Selling your home sale could impact your income taxes. You may or may not have to pay income taxes on the gain from the sale of your home.
The gain from the sale of your home may be excluded, either all or in part, from your income tax if you meet the eligibility test. The eligibility test consists of ownership and the use of the home rules. You must have owned and used it as your main home for at least two out of the five years before the date of the sale. Property acquired through a like-kind exchange (1031 exchange) during the 5-year period is not eligible for the exclusion.
The 24 months used as your main home can fall anywhere within the 5-year period and does not need to be consecutive 24 months. Short absences count as time lived at home. Only 12 months of residence will meet the requirement if you are physically or mentally unable to care for yourself. Time spent living in a licensed care facility also counts toward the residency requirement.
Partial exclusion is available if you moved because of work, health or an unforeseeable event. Work-related exception qualifies if your new job is at least 50 miles farther from home than your old work location. Health-related exception qualifies if you moved to obtain, provide, or facilitate diagnosis, cure, mitigation or treatment of disease, illness, or injury for yourself or a family member. Health-related exceptions also include a doctor’s recommendation of a change in residence due to health problems. Giving birth to two or more children from the same pregnancy is one of the situations qualifying as an unforeseeable related exception.
The maximum gain exclusion is $250,000 or ($500,000 if married filing jointly). The eligibility test must be met to qualify for the full or partial exclusion. Check for additional rules and any exceptions that may apply to you. One last note: You must report the sale to claim the exclusion and if you receive a form 1099-S, Proceeds from Real Estate Transactions, even if you have no gain from the sale.
National Taxpayer Advocate Nina E. Olson released her 2015 annual report to the Congress on January 6, 2016. Olson expressed her concerns that the IRS is scaling back telephone and face-to-face services to assist the nation’s individual taxpayers and business entities in complying with their tax obligations.
In addition, other key issues were addressed in the report. Of particular interest is the growing rate of false positives in a key tax fraud filter used by the IRS in processing returns. The rate of false positive in 2015 was about 36 percent, affecting nearly 180,000 taxpayers. The “Anti-Fraud Filters” are used to filter out improper refund claims.
Olson’s report states that The Pre-Refund Wage Verification Program, “income wage verification,” allows the IRS to temporarily freeze a taxpayer’s refund when possible false wages and withholding are detected. The IRS sends out notices to taxpayers whose returns were flagged by the filters and instructs them to authenticate their identities online, by phone or by mail.
Following is an actual case of a legitimate refund that is still being withheld by the IRS. The 2014 tax return of the taxpayer was electronically filed and accepted by the IRS on October 11, 2015. A notice to verify the income and withholding was received on November 1, 2015. A copy of the taxpayer’s form W-2 was sent to the IRS on November 2, 2015. By January 7, 2016, the refund still had not been received. A telephone call was placed to the IRS and found out they still had not processed the return (the taxpayer was lucky to have gotten through without being hung up on). It’s been 16 weeks since the return was accepted, still no refund. Time to call the Taxpayer Advocate.
The intention of the Anti-Fraud Filters is to protect the taxpayers. However, it is very frustrating when legitimate refunds are delayed for excess amounts of time and contacting the IRS is nearly impossible.
“Hey big spender! Bruce Willis treats waitress to a whopping 800 euro (roughly $900) tip after dining on filet mignon, lobster and gnocchi during Berlin getaway with Emma.”
That was the headline published on Mail on Line May 12, 2015. The total bill was not disclosed.
Typing “tipping guides” in Google search will result in no less than 35 pages of various websites on the topic of tips and tipping etiquette. Wikipedia defines “gratuity (also called a tip) as a sum of money customarily tendered, in addition to the basic price, to certain service sector workers for a service performed or anticipated.”
Tipping and the amount of a tip varies by location and circumstances. Traditionally, tipping is not part of the culture in China and Japan. In fact the people of these two countries see tipping as insulting.
The United States and Canada share similar tipping practices. A typical trip could result in a substantial amount of tips, starting with the bellman, possibly the concierge, a taxi driver, the maître d’ at a restaurant, the waiter, the restroom attendant and the hotel housekeeper when you leave. It all adds up.
Servers work in the United States with the expectation of receiving tips. Tips are considered income and are treated as earned wages except in the months when tip income is under $20. At least 40% of tips received by waiters are not reported, according to the Internal Revenue Service.
The IRS case on the Fior D’Italia in San Francisco computed the under-reporting of tip income by the employees of $156,545 in 1991 and $147,529 in 1992. The average tips ranged from 14.4% to 14.29%.
Under-reporting of tip income is a big tax nightmare. The employer share of FICA and Medicare taxes on under-reported tip income by the employees is owed by the employer. The employees may also be subject to audit for underreporting of income after discovery of under-reported tips at an establishment.
Tipping is customary, not mandatory. How much and if you tip is totally discretionary. It all depends on your personal view on tipping. Are you tipping because you received good service, out of guilt or just feel obligated?
