retirement calculator can help you estimate the amount you should be saving and how close you are to your goal.

Your debt
Your debt load includes everything you owe, such as your student loan and mortgage balances. Not all debt is bad debt, but debt with high or variable interest rates can make you less secure. You’re doing well if you have no debt or debt that doesn’t disproportionately affect your daily decision making.

Once you quantify your debt load, make a plan to pay it off.

Your income
Your take-home pay, which is the amount you receive after taxes have been taken out, is the best measure of your income. The goal is to spend less than you earn.

“Spending more than you make is not sustainable,” says Patricia Seaman, a senior director at the National Endowment for Financial Education, a nonprofit organization specializing in personal finance education. If you’re running dry each month, consider how you can trim spending or make more money.

Your emergency fund
An emergency fund is a cash stash that you can draw on if you have an unexpected expense. Don’t have one? Start setting aside a little bit each month in a savings or money market account.

Your credit score
Your credit score indicates to lenders how likely you are to pay back borrowed money. It’s based on factors such as your credit history and credit utilization, and it determines whether you’ll be approved for loans and other products, as well as the interest rate you’ll receive.

To build your credit score, pay all of your bills on time and aim to pay your credit card balance in full each month.

Your insurance
Depending on your assets and family situation, your insurance coverage might include car insurance, homeowners or renters insurance and life insurance. You might also want disability insurance considering that Kring says your greatest asset is “your ability to earn a paycheck.”

At the very least, you should have enough insurance coverage to protect against financial loss. That means your coverage amounts should be higher than the value of your major assets, such as your home, car and savings.

Starting line
Don’t be discouraged if you find you’re not as financially prepared as you thought you were. Now that you know where you’re starting, you know where to go next:
  • If your expenses currently exceed your income, create a balanced monthly budget.
  • If you have a high level of credit card debt, pay off small debts to gain momentum, then switch to knocking down the balances of high-interest cards.
  • If your savings are in good shape, think about investing.
And don’t forget to celebrate your little victories along the way. “Remember that it’s your journey and not anyone else’s,” says Seaman. “Try to keep focused on the progress that you’re making.”

Get financially fit with Totally Free Checking and a Free Gift! 

The article, Check These 6 Elements of Your Financial Health, originally appeared on NerdWallet.

Business Corner: Five Strategies for Tax-Efficient Investing

After factoring in federal income and capital gains taxes, the alternative minimum tax, and possible state and local taxes, your investments' returns in any given year may be reduced by 40% or more. Here are five ways to potentially lower your tax bill.1

Tax-deferred accounts include employer-sponsored retirement accounts such as traditional 401(k)s and 403(b) plans, individual retirement accounts (IRAs), and annuities. In some cases, contributions may be made on a pretax basis or may be tax deductible. More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs and Roth-style employer-sponsored savings plans are not deductible. Earnings that accumulate in Roth accounts may be withdrawn tax free if you have had the account for at least five years and meet the requirements for a qualified distribution.

Here’s what small businesses should know about the home office deduction.

Who qualifies for the home office deduction
You can claim the deduction whether you’re a homeowner or a renter, and you can use the deduction for any type of home where you reside: a single-family home, an apartment, a condo or a houseboat. You can’t use it for a hotel or other temporary lodging.

Home Office
The home office deduction rules also apply to freestanding structures. You can use a studio, garage or barn space as your home office as long as the structure meets the “exclusive and regular use” requirements.

Here are the conditions you’ll need to meet:

Regular and exclusive use: The space you’re using for business must be used exclusively for conducting business. For example, using a spare bedroom as both your office and a playroom for your children makes you ineligible.

“An extra bedroom works, as long as you don’t use it for guests, even a few days a year,” says Johanna Fox Turner, an accountant and certified financial planner in Mayfield, Kentucky.

There are two exceptions to the exclusivity rule. If you provide day care services for children, elderly (65 or older) or handicapped individuals in that part of the house, you can still claim business deductions, as long as you have a license, certification or approval as a day care center under state law, according to the IRS. The other exception is if you use the office for storage of inventory or product samples you sell in your business.

Principal place of business: Although your home office doesn’t have to be the only place you meet your clients or customers, it must be your principal place of business. That means you use the space exclusively and regularly for administrative or management activities, such as billing customers, setting up appointments and keeping books and records, according to the IRS.

How to determine your home office deduction

You can determine the value of your deduction the easy way or the hard way.
  • With the simplified option, you aren’t deducting actual expenses. Instead, the square footage of your space is multiplied by a prescribed rate. The rate is $5 per square foot for up to 300 square feet of space.
  • The regular, more difficult method values your home office by measuring actual expenditures against your overall residence expenses. You can deduct mortgage interest, taxes, maintenance and repairs, insurance, utilities and other expenses.

The IRS introduced the simplified option beginning in the 2013 tax year, because the regular method requires accurate record-keeping that may be burdensome for some small-business owners and entrepreneurs.

