Tax Tips and Frequently Asked Questions

Tax Tips2017-02-22T16:25:18+00:00

Tax Tips

It’s never too early to get documents together for tax preparation. Maybe you aren’t very organized about filing your receipts and bills. Now would be a good time to start gathering those documents that can help save you money with the IRS. April is months away, but we all know how time flies. So use these cold and dreary days of January and February to get your stuff together.

Avoid Scams… IRS contact with taxpayers on a tax issue is likely to occur via mail. If contacted by phone or other means, contact the IRS at 1-800-829-1040 or our office at 763-493-5799.  To learn more click here.

Have The Right Documents… Make sure you have the right documents before you file. W-2 forms are required to be sent to the taxpayer by the end of January, so don’t prepare a return until the end of January if you haven’t received all your W-2 forms.

Do You Need A Tax Preparer? Decide if you need a tax preparer. You may want professional assistance if your tax return is more complicated than the standard EZ form. If you started a business in 2013, bought or sold a home, sold stock or other investments, or have a rental property, you should work with a professional.

Electronic Filing… E-file and use direct deposit. Both will help you receive your return faster and leave less room for error.

File Even If You May Owe… While both failure-to-file and fail-to-pay penalties exist, the first is generally worse than the second.

Itemize… Itemization can mean a bigger return. This requires some work on your part, but it may be worth it.

Childcare Itemization… You can recoup childcare cost. If you need to send your child to daycare or summer camp so you can work or look for a job, the government will credit you up to 35% of your costs.

Things to Know About the Child Tax Credit

The Child Tax Credit is a tax credit that may save taxpayers up to $1,000 for each eligible qualifying child. Taxpayers should make sure they qualify before they claim it. Here are five facts from the IRS on the Child Tax Credit:

Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:

  • Age. The child must have been under age 17 on Dec. 31, 2016.
  • Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
  • Support. The child must have not provided more than half of their own support for the year.
  • Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
  • Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
  • Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  • Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.

Capital Gains and Losses – 10 Helpful Facts to Know

When a person sells a capital asset, the sale normally results in a capital gain or loss. A capital asset includes inherited property or property someone owns for personal use or as an investment.

Here are 10 facts that taxpayers should know about capital gains and losses:

  1. Capital Assets. Capital assets include property such as a home or a car. It also includes investment property, like stocks and bonds.
  2. Gains and Losses. A capital gain or loss is the difference between the basis and the amount the seller gets when they sell an asset. The basis is usually what the seller paid for the asset. For details about inherited property, see IRS Publication 544, IRS Publication 550 and IRS Publication 551.
  3. Net Investment Income Tax. Taxpayers must include all capital gains in their income. Capital gains may be subject to the Net Investment Income Tax if the taxpayer’s income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
  4. Deductible Losses. Taxpayers can deduct capital losses on the sale of investment property but can’t deduct losses on the sale of property they hold for their personal use.
  5. Limit on Losses. If a taxpayer’s capital losses are more than their capital gains, they can deduct the difference as a loss on their tax return. This loss is limited to $3,000 per year, or $1,500 if married and filing a separate return.
  6. Carryover Losses. If a taxpayer’s total net capital loss is more than the limit they can deduct, they can carry it over to next year’s tax return.
  7. Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.
  8. Net Capital Gain.  If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.
  9. Tax Rate. The tax rate on a net capital gain usually depends on the taxpayer’s income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
  10. Forms to File. Taxpayers often will need to file Form 8949, Sales and Other Dispositions of Capital Assets. Taxpayers also need to file Schedule D, Capital Gains and Losses, with their tax return.

For more on this topic, see Schedule D instructions. Taxpayers can visit IRS.gov to get tax forms and documents anytime.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Document Charitable Donations… Get a receipt for charitable donations. If you’re giving $250 or more to a charity you love, make sure you get a written statement indicating the amount you contributed. The receipt must also describe any goods or services the charity gave you in exchange for the gift, along with an estimate of how much those goods were worth. You may also claim donation mileage at 14 cents per mile.

Examine Your Investments… Tax time is an excellent time to take a fresh look at your investments, whether these are trust funds, IRAs, 529 funds, or just regular mutual funds and stocks that are taxed each year on their capital gains. Maybe its time to rebalance your portfolio or realize some appreciation or losses to maximize your tax savings. Many of us — if we have any investments past a company-controlled 401K — never take the time to evaluate our funds’ performances. Take the time now. You won’t regret it if you pitch a bad investment in favor of something more in line with your anticipated financial needs.

Same-Sex Marriage
The IRS Announces That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes; Ruling Provides Certainty, Benefits and Protections Under Federal Tax Law for Same-Sex Married couples. The U.S. Department of the Treasury and the IRS ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

This list is far from exhaustive. Contact us today to set up a time to discuss your specific situation and needs.
763-493-5799
rmurphey@murpheycpa.com