Gambling Losses, Decedent Estate Taxes, and the Other Itemized Deductions

Gambling Losses, Decedent Estate Taxes, and the Other Itemized Deductions

by | Jan 31, 2020 | Individual Tax

If you’ve been following us for a bit, you may have noticed that we’ve highlighted the most well-known deductions that can be itemized for your tax return: medical expenses, the SALT deduction, home mortgage deduction, charitable deduction, and casualty losses. There’s one more section left on that Schedule A form, “Other itemized deductions.”

Other Itemized Deductions

What constitutes other itemized deductions? Before the Tax Cuts & Jobs Act (TCJA) of 2017, a long list of deductible expenses, mostly associated with business-related expenses, were allowable. The TCJA overhaul reshaped deductible expenses as we know it. Therefore, the list of allowable “other itemized deductions” shrank down to a significantly smaller list:

  • Gambling losses up to the extent of gambling winnings
  • Casualty & theft losses from income producing property
  • Federal estate tax on income in respect to a decedent
  • Deduction for amortizable bond premium
  • Ordinary loss attributable to a contingent payment debt instrument
  • Deduction for repayment of amounts under a claim of right if over $3,000 (see pub 525)
  • Certain unrecovered investment in a pension
  • Impairment-related work expenses of a disabled person

If you’re curious, check out Publication 529 starting on page 3 for an exhaustive list of what is no longer deductible.

Schedule A Deduction Plan

Combining these other itemized deductions with the other Schedule A deductions will help you to claim itemized deductions as opposed to only claiming a standard deduction. Itemized deductions lower your taxable income and can potentially save you in taxes if you itemize properly. With some planning, taxpayers can rightfully claim itemized deductions. Here at MiklosCPA, we feel that sharing knowledge, such as available itemized deductions, empowers our clients to make effective decisions for their emerging businesses. Get a vision of how we can help your emerging business by giving us a call! Also, follow our social media pages for more “good-to-know” articles like this one and share that knowledge with your friends and associates!

A Tax-Free Gain – The Home Sale Gain Exclusion

A Tax-Free Gain – The Home Sale Gain Exclusion

by | Jan 17, 2020 | Individual Tax

Selling your home while the market looks good? You’ll likely make a nifty profit, but the profit may be subject to the capital gains tax. Did you know some or maybe ALL of that capital gain on your home sale may be excluded? By excluding that capital gain on the sale of a home, you potentially pay less in your income tax! To be eligible for this exclusion, there are some criteria to meet.

Qualifying for the Exclusion

In order to be able to exclude the gain on the sale of a home, tests of ownership & use must be met:

  • The home must have been the principal residence of the taxpayer. For example, rental properties sold off will not qualify.
  • The taxpayer must have occupied the home for 2 of the past 5 years. The 2 years do not need to be consecutive but the total amount of days occupied in the span of that 5 years should be 2 years.
  • The taxpayers should not have claimed the home sale gain exclusion within 2 years of the sale of another home (the “once-every-two-years limit”).

Claim the Gain

The gain can be claimed when the Form 1099-S is received after the home is sold. Currently, up to $250,000 for a single filer can be claimed, and up to $500,000 for a married, filing jointly couple. Recently widowed taxpayers may also claim the full exclusion. Even if your home sale may not meet all the criteria to claim the full exclusion, a partial exclusion may also be available to taxpayers depending on the circumstances of the move such as for work, a health-related relocation, or unforeseen events like the home being destroyed in a disaster.

The rules surrounding income tax can get complex, but knowledgeable persons take advantage of the unique pieces that exist in it, such as the home sale exclusion. With the right knowledge and planning, individuals and small business owners can make the most of their annual tax filing. MiklosCPA provides that right knowledge and accounting support for many individuals and emerging businesses. We have helped business owners in assorted fields with their accounting and taxation needs, freeing them up to focus on their most important goal, growth. Learn more how our knowledge can empower your business goals through our services by giving us a call.

You’ve come this far in the article, why not make a new social media friend and follow us too? We periodically share tax tidbits for inquiring minds.

Check those Gains – An Overview on the Capital Gains Tax

Check those Gains – An Overview on the Capital Gains Tax

by | Dec 26, 2019 | Individual Tax

The “Capital Gains Tax” is something you may have heard in passing in the news or in financial magazines. The general gist of it is a tax applied to the gain, a.k.a. the profit, someone makes selling a capital asset like stocks.

