With the housing market beginning to show signs of coming off life support, you may begin to think about moving. The good news is that, even if you make a profit from the sale of your home, you may not have to report it as income.

Here are 10 tax tips to consider when planning a sale of your principal residence:

1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you owned and used the property as your main home for at least two out of the five years before the date of sale.
2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new 3.8 percent net investment income tax, which is effective now.
3. If you can exclude all of the gain, you are not required to report the sale of your home on your tax return.
4. If you cannot exclude all of the gain, or you choose not to exclude it, you must report the sale of your home on your tax return.
5. Use the worksheets in IRS Publication 523, Selling Your Home, to figure the gain (or loss) on the sale and the amount of gain you can exclude.
6. Generally, you can exclude a gain from the sale of only one main home per two-year period.
7. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home.  If you have two homes and live in both of them, your main home is usually the one you live in most of the time.
8. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523 for details.
9. You cannot deduct a loss from the sale of a personal residence.
10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

©2013 CPAmerica International 

 

A business’s tax deduction hinged on whether assembling a gift basket was merely a packaging activity or was actually producing a distinct product.

A federal district court in California has determined that the 9 percent domestic production activities deduction (DPRD) is available to a corporation whose production process involved packaging gift baskets of various food and wine items.

To qualify for the DPRD, the company must be engaged in the lease, rental, license, sale, exchange or other disposition of qualified production property (including tangible personal property and computer software) manufactured, produced, grown or extracted (MPGE) by the taxpayer in whole or in significant part within the United States.

Under the regulations, MPGE includes manufacturing, producing, growing, extracting, installing, developing, improving and creating qualified production property. It also includes manipulating, refining or changing the form of an article, or combining or assembling two or more articles.

However, activities do not qualify as MPGE if the business packages, repackages, labels or performs minor assembly of qualified production property and engages in no other MPGE activity with respect to that property.

In this case, the company designed, assembled and sold gift baskets. The production process included selecting the basket and the items, such as candy or wine, to be placed inside. The gift baskets were shrink-wrapped and decorated with bows.

The IRS asserted that the company merely packaged and repackaged the items in its gift baskets and was not entitled to the DPRD. The court found that the activities qualified as MPGE.

The court determined that the company’s production process may qualify as manufacturing or producing but may also be packaging or repackaging (a nonqualified activity). The court found that the company’s production process produced a final product that is distinct in form and purpose from the individual items inside (United States v. Timothy J. Dean, et. al., 112 AFTR 2d 2013-5164, May 7, 2013).

Essentially, the court concluded that the company produced a new product with a different market demand than the individual components.

©2013 CPAmerica International

 

A federal district court has determined that an individual prosecuting a lawsuit was engaged in a trade or business, allowing him to claim a deduction for his attorneys’ fees as a business expense.

Richard Bagley brought the lawsuit against his former employer under the provisions of the federal False Claims Act (FCA). The FCA imposes civil liability on any person who presents to the federal government “a false or fraudulent claim for payment or approval.” Under the whistleblower provisions of the FCA, individuals may sue in the name of the government as a “relator” and receive an award of 15 percent to 25 percent of the amount recovered by the government.

Bradley’s case against his former employer, which stretched for almost nine years, resulted in his being awarded over $36 million, about one-half of which went to his attorneys. Bradley reported the $36 million as business income on Schedule C and deducted the attorneys’ fees as a business expense.

The IRS contended that the $36 million was “other income” – not derived from a trade or business – and that the attorneys’ fees were deductible only as an itemized deduction.

The court found that Bagley’s activities while pursuing the lawsuit were a trade or business and his litigation expenses were deductible as ordinary and necessary business expenses (Richard D. Bagley v. United States, 2013-2 USTC ¶50,462, Aug. 5, 2013).

The court noted that Bagley spent more than 5,900 hours investigating and prosecuting the FCA claim. He actively participated in the prosecution of the case, reviewing documents, attending meetings and providing his attorneys with his particular expertise regarding the regulations governing federal contracts and pricing.

After applying the various tests for an activity not engaged in for profit, the court concluded that Bagley’s activities were not a hobby or an activity engaged in for pleasure or amusement.

©2013 CPAmerica International

 

A new form is in the works to implement a portion of the healthcare law related to net investment income.

