Are You Ready?
If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around TAX TIME! Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax you save! When you arrive at your appointment fully prepared, you’ll have more time to:
Reinvested Dividends: You may have sold stock or a mutual fund in which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends.
Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude all (or a part) of a gain on a home if you meet certain ownership, occupancy, and holding period requirements. If you file a joint return with your spouse and your gain from the sale of the home exceeds $500,000 ($250,000 for other individuals), record the amounts you spent on improvements to the property. Remember too, possible exclusion of gain applies only to a primary residence, and the amount of improvements made to any other home you sold is required regardless of the gain amount. Be sure to bring a copy of the sale documents (usually the closing escrow statement) with you to the appointment.
Purchase of a Home: Be sure to bring a copy of the final closing escrow statement if you purchased a home.
Car Expenses: Where you have used one or more automobiles for your business, list the expenses of each separately. The government requires that you provide your total mileage, business miles, and commuting miles for each car on your return, so be prepared to have them available.
Vehicle Purchase: If you purchased a new plug-in electric car (or cars) this year, you may qualify for a special credit. Please bring the purchase statement to the appointment with you.
Charitable Donations: Cash contributions (regardless of amount) must be substantiated with a bank record or written communication from the charity showing the name of the charitable organization, date and amount of the contribution. Cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, the items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. A record of each item contributed must be kept, indicating the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued less than $250 and dropped off at an unattended location do not require a receipt. For contributions of $500 or more, the record must also include when and how the property was acquired and your cost basis in the property. For contributions valued at $5,000 or more and other types of contributions, please call this office for additional requirements.
Health Insurance Coverage Reporting
Individuals are required to have minimum essential health insurance coverage, or for years before 2019, pay a penalty (unless eligible for an exemption). Generally, employer-sponsored plans will qualify, as will participation in Medicare, Medicaid or VA programs, or purchasing plans through the federal or a state Insurance Marketplace. A tax credit may be available if you purchased a policy through a Marketplace, and you may have already used an advance of the credit to subsidize your premium payments. If so, the advance and actual credits must be reconciled on your tax return. Employers, insurance providers and government programs will issue a version of Form 1095 to be used when preparing your return; be sure to bring all 1095s you received to your appointment.
Low Income Year?
If your taxable income is exceptionally low this year, or even if you expect not to be required to file a tax return this year, a number of tax opportunities may be available to you. But time is running short, since these opportunities will require action on your part before year’s end. Here are some examples:
Take IRA Distributions – Depending upon your projected taxable income, and if you are over age 59 1/2, you might consider taking an IRA distribution without paying any tax on the distribution.
Redeem Government Bonds – If you have invested in U.S. government bonds, such as Series EE or I bonds, you may want to consider cashing in some to avail yourself of tax-free interest income.
Convert Traditional IRA Funds into a Roth IRA – Roth IRAs provide tax-free accumulation and tax-free retirement distributions. So to the extent of any negative taxable income or even just for the lower tax rates, you may wish to consider converting some or all of your traditional IRA into a Roth IRA.
Zero Capital Gains Rate – There are three capital gains rates depending upon your taxable income. When your taxable income is in the lowest range, you will actually pay no tax on your long-term capital gains. Thus, if your taxable income is within the zero percent long-term capital gains rate bracket, this is an opportunity for you to sell some appreciated securities that you have owned for more than a year and pay no tax on the gains. Check with this office for the taxable income cut-off amount for the current year’s 0% capital gains rate.
There are other strategies as well in a low income year; please call for more information.
Identity Theft
Identity theft is becoming more prevalent and can impact your tax filings. If you have reason to believe that your identity has been stolen, please contact this firm as soon as possible. The IRS provides special procedures for filing if you have had your identity stolen.
The advice included in this article is not intended or written by this practitioner to be used, and it cannot be used by a practitioner or taxpayer, for the purpose of avoiding penalties that may be imposed on the practitioner or taxpayer.
Each month, we will send you a roundup of our latest blog content covering the tax and accounting tips & insights you need to know.
We care about the protection of your data.