On the flip side, if you receive tips, you’re supposed to report them as income for tax purposes. Tips are supposed to supplement your wages. For more information on reporting tip income go to the IRS website.
It seems like Medicare has been around forever, but actually, President Lyndon Baines Johnson called on the Congress to create Medicare in 1964 and signed the bill creating it on July 30, 1965. Medicare services began July 1, 1966 when more than 19 million Americans 65 and older enrolled in the program.
Basically, the traditional (or original) Medicare is a health insurance program and has deductibles and copayments. Medicare was not established to pay all the health care costs of participants. Routine vision and hearing care are not covered by traditional Medicare.
Components of traditional Medicare consist of three parts:
Participants enrolled in traditional Medicare may use services from health care providers who accept Medicare.
Medicare Advantage (also known as Medicare Part C plan) offers a variety of plans offering managed care options, or coordinated care options. These plans are offered by private insurers and health care organizations contracted with Center for Medicare and Medicaid Services (CMS).
Individuals are eligible to enroll for Medicare coverage the first day of the month in which they turn 65. They are eligible the month before they turn 65 if their birthday is on the first of the month. Medicare eligibility is tied to Social Security benefits. Individuals must be eligible for Social Security to be eligible for Medicare.
Additional information can be found at official Medicare website.
There are 55 tax provisions, also know as “extenders” that expired at the end of 2013. In a letter from the Internal Revenue Commissioner sent to the United States Congress, members of the tax writing committees stated that if Congress waits until 2015 to enact tax law changes affecting the tax year 2014, there may be a delay in the opening of tax filing season.
The 2014 filing season opened on January 31, 2014, instead of January 21, due to the 16-day federal government closure in October of 2013. A delay is very possible in 2015 if the decision whether to extend the expired tax provisions is not made before the end of this year.
Several tax extenders that may affect individuals in particular are:
This deduction benefited individuals who lived in states without state income tax, such as Nevada. Sales taxes are deducted in lieu of state and local income taxes on Schedule A, Itemized Deductions.
Taxpayers who are 70 ½ or older are able to exclude from income up to $100,000 per year when distributions are made directly to certain qualified charities. Seniors who can no longer itemize deductions benefit from this extender.
Qualifying individuals could deduct qualifying higher education tuition or expenses above-the-line.
The Mortgage Debt Relief Act provided the exclusion from income of up to $2 million of qualified cancellation of mortgage debt on a principal residence.
This extender provides for the 50 percent bonus depreciation on qualified property purchased and placed in service in a business.
A taxpayer may immediately expense up to $25,000 of Section 179 property, with a dollar for dollar phase-out of the maximum deductible amount for purchases in excess of $200,000 for tax years 2014 and thereafter. The proposal would increase the maximum amount and phase-out threshold to $500,000 and $2 million, respectively.
If Congress does not act on these and other tax extender issues before the end of 2014, and instead reinstates them retroactively sometime in 2015, millions of Americans would be forced to file amended returns to claim these deductions.
IOLTA (Interest on Lawyers Trust Accounts) was created in 1980, when the Congress modified federal banking laws allowing banks to pay interest on checking accounts. The first IOLTA account was created in Florida in 1981.
IOLTA is source of funding to provide access to justice for individuals and to improve our justice system. Every state, along with the District of Columbia and the Virgin Islands, operates an IOLTA program. These funds, together with private grants and donations enable nonprofit legal aid providers to help low-income people with various civil legal matters and provide education about our justice system. The United States IOLTA programs generated more than $124 million dollars nationwide in2009.
Every attorney and law firm in Nevada are required to create and maintain an interest-bearing trust account for the deposit of clients’ funds when the funds cannot otherwise earn enough income for the client to be more than the cost of securing that income. The trust accounts must be an interest on Lawyers Trust Account (IOLTA) at participating financial institutions. The client, and not the IOLTA program, will receive the interest if the funds are large enough or will be held for a long period of time. These funds will not be in IOLTA accounts. Each attorney or firm has the discretion to decide whether the client’s funds are nominal or are to be held for a short period of time.
Examples of types of funds to be deposited into IOLTA accounts include:
There may be other types of funds that should be deposited into IOLTA accounts.
The interest income from IOLTA accounts payable to a tax-exempt organization is not taxable to the client or the attorney nor is it deductible.
Are you thinking about rolling your Traditional IRAs from one financial institution to another? Or maybe you need a temporary loan for less than 60 days. Whatever the reason may be, beware, the rules have changed.
You have 60 days after the day on which you receive your distribution to complete a rollover of your traditional IRA to another IRA. The entire amount of distribution from your IRA is taxable at your ordinary income tax rate if the rollover is not completed timely. In addition, if you are under the age of 59 ½ when the distribution is made, the amount is subject to the 10% penalty.
There’s a one-year waiting rule for rollovers. Until December 31, 2014, you are permitted to make one nontaxable rollover in any 1-year period for each IRA account, meaning that after you distribute assets from your IRA and rollover any part of that amount, you cannot make another rollover from the IRA to another (or the same) IRA within one year.
