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TAX TALK: Donating your Vehicle May not be Taxwise

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 17, 2019 9:20:00 AM

You’ve probably seen or heard ads urging you to donate your car to charity. “Make a difference and receive tax savings,” one organization states. But donating a vehicle may not result in a big tax deduction — or any deduction at all.

Trade? Sell? Donate?

Let’s say you’re buying a new car and want to get rid of your old one. Among your options are trading in the vehicle to the dealer, selling it yourself, or donating it to charity.

If you donate, the tax deduction depends on whether you itemize and what the charity does with the vehicle. For cars worth more than $500, the deduction is the amount for which the charity actually sells the car, if it sells without materially improving it. (This limit includes vans, trucks, boats and airplanes.)

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Topics: TAX TALK

TAX TALK: Thinking About Retiring to Another State? Don’t Forget About Taxes

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 10, 2019 10:17:00 AM

When you retire, you may consider moving to another state — say, for the weather or to be closer to loved ones. Don’t forget to factor state and local taxes into the equation. Establishing residency for state tax purposes may be more complicated than it initially appears to be.

Identify all Applicable Taxes

It may seem like a no-brainer to simply move to a state with no personal income tax. But, to make a good decision, you must consider all taxes that can potentially apply to a state resident. In addition to income taxes, these may include property taxes, sales taxes, and estate taxes.

If the states you’re considering have an income tax, look at what types of income they tax. Some states, for example, don’t tax wages but do tax interest and dividends. And some states offer tax breaks for pension payments, retirement plan distributions and Social Security payments.

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Topics: TAX TALK

TAX TALK: The Chances of IRS Audits are Down But You Should Still be Prepared

Posted by Hal Zemel, CPA, J.D., LL.M. on Jun 3, 2019 9:20:00 AM

The IRS just released its audit statistics for the 2018 fiscal year, and fewer taxpayers had their returns examined as compared with prior years. However, even though a small percentage of tax returns are being chosen for audit these days that will be little consolation if yours is one of them.

Latest Statistics

Overall, just 0.59% of individual tax returns were audited in 2018, as compared with 0.62% in 2017. This was the lowest percentage of audits conducted since 2002.

However, as in the past, those with very high incomes face greater odds. For example, in 2018, 2.21% of taxpayers with adjusted gross incomes (AGIs) of between $1 million and $5 million were audited (down from 3.52% in 2017).

The richest taxpayers, those with AGIs of $10 million and more, experienced a steep decline in audits. In 2018, 6.66% of their returns were audited, compared with 14.52% in 2017.

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Topics: TAX TALK

TAX TALK: Hire Your Children This Summer: Everyone Wins

Posted by Hal Zemel, CPA, J.D., LL.M. on May 28, 2019 9:20:00 AM

If you’re a business owner and you hire your children (or grandchildren) this summer, you can obtain tax breaks and other nontax benefits. The kids can gain on-the-job experience, save for college and learn how to manage money. And you may be able to:

  • Shift your high-taxed income into tax-free or low-taxed income,
  • Realize payroll tax savings (depending on the child’s age and how your business is organized), and
  • Enable retirement plan contributions for the children.

It Must Be a Real Job

When you hire your child, you get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill, your self-employment tax bill (if applicable), and your state income tax bill (if applicable). However, in order for your business to deduct the wages as a business expense, the work performed by the child must be legitimate and the child’s salary must be reasonable.

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Topics: TAX TALK

TAX TALK: Tax Considerations When Selling Your Home

Posted by Hal Zemel, CPA, J.D., LL.M. on May 20, 2019 9:20:00 AM

Spring and summer are the optimum seasons for selling a home. And interest rates are currently attractive, so buyers may be out in full force in your area. Freddie Mac reports that the average 30-year fixed mortgage rate was 4.14% during the week of May 2, 2019, while the 15-year mortgage rate was 3.6%. This is down 0.41 and 0.43%, respectively, from a year earlier.

But before you contact a realtor to sell your home, you should review the tax considerations.