The IRS has released the first draft of Form 8960, Net Investment Income. Form 8960 will be used to report the new 3.8 percent Medicare tax on net investment income. The form will be attached to the 2013 Form 1040, U.S. Individual Income Tax Return, and the 2013 Form 1041, U.S. Income Tax Return for Estates and Trusts.

Beginning this year, individuals, estates and trusts whose modified adjusted gross income exceeds the threshold amount will be subject to the new 3.8 percent tax.

The threshold amounts are:

• Married filing jointly – $250,000
• Married filing separately – $125,000
• Single/head of household – $200,000
• Estates/trusts – $11,650

Net investment income (NII), for purposes of the 3.8 percent tax calculation, includes the following:

• Dividends
• Interest
• Rents
• Royalties
• Commercial annuities
• Net capital gains on assets that produce net investment income and passive trade or business income as well as income from financial instrument trading

NII is the income after deductions for expenses that are “properly allocable” to the income, such as investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, etc. Investment income does not include wages, active business income, pension/IRA distributions or tax-exempt income.

Many of the entries on Form 8960 refer to instructions that the IRS expects to release later in the year.

©2013 CPAmerica International

 

There are many signs that the economy is strengthening and expanding. What could this mean for businesses?

Some people are expecting the Federal Reserve to begin to back off quantitative easing during the upcoming months. From a tax standpoint, economic improvement may mean the end of the line for several stimulus-type tax breaks that are scheduled to expire Dec. 31, 2013.

If you own or operate a business, a number of favored depreciation tax breaks may not be available next year, including:

• So-called “bonus depreciation,” the additional depreciation deduction allowed in the placed-in-service year equal to 50 percent of the adjusted basis of qualified property
• The 15-year write-off for qualified leasehold improvement property, retail improvements and restaurant property

In addition, the Code Section 179 expensing limit – $500,000 in 2013 – is slated for a drastic reduction next year.

Although the above benefits may be extended beyond 2013, there is no guarantee. If your business is planning to purchase machinery and equipment or invest in eligible real estate assets in the next year, you should consider accelerating your buying plans if it makes sound business sense. You may be able to lock in the accelerated deductions by buying qualifying assets this year and placing them in service by year-end.

Check with your tax adviser to be sure your planned purchase qualifies for an enhanced write-off.

©2013 CPAmerica International

 

There are so many good things going on in Reno right now, and you don’t have to look far to find them!

When you ask the question, What makes a neighborhood great?, the answers include “It’s always a bunch of individuals coming in who think the potential for their community is bigger.” And “A great neighborhood usually evolves organically with its residents.”

MIDTOWN is a prime example of this. Check out the latest edition of Reno Magazine’s profiles of 17 Midtown pioneers who invested in Midtown, whether 17 years ago or six months ago and are fueling its renaissance. This group believes and is totally invested in “Buying Local” and caring about local business.

Sam Sprague, Micano Home and Garden: “When people starting thinking about buying locally, it will help Reno out so much – that’s when the sidewalks will change, the economy will change, the money will be going back into our community.”

Christian and Kasey Christensen, SÜP Restaurant: “The couple envisions Midtown as a spot reminiscent of San Diego’s Gaslamp District with its destination feel and dense population of businesses.”

Bernie and Tim Carter, Carter Bros Ace Hardware: “What Midtown has developed into is a philosophy: To develop that old-town center core in Reno,” Bernie describes. “That’s why we’re involved with mom-and-pop type stores.”

Next project up for the Carter Brothers…the historic, 81 year old, former downtown Reno post office designed by famed architect Frederic DeLongchamps. Can’t wait to see that one!

Arthur Farley, Brasserie St. James: “…all my favorite neighborhoods aren’t downtown, they’re right at the edge of downtown.”

Other Midtown owners and businesses include Hillary Schieve, Plato’s Closet & Clothes Mentor; T. Duncan Mitchell, Chapel Tavern; Eloy and Rachel Jara, Midtown Wine Bar; Eric and Monique Baron, The Melting Pot; Esther Dunaway, PolyEsthers; Christopher Costa, Reno Public House; Peter Burge and Laura Conrow, Wedge-A Cheese Shop; Tammy Borde, Chocolate Walrus; and Amber Solorzano, The Creative Coalition of Midtown.