For example, you have two IRAs – IRA1 and IRA 2 – and you make a tax-free rollover from IRA1 into a new IRA (IRA3). You cannot make another tax-tree rollover from IRA1 or from IRA3 into another IRA within one year. You could, however, roll IRA2 into any other IRA because you did not roll money in to or out of that account.
A late February 2014 Tax Court case (Bobrow, T.C. Memo, 2014-21) changed the one-year rule. The Tax Court ruled that the limit of one rollover per year applies on an aggregate basis not on an IRA-by IRA basis. The Internal Revenue Server announced that the new rule will not apply to any rollover that involves a distribution that occurs before January 1, 2015.
Are you 65 or older, have Medicare, and other insurance coverage such as a group health plan from an employer? Who is the “primary payer” responsible for paying your medical bills first?
When there’s more than one payer, “coordination of benefits” rules decide who pays first. The “primary payer” pays what it owes on your bills first, and then your provider send the rest to the “secondary payer” to pay. There may be a “third payer” in some cases.
Who the “primary payer” is depends on a number of things including the number of employees in the company that is providing the group health care coverage. Generally, your group health plan pay first if you’re 65 or older, covered by a group health plan through a current employer and the employer has 20 or more employees. Your health care provider should bill Medicare if the group health plan did not pay all of your bill. Medicare generally will pay first if your employer has less than 20 employees.
Medicare becomes your “primary payer” after you retire at 65 or older.
There are various situations and type(s) of coverage that determines who the “primary payer” will be. Situations and coverage include disability, COBRA coverage, medical expenses from an accident, workers’ compensation coverage or Veterans’ coverage.
Medicare has a 32 page booklet entitled “Medicare and Other Health Benefits: Your Guide to who Pays First” that’s available at www.medicare.gov/publications or by calling 1-800-MEDICARE (1-800-633-4227) to get the most current information. TTY users should call 1-877-486-2048.
Yes, it is that time of year. Now that the holidays are over, it’s time to start thinking about income tax. Were there any life event changes such as getting married, having a baby, adopting a child, death of a spouse, purchasing a home or any other events that would affect your income tax return?
Start accumulating your documents to prepare your 2013 income tax return. Set aside a box, a file or a cubby to hold tax documents as you receive them in the mail. Be on the lookout for envelopes with “tax document enclosed” on them. You should receive Form W-2 if you were an employee in 2013, Form 1098 Mortgage Interest Statement if you own property, as well as various types of Form 1099, if any. You’ll also need Forms K-1 from pass through entities that you have an interest in. You should have been accumulating documents and receipts for tax deductions and contributions received throughout the year.
How will you prepare your income tax return? The IRS offers a free filing on their website for taxpayers with adjusted gross income (AGI) of $57,000 or less. The free filing is a good option for taxpayers with uncomplicated tax situations. There are also numerous tax preparation software packages on the market for individuals ineligible to take advantage of the IRS Free File.
Hiring a professional to prepare your income tax return makes sense when your tax situation includes unusual tax circumstances, numerous investments in rentals or partnerships, or you just need to be confident that your return was prepared correctly and that all possible tax savings were considered.
Now get prepared and get your 2013 income tax return filed by April 15, 2014! (An extension to file is available, but not to pay if you can’t meet this deadline).
I recently came back from a 3 ½ week vacation from Taiwan, Hong Kong and China.
We were traveling in a group tour in both Taiwan and China. I was very impressed with the tour guides who provided us with information about the various places we were visiting as well as stories from previous tours they headed. One particular story told pertains to the new wealth of some Chinese from mainland China.
Shopping at various stores are part the each tour. A Chinese tourist was in a group that went to a jewelry store as part of the tour. The store clerk was trying to get this particular tourist to purchase a Rolex watch from a tray of various Rolex watches. The Chinese tourist said to the clerk, “Bring me more expensive ones, these look cheap.” So the store clerk brought out another tray with maybe thirty very expensive Rolex watches. The Chinese tourist pointed out three or four of the thirty or so watches. To the pleasant astonishment of the store clerk, the three or four were watches that the Chinese tourist did not like and ended up purchasing the rest of the watches in the tray.
The power in the all hotel rooms we stayed at in Taiwan, Hong Kong and China were controlled by our room key. There’s a slot by the door where the room key is inserted to turn on the electricity in the room. I thought this was a very environmentally sound method of conservation.
We are used to having toilet paper in every stall and plenty of paper napkins at all eating places. Some of the public restrooms in Taiwan and China had a spot where one would grab some toilet paper before entering a stall. And then there are some that don’t provide toilet paper at all. Paper napkins at restaurants sometimes were just Kleenex, not what we are accustomed to. Of course, the expensive restaurants catering to the wealthy and the westerners had the paper or cloth napkins.
We were warned not to drink the tap water without boiling it first. Bottled water was provided in all the hotel rooms. We drink bottled water in the states by choice and not because we must.
Overall, I came home with a feeling of how good we have it in the United States and how much we take for granted.