Simplified version vs. actual expense deduction
The choice whether to use the simplified deduction, if you’re eligible for it, or to deduct actual expenses depends mainly on which would net you the bigger tax deduction.

The actual expense method
If you use the actual-expenses method, you can deduct direct expenses — such as painting or repairs solely in the home office — in full. Indirect expenses — mortgage interest, insurance, home utilities, real estate taxes, general home repairs — are deductible based on the percentage of your home used for business.

Example: Let’s say you paid $3,000 in mortgage interest, $1,000 in insurance premiums and $3,000 in utilities (all indirect expenses) plus $500 on a home office paint job (direct expense) in the 2016 tax year. Your home office takes up 300 square feet in a 2,000-square-foot home, so you’re eligible to deduct indirect expenses on 15% of your home.

You’d be eligible to claim a deduction of $1,050 in indirect expenses ($7,000 in expenses, multiplied by the 15% of space used in the home), plus $500 for the direct expense of painting the home office, for a total deduction of $1,550.

The simplified version
If your home office is 300 square feet or less and you opt to take the simplified deduction, the IRS gives you a deduction of $5 per square foot of your home that is used for business, up to a maximum of $1,500 for a 300-square-foot space.

In this case, using the simplified method could make more sense since you’d get only $50 more in deductions by documenting actual expenses. You should also consider the time it will take you to gather receipts and records.

Among Turner’s clients, “the general rule is that they probably shouldn’t bother with the details if they have a small home office” of 100 square feet or less, she says.

The simplified method works well for single-room offices and small operations, while the actual-expenses method works better if the business makes up a large part of the home, says Tim Gagnon, a public accountant and director of Northeastern University’s online master of science in taxation program.

Things to watch out for
  • If you plan on deducting actual expenses, keep detailed records of all the business expenses you think you’ll deduct, such as receipts for equipment purchases, electric bills, utility bills and repairs. If you’re ever audited by the IRS, you’ll be prepared to back up your claims.
  • Don’t let the fear of an audit keep you from taking the home office deduction, says Turner, who notes that in 35 years in business, she’s had only one customer undergo an audit.
  • If you’re a homeowner and you take the home office deduction using the actual-expenses method, it could cancel out your ability to avoid capital gains tax when selling your primary residence, says Craig Smalley, an accountant and financial advisor. People who sell their primary residence after having lived in it for at least two of the five years before the sale generally don’t have to pay taxes on up to $250,000 in profit on the sale, or $500,000 if married filing jointly, according to IRS Publication 523.
  • If you use the actual-expenses method, you’re required to depreciate the value of your home. Depreciation refers to an income tax deduction that lets taxpayers recover the costs of property, due to wear and tear, deterioration or obsolescence of the property, according to the IRS. The depreciation you’re required to take in home office deductions is subject to capital gains tax when you sell your home, Smalley says. For example, if you own your home, use 20% of it as a home office and deduct depreciation, 20% of your profit on the home’s sale is now subject to capital gains tax, Smalley says. However, if you use the simplified method, depreciation isn’t a factor and you won’t be subject to the tax, he says.
The rules on tax deductions for a home office can be hard to digest. Consult with a tax advisor or use the appropriate online tax software if you’re unsure about how to proceed.

Want to start a business?
If you have any small business loan questions, reach out to our Business Lending Team.

This article, The Home Office Tax Deduction for Small-Business Owners, originally appeared on

Coulee Security Tip: Thwart Fraud With This Checklist For Your Next Vacation

Vacation packing checklists can be handy, but not everybody needs them. A keep-my-money-safe checklist, on the other hand, can benefit just about every traveler.

When you’re away from home, your accounts are prime targets for identity thieves, pickpockets and scammers. According to the Federal Trade Commission, credit card fraud was the most common form of identity theft reported last year. Bank fraud rounded out the top five.

Take these steps before your next vacation to avoid falling victim to these types of crimes.

Sign up for bank alerts
Register to have your financial institution notify you about account activity. It might also ping you if a suspicious transaction is made. If you didn’t authorize the charge, report it immediately.

How to sign up for Coulee Bank Text Alerts

Know your bank's phone number
If you lose your debit or credit card, call the bank as soon as possible. That’s especially crucial if you’re reporting a lost debit card. When you notify your bank within two days of learning about the loss, the maximum amount you would be liable for is $50. Postpone it any longer, and you could lose $500. Waiting 60 days or more after your bank statement is sent your way could leave you losing everything a criminal takes out of the account.

Credit cards come with more protection. The most you could lose is $50, even if you wait more than two days to notify your bank.

There’s another reason to have your bank’s phone number on hand: to avoid phishing scams. That’s when someone reaches out and claims to represent your bank before asking for personal information. Call your bank to determine whether a request is legitimate.

