Finance Tax Time

Based on comments and questions I have received from clients and readers it appears that there is still some confusion about the rules for taxing gain on the sale of a personal residence. Many people think the “old rules” still apply.

THE OLD RULES:

In order to postpone paying income tax in the current year on gain from the sale of your personal residence you had to “buy up” - purchase, or build, a new home that cost more than the sale price of your old home - within 2 years of the date you closed on the sale of your old home. The tax was deferred for as long as you continued to “buy up”, or until you sold your last home.

Homeowners age 55 and older could make a once-in-a-lifetime election to exclude up to $125,000.00 in gain.

These rules no longer exist!

THE NEW RULES:

Thanks to the Tax Reform Act of 1997, if you sold your personal residence after May 6, 1997 you can totally exclude from income tax up to $250,000.00 of gain if single, or $500,000.00 if married, regardless of your age at the time of the sale, if during the 5 years prior to the sale you owned and lived in the home for a total of 24 months (they do not have to be consecutive). This exclusion is not a one-time election - it is available once every 2 years.

If you are married and sell your home, which you and your spouse owned and lived in for 3 years, and realize a gain of $475,000.00 you do not have to pay any income tax on this gain. If the net gain is $525,000.00 you will only pay tax on $25,000.00 at the appropriate capital gains rate.

If you do not own and live in the home for a full 24 months you may still be able to exclude some, or all, of the gain if you had to sell the residence because of certain IRS-approved special circumstances.

You should still keep the original closing statement for the purchase of your home for as long as you own it, and maintain documentation on all capital improvements made to the home over the years just in case.

Robert D Flach is a tax professional with 34 tax seasons of experience preparing 1040s for individuals in all walks of life. He writes THE WANDERING TAX PRO weblog (http://rdftaxpro.tripod.com/weblog), the free monthly online newsletter STUFF AND SUCH (http://rdftaxpro.tripod.com/stuffandsuch) and the website http://www.robertdflach.net, with a wealth of tax planning and preparation advice and information. He also writes and publishes THE FLACH REPORT, a quarterly print tax newsletter. The above article is taken from a posting to THE WANDERING TAX PRO.

Share This

Filed under: Finance by admin
No Comments »

Are you paying too much in income taxes? Are you getting all the credits and deductions you are entitled to? Here are 7 tips to help you minimize taxes and keep more in your pocket:

1. Participate in company retirement plans. Every dollar you contribute will reduce your taxable income and thus your income taxes. Similarly, enroll in your company’s flexible spending account. You can set aside money for medical expenses and day care expenses. This money is “use it or lose it” so make sure you estimate well!

2. Make sure you pay in enough taxes to avoid penalties. Uncle Sam charges interest and penalties if you don’t pay in at least 90% of your current year taxes or 100% of last year’s tax liability.

3. Buy a house. The mortgage interest and real estate taxes are deductible, and may allow you to itemize other deductions such as property taxes and charitable donations.

4. Keep your house for at least two years. One of the best tax breaks available today is the home sale exclusion, which allows you to exclude up to $250,000 ($500,000 for joint filers) of profit on the sale of your home from your income. However, you must have owned and lived in your home for at least two years to qualify for the exclusion.

5. Time your investment sales. If your income is higher than expected, sell some of your losers to reduce taxable income. If you will be selling a mutual fund, sell before the year-end distributions to avoid taxes on the upcoming dividend or capital gain. Also, you should allocate tax efficient investments to your taxable accounts and non-efficient investments to your retirement accounts, to reduce the tax you pay on interest, dividends and capital gains.

6. If you’re retired, plan your retirement plan distributions carefully. If a retirement plan distribution will push you into a higher tax bracket, consider taking money out of taxable investments to keep you in the lower tax bracket. Also, pay attention to the 59-

Share This

Filed under: Finance by admin
No Comments »

Do any of these situations describe you or someone you know?

Jim Raster had a great year last year with an increase in gross profits of $200,000. He has a small business and operates as a sole proprietorship. His federal tax on the increase averaged 35 percent, plus another 10 percent in state income tax. He lost $90,000–almost half–to taxes. With a Tax Savings Nevada Corporation and an effective tax-planning strategy, he could have eliminated most–if not all–of that tax.

Marshall Fox owns a sign painting business, and he and his family like to travel. Last year Marshall scheduled appointments with several sign painting companies in Hawaii to further his professional knowledge by studying the kind of work being done in another market. He took with him several members of his corporation: his wife (vice president), his son (employee), and his mother (director). The corporation paid all travel and living expenses. With a Tax Savings Nevada Corporation, his company was responsible for the trip to Hawaii.

When Robert Herzog’s mother was diagnosed with cancer, he created a Tax Savings Nevada Corporation, which included the benefit that it would pay 100 percent of all medical expenses for everyone in the company. He and his mother were its only employees, and the corporation paid his mother’s medical bills. Since the payments were made with pre-tax dollars, they (1) went 50 percent further and (2) were a business expense that lowered gross profits subject to federal and state tax.

Do you know anyone who might like to know more about a Tax Savings Nevada Corporation?

Who can benefit from the Tax Savings Nevada Corporation?
The obvious answer is anyone whose combined business and personal taxes are cutting deeply into income. If you look at the money that is going to the government and think, “I could do so much more with that than they will,” you need a Tax Savings Nevada Corporation.
Specifically, those who should take advantage of owning a Tax Savings Nevada Corporation include:
Business owners, especially those with a sole proprietorship, partnership, or LLC
Professionals in a private or group practice
Executives paying a fourth to as much as half of their income in taxes
Investors with significant assets and/or income from investment
Individuals and families with accumulated wealth through investment or inheritance
Business people owning a corporation in a state other than Nevada
Workers in a high risk occupation operating as independent contractors
Anyone with substantial taxable income from any source

If you would like more information about a Tax Savings Nevada Corporation, please call our office for a free report at 210-690-3700.

Jim Montgomery was graduated from Duke University and received his doctorate in Jurisprudence from Southern Methodist University. A successful trial attorney since 1978 with numerous multi-million dollar recoveries, he dissected many business transactions in the courtroom that were improperly structured. That experience caused clients to ask him to structure transactions before there was conflict, saving them time and money. This experience has lead to his present endeavors in buying and selling businesses, forming and restructuring businesses, and planning corporate strategies to maximize income for the owners.

He has advised and participated with real estate investors on income producing property and raw land investments. He is a business owner in the smoked meat (http://www.texashillcountrybarbecue.com) and the food distribution business.

Share This

Filed under: Finance by admin
No Comments »