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Individual Tax

Revisit and Review Your Last Tax Return

August 25, 2021 by admin

businessman workingCarrying out a post-tax season review of your income tax return can be very helpful way to gain new insight into your financial situation. It’s a bit like looking at a familiar place from a different and fresh perspective — you never know what you might discover. See what a review of your federal income tax return might reveal about the following issues.

Investments — Your Winners and Losers

Look for evidence of excessive gains and losses within a compressed time frame. If you are a trader, this might be typical. However, if you are an average investor, these gains or losses may point to the fact that you are buying and selling too frequently. You should consider the fees associated with excessive trading as well as whether your portfolio is structured in a way that meets your goals and your tolerance for risk.

You may have a capital loss carryforward that represents an unused loss you are carrying over to offset future capital gains. If you intend to rebalance* your taxable account investments, see if there will be capital gains that can be offset by the loss you are carrying forward.

Another possible way to reduce taxes is to consider municipal bonds. Interest on municipal bonds is generally exempt from federal income taxes and possibly state and local income taxes. Of course, the credit ratings of municipals should be analyzed before purchase. Although bonds with lower credit ratings may offer higher yields, they typically carry a higher risk of default.

Retirement Planning

You may be able to lower your current year’s income tax liability by increasing the amount you contribute to tax-favored retirement plans (limits apply). If you are taking distributions from a retirement plan still held with a former employer, you may want to consider a rollover into one account to consolidate accounts and simplify your recordkeeping. If you have multiple individual retirement accounts (IRAs), also think about consolidating accounts.

Your Business

If you operate a business, review of your tax return may point to a wealth of tax-saving and other planning opportunities. For example, if you are self-employed as a sole proprietor and filed a Schedule C, look into whether a different business form could make sense. For example, an S corporation can limit a business owner’s personal liability and may offer tax savings. If you do not already have a retirement plan in place, consider establishing one. A retirement plan established through your business allows you to save for your future financial security and deduct your contributions. Additionally, there may be income-shifting opportunities among family members through employment in the business.

Itemized Deductions

Review your Schedule A for potential opportunities. Is it possible to get a better rate and term on your mortgage loan? Would refinancing or switching to a 15-year term make financial sense? If you make charitable donations, look into contributing appreciated stock in place of cash. When you donate appreciated stock held more than one year, you receive a deduction for the value of the gift and you avoid paying capital gains tax on the appreciation.

You could also investigate establishing a charitable remainder trust. Doing so allows you to make a gift to charity, retain an income from the donated assets for life, and claim a current tax deduction for your gift.

Other Considerations

If your filing status has changed due to a life change such as marriage or divorce, make sure that change is reflected when you file this year’s tax return. In addition, be sure to keep your beneficiary designations on your retirement accounts and insurance policies current so that they accurately reflect your present status. If you have children, you may want to consider setting money aside for their future education. There are tax-advantaged college savings opportunities that you should look into further.

A review of your tax return and your investment transaction statements can help you identify areas where you may be able to lower the taxes you’ll have to pay next year. Your financial and tax professionals will be able to assist you in that effort.

*Rebalancing a portfolio may create a taxable event if done outside of a retirement account.

Discover how the right tax advisor can make all the difference in how much money stays in your pocket! Call us now at 505-200-0094 to learn more about our tax services for small businesses and individuals in the Albuquerque, NM area. You can also request your complimentary consultation through our website

Filed Under: Individual Tax

Ready for a Move?

May 18, 2021 by admin

Ready for a Move - Individual TaxEligible individuals may exclude up to $250,000 of gain from their income, while married couples who file jointly may be able to exclude up to $500,000 of gain.

Itching for a change of scenery? Whether you plan to sell your home because of retirement, a job change, or a desire to downsize or move to a larger home, you may be eligible for a very attractive tax break.