Sellers Can Exclude Some Gain

If you’re selling your principal residence, and you meet certain requirements, you can exclude up to $250,000 ($500,000 for joint filers) of gain. Gain that qualifies for the exclusion is also excluded from the 3.8% net investment income tax.

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Topics: TAX TALK

TAX TALK: Plug into Tax Savings for Electric Vehicles

Posted by Hal Zemel, CPA, J.D., LL.M. on May 6, 2019 9:17:00 AM

While the number of plug-in electric vehicles (EVs) is still small compared with other cars on the road, it’s growing — especially in certain parts of the country. If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. (Depending on where you live, there may also be state tax breaks and other incentives.)

However, the federal tax credit is subject to a complex phaseout rule that may reduce or eliminate the tax break based on how many sales are made by a given manufacturer. The vehicles of two manufacturers have already begun to be phased out, which means they now qualify for only a partial tax credit.

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Topics: TAX TALK

T&E TALK: Single Parent? Estate Planning Requires Special Considerations

Posted by Scott T. Ditman, CPA/PFS on May 6, 2019 7:00:00 AM

Here’s a fast fact: The percentage of U.S. children who live with an unmarried parent has jumped from 13% in 1968 to 32% in 2017, according to Pew Research Center’s most recent poll.

While estate planning for single parents is similar to estate planning for families with two parents, when only one parent is involved, certain aspects demand your special attention.

5 Important Questions

Of course, parents want to provide for their children’s care and financial needs after they’re gone. If you’re a single parent, here are five questions you should ask:

  1. Have I selected an appropriate guardian? If the other parent is unavailable to take custody of your children should you become incapacitated or unexpectedly die, your estate plan must designate a suitable, willing guardian to care for them.
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Topics: TAX TALK

TAX TALK: Entrepreneurs: How to Treat Expenses on your Tax Returns

Posted by Hal Zemel, CPA, J.D., LL.M. on Apr 29, 2019 9:20:00 AM

Have you recently started a new business? Or are you contemplating starting one? Launching a new venture is a hectic, exciting time. And as you know, before you even open the doors, you generally have to spend a lot of money. You may have to train workers and pay for rent, utilities, marketing and more.

Entrepreneurs are often unaware that many expenses incurred by start-ups can’t be deducted right away. You should be aware that the way you handle some of your initial expenses can make a large difference in your tax bill.

Key Points on How Expenses are Handled

When starting or planning a new enterprise, keep these factors in mind:

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Topics: TAX TALK

TAX TALK: Three Questions to Consider after You’ve Filed Your Return

Posted by Hal Zemel, CPA, J.D., LL.M. on Apr 23, 2019 9:55:00 AM

Once your 2018 tax return has been successfully filed with the IRS, you may still have some questions. Here are brief answers to three questions that we’re frequently asked at this time of year.

Question #1: What tax records can I throw away now?

At a minimum, keep tax records related to your return for as long as the IRS can audit your return or assess additional taxes. In general, the statute of limitations is three years after you file your return. So you can generally get rid of most records related to tax returns for 2015 and earlier years. (If you filed an extension for your 2015 return, hold on to your records until at least three years from when you filed the extended return.)

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Topics: TAX TALK

TAX TALK: Seniors: Medicare Premiums Could Lower Your Tax Bill

Posted by Hal Zemel, CPA, J.D., LL.M. on Apr 15, 2019 9:20:00 AM

Americans who are 65 and older qualify for basic Medicare insurance, and they may need to pay additional premiums to get the level of coverage they desire. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But one aspect of paying premiums might be positive: If you qualify, they may help lower your tax bill.

Medicare Premium Tax Deductions

Premiums for Medicare health insurance can be combined with other qualifying health care expenses for purposes of claiming an itemized deduction for medical expenses on your individual tax return. This includes amounts for “Medigap” insurance and Medicare Advantage plans. Some people buy Medigap policies because Medicare Parts A and B don’t cover all their health care expenses. Coverage gaps include co-payments, co-insurance, deductibles and other costs. Medigap is private supplemental insurance that’s intended to cover some or all gaps.

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Topics: TAX TALK

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