What makes a great neighborhood? Just ask the Midtown folks.

And while you are reading through Reno Magazine catch the interview with Monica Harte, General Director of the Nevada Opera Association. Monica is bringing a fresh new perspective to Nevada Opera with a goal of introducing opera to new audiences in our community while maintaining exceptional productions for seasoned opera fans. I’m now one of those new to the opera fans!

Finally, if you haven’t heard the new bustle about town, check out the Biggest Little City Campaign. This is another grassroots project that’s all about showing the good things in our community. Go to their website and read stories of why people live in Reno. Share your story. What’s your Big…and Little?

So what’s happening in Reno? Plenty to be proud of. Pioneers are paving the way. Jump on board.

 

 

 

It’s my turn again. The dreaded blog is due. What to write always seems to drive the “dreaded” part of a “blog is due.” So, I fired up Google News and started reading away. There was definitely much to write about, but I wanted something local. Clicking on the News Near You section didn’t highlight any particularly interesting articles, but it did remind me to take a peek at the Reno Gazette-Journal’s website (yes, sometimes there is more than just pictures of events). Since I don’t actually have an RGJ subscription, I was limited by the number of articles I could read. So, I proceeded carefully and looked for an article about something local to click on. I was intrigued when I stumbled across the title “Reno Rebirth: Could downtown Reno be a home for students?” I clicked away and was happy to discover a blog filled with all things Reno. (Oh, and the blog isn’t limited by having a subscription or not.)

Reno Rebirth is a blog “devoted to Reno’s economic recovery.” Reading that tagline would make one primarily think about business, but economic recovery relates to all aspects of life and Reno Rebirth makes that clear. Blogs are posted a few times a week from a variety of writers with topics ranging from Reno being a city where people are active and exercise to the number of arrests made at the 2012 Santa Crawl. The blog does allow for comments via Facebook login, so people are adding their opinions to the blog as well. There is also a Twitter feed on the main page where you can catch some additional local information. Here are a couple of blog posts I found interesting:

•  Abbi Whitaker: Think Reno wants your ideas; will it produce results?: The City of Reno is looking to local residents to start conversations of how Reno can be improved. The site, thinkreno.org, is a forum where residents can propose, support, and share ideas. It is great to see the potential for these kind of discussions available in Reno, NV, and blog writer Abbi Whitaker takes a critical look at this latest effort by the City of Reno.

• Downtown Reno: A Home for Students?: Student housing around UNR has often been hit or miss, so why not expand the availability of housing options? This blog post by Molly J. Moser explores the possibilities of expanding student housing in the Reno downtown area. With food, nightlife and easy access to campus, downtown living looks like it could be a nice addition to student housing options.

So, if you have some time, take a peek at the Reno Rebirth blog and don’t forget to keep an eye out for Barnard Vogler’s weekly blog, too.

 

 

 

 

 

 

Recently, in Windsor v. U.S., the Supreme Court made history by striking down a key provision in the Defense of Marriage Act (DOMA). Although DOMA wasn’t typically viewed as a tax law, it carried significant tax consequences for married same-sex couples who have traditionally been unable to do things like file a joint return or take advantage of a number of favorable estate-planning provisions. The Supreme Court’s decision means that the federal government, including the IRS, must now treat same-sex couples who are legally married in states that permit same-sex marriage the same as their heterosexual counterparts. However, the Court’s decision also raises a number of unanswered questions, including whether and to what extent it will apply retroactively, and how conflicts between state laws will be resolved.

in 1996, Congress enacted, and President Clinton signed into law the Defense of Marriage Act. Section 3 of DOMA defines marriage for purposes of administering federal law as the “legal union between one man and one woman as husband and wife.” It further defines “spouse” as “a person of the opposite sex who is a husband or wife.”

The Windsor Case based on the taxation of an estate of a same-sex couple from New York challenged Section 3 and prevailed in the district court and again in the Second Court of Appeals. In a majority opinion delivered by Supreme Court Justice Kennedy, the Supreme Court held that DOMA Section 3 was unconstitutional deprivation of equal protection. It should be noted that Section 2 of DOMA, allowing states to refuse to recognize same-sex marriages performed under the laws of other states, wasn’t at issue in this case.

