Tax Tips
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- Dependents
- Filing Status
- Rental Income & Expenses
- Taxable VS Nontaxable Income
- How to Avoid Common Problems
- Mileage Deductions
- What Should You Bring To Your Tax Interview?
- Deductions
- Virtual Currency Transactions
- Cancellation Of Student Debt:
- Health Insurance Premium Tax Credit
- Schedule B: Interest, Dividends, Foreign Accounts And Trusts Interest (Schedule B, Part I)
- Dividends (Schedule B, Part Ii)
- Roth Recharacterization Rules
- Individual Retirement Accounts (Iras)
- Schedule D And Form 8949: Overview Of Capital Gains And Losses Capital Assets
Dependents
A dependent must be either a “qualifying child” or a “qualifying relative.” You are allowed one exemption for each person you can claim as a dependent.
Filing Status
Single, married filing jointly, married filing separately, head of household…all these and more explained.
Rental Income & Expenses
Owning rental property is often a good way to increase your net worth.
Taxable VS Nontaxable Income
Knowing how to report it properly helps reduce the tax liability.
How to Avoid Common Problems
Mathematical errors, forgetting to sign your return and more.
Mileage Deductions
Keep track of your deductible mileage on your vehicle and you could see big savings on your tax return. Remember that you MUST keep accurate records in order for the deductions to be allowed.
What Should You Bring To Your Tax Interview?
Personal information for each family member, income and tax information, deductions and credits.
Deductions
Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions.
Avoid paying more tax than necessary. Your Liberty Tax professional will probe to make sure that you claim all the tax deductions that you are eligible to claim.
Virtual Currency Transactions
Cryptocurrency (e.g., Bitcoin) is a common form of virtual currency. A transaction involving virtual currency must be included on the tax return and includes:
- The receipt or transfer of virtual currency for free (without providing any consideration)
- An exchange of virtual currency for goods or services
- A sale of virtual currency
- An exchange of virtual currency for other property, including for another virtual currency
The IRS provides guidance on virtual currency transactions in Notice 2014-21. For federal income tax purposes, virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.
A taxpayer reports a transaction involving virtual currency that was held as a capital asset (such as an investment) using Form 8949 (and Schedule D) to figure capital gain or loss.
A taxpayer who received virtual currency as compensation for services or disposed of any virtual currency held for sale to customers in a trade or business reports the income the same as other income of the same type (for example, W-2 wages on Form 1040, or inventory or services from Schedule C on Schedule 1).
These transactions are subject to ordinary rates. TIP: Mining cryptocurrency is ordinary income, and subject to SE tax if self-employed.
Cancellation Of Student Debt:
WHEN TO EXCLUDE FROM INCOME The TCJA temporarily modifies the exclusion of student loan discharges from gross income, by including within the exclusion certain discharges on account of death or disability.
Loans eligible for the exclusion under the provision are loans made by:
The United States (or an instrumentality or agency thereof),
A state (or any political subdivision thereof), Certain tax-exempt public benefit corporations that control a State, county, or municipal hospital and whose employees have been deemed to be public employees under state law, An educational organization that originally received the funds from which the loan was made from the United States, a State, or a tax-exempt public benefit corporation, or Private education loans (for this purpose, private education loan is defined in section 140(7) of the Consumer Protection Act).
Under the provision, the discharge of a loan as described above is excluded from gross income if the discharge was pursuant to the death or total and permanent disability of the student.
The provision is effective for discharges of indebtedness after December 31, 2017 and does not apply to discharges of indebtedness after December 31, 2025.
Health Insurance Premium Tax Credit
Individuals and families can take a premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace).
The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit.
The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums.
Premium tax credits are available only to individuals and families with household incomes of at least 100—but no more than 400—percent of the federal poverty level.
2023 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA PERSONS IN FAMILY/HOUSEHOLD POVERTY GUIDELINE
For families/households with more than 8 persons, add $4,540 for each additional person.
1 $12,880
2 $17,420
3 $21,960
4 $26,500
5 $31,040
6 $35,580
General Review Household income includes the income of the taxpayer and any dependents who reside with the taxpayer.
Furthermore, individuals who meet this income level are only eligible for the premium tax credit if they purchase coverage through the Health Insurance Marketplace, sometimes referred to as the Health Insurance Exchange, or simply the “Exchange”. The credit is not available for the purchase of insurance outside of the Exchange.
Schedule B: Interest, Dividends, Foreign Accounts And Trusts Interest (Schedule B, Part I)
A taxpayer must generally report taxable interest from Form 1099-INT (and from Schedule K-1 for partnerships, S corporations, estates, and trusts).
Taxable interest includes income from various sources such as the following:
- Bank, savings and loan, or credit union accounts
- Certificates of deposit
- S. Treasury bills, notes, and bonds (exempt from all state and local income taxes)
- Loans made to others
- Gifts more than $10 for opening financial accounts ($20 if the account is more than $5,000
- Interest received on tax refunds
- S. Savings Bond interest
- Series H and HH – report semi-annual interest payments in the year received.