Capital Assets?

Real estate, stocks, and rare collectibles like artwork or vintage baseball cards are all capital assets. Basically, non-inventory assets qualify as capital assets, and therefore when sold for a gain have a capital gains tax applied to it.

Hold on to your Asset

The amount of time you hold on to your capital asset prior to selling it will determine what capital gains tax rate will be applied. Assets sold for a gain but were held less than a year, otherwise known as short-term assets, are taxed at the ordinary income level of the taxpayer. This can mean for taxpayers in higher brackets as much as 37% of that gain being taxed! Holding onto an asset for more than a year qualifies it for a lower rate when sold and therefore some savings.  For example:

Bob purchased 200 shares of ZZZ Company at $20 each. He intends to sell them at $30 each. Assume he is in the income tax bracket of 24%

Short-Term Long-Term
Bob sold his shares a month later and had a capital gain of $2,000 ($30 x 200 shares – $20 x 200 shares). Bob sold his shares a year later and had a capital gain of $2,000 ($30 x 200 shares – $20 x 200 shares).
Bob’s capital gain is taxed at his ordinary income tax rate of 24% Bob’s capital gain is taxed at the long-term cap gains rate of 15%
$2,000 x 24%= Cap gains tax of $480.00 $2,000 x 15%= Cap gains tax of $300.00

 

That’s almost a 10% drop in the tax rate if it’s a long-term asset! It literally pays to be patient in this case. The current cap gains tax rates are 0%, 15%, and 25% depending on your total taxable income.

Owners of emerging business should keep the capital gains tax in mind. Holding onto assets for more than a year before selling may potentially save you in taxes. Emerging businesses benefit from accounting teams cognizant of bookkeeping but the tax rules as well, like us here at MiklosCPA. MiklosCPA has helped many businesses in assorted industries with their tax and accounting needs through the latest in “virtual office” services. Let us show you how we can benefit your business! Give us a call to learn more how we can help you. Make a new social media friend and follow our media pages too. We regularly post interesting tax tidbits and other “good-to-know” news for our readers.

Put some SALT on Your Return – The State & Local Tax (SALT) Deduction

Put some SALT on Your Return – The State & Local Tax (SALT) Deduction

by | Dec 19, 2019 | Individual Tax

Did you know taxes that you pay to a state or county may be deductible for your federal income tax? The “State and Local Tax Deduction”, commonly known as the SALT Deduction, is an itemized deduction that taxpayers may claim when filing their income tax.

A Tax Towards a Tax

Each state has its own set of tax regulations and accompanying agencies to collect those taxes. For example, the California Franchise Tax Board (FTB) collects income tax from California residents. The income tax paid to the FTB can be claimed for the SALT deduction. Property taxes may also be claimed towards the SALT deduction.

Itemized Deduction

Just like other itemized deductions like medical expense and charitable deductions, the SALT deduction is tallied up into your total itemized deductions. Your total itemized deductions must exceed your standard deduction in order to be able to see the benefits of itemizing your deductions. Check out our article on itemized deductions for more information.

Push it to the Limit

Prior to the Tax Cuts & Jobs Act (TCJA) of 2017, there was no limit on how much state & local taxes could be claimed as an itemized deduction. TCJA implemented limits to the SALT deduction to $10,000 (Married, filing jointly). While the long term results of it remain to be seen, many tax professionals and cable news pundits have weighed in on the SALT limit of $10,000, how it affects taxpayers, and its benefits/disadvantages.

 

The SALT deduction is one of several itemized deductions available to taxpayers. With some planning and strategy, individuals can utilize itemized deductions to reduce their taxes. MiklosCPA has helped numerous individual and small business clients with their tax needs such as itemizing their deductions. We support our clients, wherever they may be in the world at the time, through our virtual office services and regular feedback. Give us a call and learn more how we can help you and your small business take off! Also follow our social media for articles like this one and other interesting tidbits in tax.

“Going Exempt” (a.k.a., Not Having a Withholding) for your Income Tax

“Going Exempt” (a.k.a., Not Having a Withholding) for your Income Tax

by | Nov 23, 2019 | Individual Tax

A friend recently texted an off-the-record tax question that he had about his paycheck. He said his co-workers like to “go exempt” and “not pay taxes” for the last 3 months of the year. Paraphrased, his question essentially was:

“If I choose to go exempt, should it only be for those months?”