Although there was difficulty and confusion in applying tax law for same-sex couples prior to this decision, it has not eased the complexity encountered in reporting and complying with federal and state tax laws with regard to same-sex couples. While the decision makes clear that the federal government must recognize a lawful same-sex marriage, a number of issues remain unanswered including the following:

• It is unclear whether the IRS must apply the decision retroactively in which the limitations period is open, retroactively only in cases where protective refund claims were previously made, or only going forward.
• The Court left open the question of which state law is relevant for determining whether a same-sex couple is married. It is unclear whether the federal government will recognize a same-sex couple as married where they were married in a state allowing same-sex marriages, but are domiciled in a state that does not recognize such marriages. A stronger case for federal recognition may arise where the couple was married and resided in a state recognizing same-sex marriages, and later moved to a state that does not recognize same-sex marriages. Presumably, the IRS will address these issues in guidance.
• It is unclear what effect, if any, the Court’s opinion will have in states that have marriage-equivalent domestic partnerships or civil unions, which may not fall within the court’s “lawful marriages” terminology. Following the Supreme Court’s Windsor decision, the IRS may conclude that same-sex civil union partners and same-sex domestic partners in marriage equivalent states (Colorado, Hawaii, Illinois, Nevada, New Jersey and Oregon) could file joint federal tax returns.

The following are among the tax breaks newly available to legally married same-sex couples:

• The right to file a joint return, which can produce a lower combined tax than the total tax paid by the same-sex spouses filing as single persons (but this can also produce a higher tax, especially if both spouses are relatively high earners);
• The opportunity to get tax-free employer health coverage for the same-sex spouse;
• The opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for nonspousal beneficiaries; and
• As was the subject in the Windsor Case, very attractive estate tax provisions that are available to married couples have now been extended to married same-sex couples.

As with almost all new complex tax law, these new provisions bring about a great deal of confusion and uncertainty as to application. I am sure that as these new provisions come into practice, many cloudy issues will be resolved. I am also sure that just as many new issues will arise. Stay tuned…I will keep you posted.

 

At the request of Senators Carl Levin (D-Michigan) and Tom Coburn (R-Oklahoma), the Government Accounting Office (GAO) recently conducted a study of the actual tax rates paid by companies that had $10 million or more in assets, a recent article from The Hill has reported.

The subsequent report revealed that in 2010 these large, profitable corporations paid an effective federal tax rate of 12.6% in spite of the fact that the statutory rate was 35%. Even when adding in local, state and foreign taxes, the rate paid climbs to only 17%.

How can that be, you ask. The answers lie buried in the Internal Revenue Code, which happens to be about 10 times the size of the Bible. Therein, savvy tax professionals find plenty of exemptions, deferrals, tax credits and other incentives which enable large corporations to dramatically reduce the actual taxes they must pay to Uncle Sam. Of course, the tax burden thus avoided gets shifted onto hardworking families and small businesses, many of whom at that point are paying a higher effective rate than the big boys.

According to Coburn, “giveaways and loopholes” bolster the case for comprehensive tax reform. I, for one, am skeptical whether any meaningful reform will ever see the light of day, but one never knows.

 

 

 

 

 

 

 

http://thehill.com/blogs/on-the-money/domestic-taxes/308781-gao

 

 

I ran across an article – Why Smart Bosses Treat Their Employees Like Dogs – comparing dog obedience training to the way that business owners should treat their employees and I found it very intriguing. I spend considerable time training my German Shepherds and they are too big not to have manners! I hadn’t thought about it before but there are many valuable lessons that can be learned from dog training. Here are a few of them:

• Be consistent – teach and ask things to be done the same way every time, inconsistency is confusing
• Always reward good behavior – by figuring out what motivates each individual
• Love matters – gifts and rewards can be intangible, in some cases they are more effective
• Practice makes perfect – learning new behaviors and/or skills may take several practice runs
• We learn by doing – people just like dogs often times learn best by doing, not just being told or shown how
• Keep a positive attitude – bad attitudes and moods are distracting as well as uninspiring to dogs and people
• Sometimes you have to get tough – failing to confront the situation does not do any favors, it may even end up costing more in the long run or create a bigger problem to deal with
• Correct mistakes immediately – rewarding for the wrong behavior only encourages and reinforces it turning it into a habit
• Get professional help – when all else fails, call in a professional to help