Accounting & Tax News

 

Publication 17
Tax-filing information and tips on what income to report and how to report it, figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions and using IRAs to save for retirement


Home Office Deduction

The rules allowing a home office deduction if you’re self-employed generally require that the space be used regularly and exclusively —

  •     as a principal place of business,
  •     as a place to meet or deal with clients and customers in the normal course of business, or
  •     “in connection with” the business if the space is a separate structure from the residence (e.g., a barn or detached garage).

In our always-connected, always-on business environment, it isn’t unusual for employees to work from home on a regular basis too.

When you’re an employee (rather than self-employed), you have to meet one of the above requirements and the so-called employer convenience test. This test is hard to satisfy, unless your employer doesn’t provide you with an appropriate space in which to get your work done.

If you are regularly working from home because your employer doesn’t provide you with appropriate space from which to perform your job, and you are not currently claiming a home office deduction, we should talk. It could be that you’re entitled to some substantial additional itemized deductions!

Posted Sep. 4, 2014/wittenbergcpa.com

Leverage Standard Deduction by Bunching Deductible Expenditures

Are your 2014 itemized deductions likely to be just under or just over the standard deduction amount? If so, consider the strategy of bunching together expenditures for itemized deduction items every other year, while claiming the standard deduction in the intervening years. The 2014 standard deduction is $12,400 for married joint filers, $6,200 for single filers, and $9,100 for heads of household filers.

For example, say you’re a joint filer whose only itemized deductions are about $4,000 of annual property taxes and about $8,000 of home mortgage interest. If you prepay your 2014 property taxes by December 31 of this year, you could claim $16,000 of itemized deductions on your 2014 return ($4,000 of 2014 property taxes, plus another $4,000 for the 2015 property tax bill, plus the $8,000 of mortgage interest). Next year, you would only have the $8,000 of interest, but you could claim the standard deduction.

Following this strategy will cut your taxable income by a meaningful amount over the two-year period (this year and next). You can repeat the drill all over again in future years. Examples of other deductible items that can be bunched together every other year to lower your taxes include charitable donations, and medical expenses.

Posted Sep. 3, 2014/wittenbergcpa.com

Take Advantage Of 0% Rate On Investment Income

 For 2014 the federal income tax rate on long-term capital gains and qualified dividends is 0%, when those gains and dividends fall within the 10% or 15% federal income tax rate brackets. This will be the case to the extent your taxable income (including long-term capital gains and qualified dividends) does not exceed $73,800 for married joint-filing couples ($36,900 for singles).

While your income may be too high, you may have children, grandchildren, or other loved ones who will be in the bottom two brackets. If so, consider giving them some appreciated stock or mutual fund shares that they can then sell and pay 0% tax on the resulting long-term gains. Gains will be long-term as long as your ownership period plus the gift recipient’s ownership period (before he or she sells) equals at least a year and a day.

Warning:

If you give securities to someone who is under age 24, the Kiddie Tax rules could potentially cause some of the resulting capital gains and dividends to be taxed at the parent’s higher rates instead of at the gift recipient’s lower rates. That would defeat the purpose. Also, if you give away assets worth over $14,000 during 2014 to an individual, it will generally reduce your $5.34 million unified federal gift and estate tax exclusion. However, you and your spouse can together give away up to $28,000 during the 2014 calendar year, without reducing your respective exclusions.

Posted Sep. 1 2014/wittenbergcpa.com

 

Time Investment Gains And Losses

 

For many other individuals, the 2014 federal tax rates on long-term capital gains will be 15%. However, the maximum rate for higher-income individuals is 20%. This 20% rate affects taxpayers with taxable income above $406,750 for singles, $457,600 for married joint-filing couples, $432,200 for heads of households, and $228,800 for married individuals who file separate returns.

Higher-income individuals can also be hit by the new 3.8% NIIT on net investment income, which can result in a maximum 23.8% federal income tax rate on long-term capital gains.

As you evaluate investments held in your taxable brokerage firm accounts, consider the tax impact of selling appreciated securities (currently worth more than you paid for them). For most taxpayers, the federal income tax rate on long-term capital gains is still much lower than the rate on short-term gains. Therefore, it often makes sense to hold appreciated securities for at least a year and a day before selling in order to qualify for the lower long-term gain tax rate.

Biting the bullet and selling some loser securities (currently worth less than you paid for them) before year-end may be a good idea as well. The resulting capital losses will offset capital gains from other sales this year, including short-term gains from securities owned for one year or less. If capital losses for this year exceed capital gains, you will have a net capital loss for 2014. You can use that net capital loss to shelter up to $3,000 of this year’s high-taxed ordinary income from salaries, bonuses, self-employment, and so forth ($1,500 if you’re married and file separately). Any excess net capital loss is carried forward to next year.

Posted Aug 29 2014/wittenbergcpa.com