 After some clarification, I laid out my answer to him like this:

  • By “going exempt”, he was referring to employees not having a withholding. Using, Form W-4, he may elect to adjust his withholding and therefore how much is withheld from his paycheck for federal income tax. It doesn’t stop other taxes like social security, unemployment, and other state taxes. He can request to adjust withholding as needed throughout the year, but the processing time may depend on the company’s policy. He may not see it take effect until after a few paychecks are processed.
  • People commonly opting for the last 3 months of the year may have to do with the holidays. By “going exempt” for the last 3 months, they can squeeze out some extra dollars to help pay for gifts and other things for the year’s end.
  • Of course, “going exempt” means that it will affect his tax filing and what he may or may not owe. He stated he usually has a refund, but depending on his tax situation, he may end up having to pay when he files by next April if he goes exempt.

 Withhold on no withholding?

While it may be tempting to not have a withholding and get that extra money right away, you are still on the hook for whatever income tax you owe when you file the following year.

For example, assuming income remains the same, instead of having a withholding of $200 from each paycheck for a year, you opt to go “exempt from withholding” for the year. The tax you owe at the end of the year will remain the same at $3000, but rather than having that $200 withholding taken out each paycheck to help pay that tax ($200 x 12 = $2400 already paid for taxes), you are now on the hook for that entire $3000 when you file rather than just $600 if you had a withholding. Depending on your spending habits, having to pay $3000 in its entirety to avoid any penalties & interest may not be a very appealing situation. Ideally, the best withholding is one that takes “just enough” of your income that it pays your tax obligation.

Finding the right withholdings for employees is another part in the engine of an emerging business. Employers can boost their business engine with the right accounting support to provide insight and keep their books in proper order. Look no further than us here at MiklosCPA. We help many emerging businesses in assorted industries with their accounting and tax needs through our “virtual office” services. If you wish to learn more how we can help your business, reach out to us. Also, follow our social media sites for future “good to know” articles and other accounting tidbits.

The Estate Tax – A Wealthy Farewell Gift to Uncle Sam

The Estate Tax – A Wealthy Farewell Gift to Uncle Sam

by | Nov 1, 2019 | Business Tax, Individual Tax

Dying is expensive. Funeral costs, the plot of land your body will occupy, and other expenses to cap off a good life. However, that’s not all. Depending on how vast are the assets you leave behind, wealthy individuals may be liable for the Estate Tax.

 

Estate Tax?

 

The estate tax, or more derisively referred to in public discussions as the “death tax”, is an inheritance tax that behaves similarly to the gift tax. Except in this case, the transferor is deceased and no longer among the living. So who gets the tax? The estate of the deceased person, of course. After tallying up the entirety of that person’s estate (the Gross Estate), the estate tax is calculated and the government takes its cut before it gets transferred to the inheritor of the deceased’s estate. Just like the gift tax though, it does not apply to most taxpayers due to its very high exemption amount, currently set at $11,400,000.

Exclusions & Deductions

 

Just like the gift tax, deductions are available to use to limit the bite of the estate tax by deducting the amount of the gross estate to be taxed. Some deductions include charitable contributions, marital transfers, casualty losses, and admin/funeral expenses.

4 credits are also available to use towards the estate tax. The Applicable credit amount (ACA), a tax credit for death-related taxes paid to foreign governments, a credit for gift tax paid that is part of the gross estate, and any prior transfers for taxes paid by the deceased within 10 years before or 2 years after the decedent’s death.

A Last Toll

 

Form 706 is used to file the estate tax. A fully prepared Estate Tax return is due 9 months after the death of the taxpayer. Of course, a 6 month extension is also available. The estate tax affects a very small number of taxpayers, but learning about the intricacies and unique pieces of our tax code helps readers gains some useful knowledge on taxes as a whole. As a CPA firm, we firmly believe in sharing relevant and interesting knowledge. Many of our clients would agree and feel more confident in their decision-making knowing they’re properly informed and their accounting and tax needs are kept in proper order by us. If you would like to learn more of our services, contact us!  Also, please follow our social media pages for future articles like this that cover the unique tidbits of our tax system.

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