Series I, E, and EE – interest is credited at maturity. Taxpayers who use the cash method of accounting may elect to defer reporting interest until maturity; those using the accrual method must report interest on U.S. savings bonds each year as it accrues. Interest may be tax-free if used for qualified education expenses.
TIP: Interest from Series I or EE bonds may be tax-free if used to pay for qualified education expenses the same year. This exclusion is known as the Education Savings Bond Program and is not available when married filing separately. A taxpayer uses Form 8815 to figure the exclusion and attaches the form to Form 1040.
Dividends (Schedule B, Part II)
ORDINARY DIVIDENDS Ordinary (taxable) dividends are the most common type of distribution from a corporation. The corporation pays ordinary dividends out of its earnings and profits, and the shareholders must report such payments as ordinary income.
QUALIFIED DIVIDENDS Qualified dividends are subject to the same 0%, 15%, or 20% maximum tax rates that apply to net capital gain.
DIVIDENDS USED TO BUY MORE STOCK Some corporations have dividend reinvestment plans that allow for the purchase of more stock in the corporation instead of receiving the dividends in cash. Taxpayers who are members of this type of plan must report the dividends as income. If the plan allows the purchase of more stock at a price less than its fair market value, the taxpayer must report the fair market value of the additional stock as dividend income on the dividend payment date.
Roth Recharacterization Rules
Contributions to traditional IRAs and to Roth IRAs must be segregated into separate IRAs, meaning arrangements with separate trusts, accounts, or contracts, and separate IRA documents. Except in the case of conversion or recharacterization, amounts cannot be transferred or rolled over between the two types of IRAs.
Taxpayers generally may convert an amount in a traditional IRA to a Roth IRA. The amount converted is includible in the taxpayer’s income as if a withdrawal had been made. Subject to various exceptions, distributions from an IRA before age 59.5 that are includible in income are subject to a 10% early distribution tax under section 72(t). An exception applies to amounts includible in income as a result of the conversion from a traditional IRA into a Roth IRA. However, the early distribution tax applies if the taxpayer withdraws the amount within five years of the conversion. The conversion is accomplished by a trustee-to-trustee transfer of the amount from the traditional IRA to the Roth IRA, or by a distribution from the traditional IRA and contribution to the Roth IRA within 60 days.
Rollovers to IRAs of distributions from tax-favored employer-sponsored retirement plans (that is, qualified retirement plans, tax-deferred annuity plans, and governmental eligible deferred compensation plans) are also permitted.
For tax- General Review free rollovers, distributions from pretax accounts under an employer-sponsored plan generally must are contributed to a traditional IRA, and distributions from a designated Roth account under an employer-sponsored plan must be contributed only to a Roth IRA. However, a distribution from an employer-sponsored plan that is not from a designated Roth account is also permitted to be rolled over into a Roth IRA, subject to the rules that apply to conversions from a traditional IRA into a Roth IRA. Thus, a rollover from a tax-favored employer-sponsored plan to a Roth IRA is includible in gross income (except to the extent it represents a return of after-tax contributions).
Individual Retirement Accounts (Iras)
TYPES OF IRAS An Individual Retirement Account (IRA) is a trust or custodial account set up in the United States for the exclusive benefit of a taxpayer or their beneficiaries. The two commonly discussed individual retirement accounts are traditional IRAs and Roth IRAs.
In a traditional IRA, contributions may be tax-deductible, and amounts in the IRA, including earnings and gains, are not taxed until distributed. Traditional IRAs require distributions to begin at a certain age.
In a Roth IRA, contributions are not tax-deductible, and qualified distributions, including earnings and gains, are typically not taxed, even when distributed. Roth IRAs are not subject to required distributions at any age.
Individual Retirement Accounts (IRAs)
CONTRIBUTIONS A taxpayer can make contributions to traditional IRAs and Roth IRAs at any time during the year or by the due date for filing the return for that year, not including extensions. For most taxpayers, this is April 15. There is no age limit on making regular contributions to traditional IRAs or Roth IRAs. (Previously, traditional IRAs had a contribution age limit.) Catch-up contributions for traditional and Roth IRAs are for taxpayers age 50 or older.
Taxpayers can set up and contribute to traditional IRAs or Roth IRAs only if the taxpayer or spouse received taxable compensation during the year.
For 2024, the total contributions a taxpayer can make to all their traditional IRAs and Roth IRAs cannot exceed the smaller of the following:
$7,000 ($8,000 if age 50 or older, due to a $1,000 catch-up contribution)
100% of taxable compensation for the year
The total contributions a taxpayer can make each year to all their traditional IRAs and Roth IRAs cannot exceed the general IRA contribution limit.