Avoid using public Wi-Fi when banking online. Doing so might allow others to see information you transmit. Use a private network instead.

Memorize online login information
Log on to your accounts from time to time while you travel to keep track of transaction activity. Having a strong password is essential to protecting your online accounts, but don’t write down your bank username and password. It’s easy for that information to wind up in the wrong hands. Instead, memorize your login information, or use a secure password manager.

Carefully choose your cards for travel
The more credit and debit cards you take on a trip, the more you could lose. Consider having no more than three: a primary credit card (ideally one with travel perks), a debit card to access cash and a backup credit card in case the others are lost or stolen. Keep the backup plastic separate from the other cards, perhaps in a hotel safe.

It’s also smart to limit the amount of cash you’re carrying, especially if you’re traveling abroad. If a card is lost or stolen, it can be replaced. But if cash disappears, it’s probably gone for good.

Turn on Find my Device apps
Enable the features that let you locate or control your smartphone, tablet or computer in the event that it goes missing. This is especially important if you use the device for online banking. Even if you’re not able to physically retrieve the device, you could erase its data, ensuring no one else can access it to empty your accounts.

Password-protect the home screen, too. That way, if a criminal swipes your device, it would be difficult to get past the locked image, much less reach the banking app.

Hold the mail
If you regularly receive paper bank statements and other financial documents, you don’t want them sitting in your mailbox for too long. Ask the post office to hold your deliveries until you return.

Your vacation budget should cover travel, lodging and food, not bank theft. Follow these steps to keep your money and accounts secure during your next trip.

This article, Thwart Fraud With This Checklist For Your Next Vacation, originally appeared on

Coulee Investment Center: Five Strategies for Tax-Efficient Investing

Consider Tax-Deferred and Tax-Free Accounts

After factoring in federal income and capital gains taxes, the alternative minimum tax, and possible state and local taxes, your investments' returns in any given year may be reduced by 40% or more. Here are five ways to potentially lower your tax bill.1

Consider Tax-Deferred and Tax-Free Accounts
Tax-deferred accounts include employer-sponsored retirement accounts such as traditional 401(k)s and 403(b) plans, individual retirement accounts (IRAs), and annuities. In some cases, contributions may be made on a pretax basis or may be tax deductible. More important, investment earnings compound tax deferred until withdrawal, typically in retirement, when you may be in a lower tax bracket. Contributions to nonqualified annuities, Roth IRAs and Roth-style employer-sponsored savings plans are not deductible. Earnings that accumulate in Roth accounts may be withdrawn tax free if you have had the account for at least five years and meet the requirements for a qualified distribution.

Withdrawals prior to age 59½ from a qualified retirement plan, IRA, Roth IRA or annuity may be subject to ordinary income taxes and an additional 10% federal tax. In addition, early withdrawals from annuities may be subject to additional charges by the issuing insurance company.2

Note that, in general, annual withdrawals from traditional IRAs and employer-sponsored retirement plans must begin by April 1 of the year after you reach age 70½. The penalty for not taking the required minimum distribution (RMD) can be steep: 50% of what you should have withdrawn. Withdrawals from Roth IRAs, however, are not required during the owner's lifetime.

Consider Government and Municipal Bonds
Interest on U.S. government issues is subject to federal taxes but is exempt from state taxes. Municipal bond income is generally exempt from federal taxes, and municipal bonds issued in-state may be free of state and local taxes as well. Sold prior to maturity, government and municipal bonds are subject to market fluctuations and may be worth less than the original cost upon redemption.

Look for Tax-Efficient Investments
ax-managed or tax-efficient investment accounts are managed in ways that can help reduce their taxable distributions. Investment managers can potentially minimize portfolio turnover, invest in stocks that do not pay dividends and selectively sell stocks at a loss to counterbalance taxable gains elsewhere in the portfolio.

Put Losses to Work
You may be able to use losses within your investment portfolio to help offset realized gains. If your losses exceed your gains, you can typically offset up to $3,000 per year of the difference against ordinary income. Any remainder can be carried forward to offset capital gains or income in future years.

Keep Good Records
Maintain records of purchases, sales, distributions, and dividend reinvestments so that you can properly calculate how much you paid for the shares you own and choose the most preferential tax treatment for shares you sell.

Keeping an eye on how taxes can affect your investments is one of the easiest ways you can enhance your returns over time.

Call Shari Hopkins to schedule an appointment at 608-784-3904.
Shari Hopkins, CFP®, LPL Financial Advisor
Coulee Investment Center at Coulee Bank

1This information is general in nature and is not meant as tax advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

2 Before investing, investors should consider the investment objectives, risks, charges, and expenses of an annuity and its underlying investment options. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity's separate account or its underlying benefits.

Required Attribution Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2019 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. Coulee Bank and/or Coulee Investment Center are not registered broker/dealers and are not affiliated with LPL Financial.

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