If your home has appreciated in value, you may be able to exclude all or part of your profit from the sale of your home on your federal income tax return. Eligible individuals may exclude up to $250,000 of gain from their income, while married couples who file jointly may be able to exclude up to $500,000 of gain. Just be sure you familiarize yourself with the rules before you sell your home.

Who and What Qualifies?

Your home can be a house, a cooperative apartment, a condominium, or another type of residence. To qualify for the exclusion, you must have owned and used the home as your principal residence for at least two years (a total of 24 full months or 730 days) during the five-year period ending on the date of the sale. The tax law allows you to utilize the exclusion multiple times over your lifetime as long as you meet the applicable requirements. However, you may not use it more than once every two years.

You can have only one principal residence at a time. That means that if you own two homes, the home you use for the majority of the year would generally be considered your principal residence for that year.

In the case of the $500,000 exclusion for a married couple filing jointly, only one spouse must meet the ownership requirement, although neither spouse may have excluded gain from a previous home sale during the two-year period ending on the sale date. Both spouses must meet the residence (use) requirement in order to qualify for the $500,000 exclusion.

Ownership and Use Do Not Have to Be Continuous

Your ownership and use of the home do not necessarily have to coincide. As long as you have at least two years of ownership and two years of use during the five years before you sell your home, the ownership and use can occur at different times. For example, you can move out of the house for up to three years and still qualify for the exclusion.

A Reduced Exclusion Is Possible

If you are unable to meet the qualifications for the full $250,000/$500,000 exclusion, you may be eligible for a reduced exclusion under certain circumstances. These are:

  • You have to sell your home because of a change in place of employment
  • You must move for health reasons, or
  • You must move because of other qualifying “unforeseen circumstances”

The amount of the reduced exclusion is generally based on the portion of the two-year use and ownership periods you satisfy.

As you can see from this general summary, the rules for the gain exclusion can be complex. Your tax advisor can provide more details regarding how to qualify for this valuable tax break.

Filed Under: Individual Tax

Home Office Tax Tips

May 19, 2020 by admin

All Business CPAWorking from home can potentially deliver some attractive tax advantages. If you qualify for the home office deduction, you can deduct all direct expenses and part of your indirect expenses involved in working from home. Note, however, that qualifying for such deductions became harder under the Tax Cuts and Jobs Act of 2017 (TCJA). If you previously claimed a home office as a miscellaneous deduction on your individual income tax return, the TCJA eliminated that deduction for tax years 2018-2025. You must now file a Schedule C on Form 1040 to be eligible for the home office deduction.

What Space Can Qualify?

Direct expenses are costs that apply only to your home office. The cost of painting your home office is an example of a direct expense. Indirect expenses are costs that benefit your entire home, such as rent, deductible mortgage interest, real estate taxes, and homeowner’s insurance. You can deduct only the business portion of your indirect expenses.

Your home office could be a room in your home, a portion of a room in your home, or a separate building next to your home that you use to conduct business activities. To qualify for the deduction, that part of your home must be one of the following:

Your principal place of business. This requires you to show that you use part of your home exclusively and regularly as the principal place of business for your trade or business.

A place where you meet clients, customers, or patients. Your home office may qualify if you use it exclusively and regularly to meet with clients, customers, or patients in the normal course of your trade or business.

A separate, unattached structure used in connection with your trade or business. A shed or unattached garage might qualify for the home office deduction if it is a place that you use regularly and exclusively in connection with your trade or business.

A place where you store inventory or product samples. You must use the space on a regular basis (but not necessarily exclusively) for the storage of inventory or product samples used in your trade or business of selling products at retail or wholesale.

Note: If you set aside a room in your home as your home office and you also use the room as a guest bedroom or den, then you won’t meet the “exclusive use” test.

Simplified Option

If you prefer not to keep track of your expenses, there’s a simplified method that allows qualifying taxpayers to deduct $5 for each square foot of office space, up to a maximum of 300 square feet.

Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

Filed Under: Individual Tax

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