Roth IRA contributions might be further limited if the taxpayer’s income exceeds a certain level. Traditional IRA contributions are not limited based on the taxpayer’s income level.
If a taxpayer files a joint return, the taxpayer may be able to contribute to a traditional IRA or Roth IRA even if the taxpayer did not have taxable compensation as long as the taxpayer’s spouse did. Each spouse can make a contribution up to the current limit; however, the total of the combined contributions (taxpayer’s and spouse’s) can not be more than the taxable compensation reported on their joint return.
Individuals can have a traditional IRA even if covered by another retirement plan. Contributions may not be deductible if the taxpayer (or spouse) is covered by an employer retirement plan. If both a taxpayer and a spouse have compensation each can set up an IRA; however, they cannot participate in the same IRA. If filing a joint return, only one spouse needs to have compensation.
A taxpayer can contribute to a traditional IRA or Roth IRA even if they participate in another retirement plan through their employer or business. The IRA contribution limit is not limited if an employer retirement plan covers either the taxpayer or spouse at any time during the year. Employer retirement plans do not affect the amount a taxpayer can contribute to a traditional IRA or Roth IRA.
Schedule D And Form 8949: Overview Of Capital Gains And Losses Capital Assets
Generally, a sale or trade of a capital asset results in a capital gain or loss. A sale or trade of a non-capital asset results in an ordinary gain or loss. In some situations, part of the gain or loss may be a capital gain or loss and part may be an ordinary gain or loss. Rather than defining capital assets, the Internal Revenue Code provides a list of properties that are not capital assets. Any property a taxpayer holds is a capital asset, except the following non-capital assets:
- Inventory or property held mainly for sale to customers or property that will physically become a part of the merchandise that is for sale to customers
- Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale of property held mainly for sale to customers
- Depreciable property used in the taxpayer’s trade or business
- Real property (real estate) used in the taxpayer’s trade or business
- Copyright, literary, musical, artistic composition, letter or memorandum, or similar property that meets one of the following criteria:
- Created by a taxpayer’s personal efforts
- Prepared or produced for a taxpayer (as in a letter, memorandum, or similar property)
- Acquired under circumstances (for example, by gift), entitling the taxpayer to the basis of the person who created the property or for whom it was prepared or produced
U.S. government publications that a taxpayer received from the government free or for less than the normal sales price, or that was acquired under circumstances entitling the taxpayer to the basis of someone who received the publications free or for less than the normal sales price
Certain commodities derivative financial instruments held by commodities derivatives dealers
Hedging transactions, but only if the transaction is clearly identified as a hedging transaction before the close of the day on which it was acquired, originated, or entered into
- Supplies of a type regularly used in the ordinary course of a taxpayer’s trade or business
For the most part, everything owned and used for personal purposes, pleasure, or investment is a capital asset. Some examples include the following:
- Stocks or bonds held in a personal account
- House owned and used by the taxpayer and the taxpayer’s family
- Household furnishings
- A car used for pleasure or commuting
- Coin or stamp collections
- Gems and jewelry
GENERAL REPORTING REQUIREMENTS
Form 8949 is for detailed reporting of short and long-term capital gain or loss transactions. A taxpayer uses Form 8949 to list all capital gain and loss transactions and carries the subtotals from this form to Schedule D (Form 1040), where Schedule D and Form 8949: Overview of capital gains and losses 49 1. 2. 3. 4. 5. 6. gain or loss will be calculated in aggregate. Short-term gains are listed together in Part I, while long-term gains are listed in Part II. Form 8949 is also used to report the sale or exchange of capital assets not reported on other forms or schedules (e.g., Form 4797); gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit; and nonbusiness bad debts.
Separate Forms 8949 are used to report three different classes of transactions: (1) transactions reported on Form 1099-B showing basis was reported to the IRS; (2) transactions reported on Form 1099-B showing basis wasn’t reported to the IRS; and (3) transactions not reported to you on Form 1099-B. Each individual security sale during the year must be separately reported on Form 8949. When there are statements from more than one broker or more than one account with the same broker, the taxpayer should report the totals from each broker or account on a separate line of Form 8949.
Schedule D is still used to report:
- The overall gain or loss from transactions reported on Form 8949;
- Gains from Form 2439 or 6252 or Part I of Form 4797;
- Gains or losses from Form 4684, 6781, or 8824;
- Gains or losses from a partnership, S corporation, estate, or trust;
- Capital gain distributions not reported directly on Form 1040; and
- Capital loss carryovers from prior years.
WASH SALES Wash sales are defined as a transfer of stock or securities at a loss when, within the 30 days before or after the sale, the taxpayer acquires substantially identical stock or securities or a contract or option to buy substantially identical stock or securities. Losses from sales or trades of stock in a wash sale may not be deducted. Instead, disallowed wash sale losses are added to the cost basis of the acquired stock or securities. The holding period of the new stock begins on the same day as the holding period of the stock sold.