General Information

Facts about Capital Gains and Losses

Ten Facts about Capital Gains and Losses

When you sell a capital asset the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:

1. Capital Assets.  Capital assets include CG Calculatorproperty such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit IRS.gov.

4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Long and Short Term.  Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.

7. Tax Rate.  The capital gains tax rate Capital Gainsusually depends on your income. The maximum net capital gain tax rate 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 gains.

8. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. Carryover Losses.  If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.

10. Forms to File.  You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return.

Information from IRS Tax Tip 2015-21 was used in this blog post.

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Home Office Deduction Tips

The following post is six tips to know in claiming a home office deduction.

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction.

  1. Regular and Exclusive Use.  As a general rule, Home officeyou must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
  • Your principal place of business, or
  • A place where you meet clients or customers in the normal course of business, or
  • A separate structure not attached to your home. Examples could include a garage or a studio.
  1. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.
  2. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
  3. Deduction Limit.  If your gross income from 8829 Flow Chartthe business use of your home is less than your expenses, the deduction for some expenses may be limited.
  4. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
  5. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

 

Information from IRS tax tip 2015-42 was used in this post.

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Consumer Alert: Beware these Tax Scams

Stay Vigilant Against Bogus IRS Phone Calls and Emails

Tax scams take many different forms. Recently, the most common scams are phone calls and emails from thieves who pretend to be from the IRS. They use the IRS name, logo or a fake website to try to steal your money. They may try to steal your identity too. Here are several tips from the IRS to help you avoid being a victim of these tax scams:

The real IRS will not:Tax-Scam1

  • Initiate contact with you by phone, email, text or social media to ask for your personal or financial information.
  • Call you and demand immediate payment. The IRS will not call about taxes you owe without first mailing you a bill.
  • Require that you pay your taxes a certain way. For example, telling you to pay with a prepaid debit card.

Be wary if you get a phone call from someone who claims to be from the IRS and demands that you pay immediately. Here are some steps you can take to avoid and stop these scams.

If you don’t owe taxes or have no reason to think that you do:

  • Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
  • You should also report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your report.

If you think you may owe taxes:

  • Ask for a call back number and an employee badge number.
  • Call the IRS at 800-829-1040. IRS employees can help you.

In most cases, an IRS phishing scam is an unsolicited, bogus email that claims to come from the IRS. They often use fake refunds, phony tax bills, or threats of an audit. Some emails link to sham websites that look real.  The scammers’ goal is to lure victims to give up their personal and financial information. If they get what they’re after, they use it to steal a victim’s money and their identity.

If you get a ‘phishing’ email, the IRS offers this advice:

  • Don’t reply to the message.
  • Don’t give out your personal or financial information.
  • Forward the email to phishing@irs.gov. Then delete it.
  • Don’t open any attachments or click on any links. They may have malicious code that will infect your computer.

Information from IRS Tax Tip 2015-20 was used in this blog post.

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Obtaining and Claiming a Health Coverage Exemption

Obtaining and Claiming a Health Coverage Exemption

The Affordable Care Act requires you and each member of your family to have minimum essential coverage, qualify for an insurance coverage exemption, or make an individual shared responsibility payment when you file your federal income tax return.

If you meet certain criteria, you may be exempt from Health Coverage Exemptionthe requirement to have qualifying health coverage. If you are exempt, you will not have to make a shared responsibility payment when you file your 2014 federal income tax return this year. For any month that you do not qualify for a coverage exemption, you will need to have minimum essential coverage or make a shared responsibility payment.

How you get a coverage exemption depends upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace, while others may be claimed when you file your tax return.

You may be exempt if:

  • The minimum amount you must pay for the annual premiums is more than eight percent of your household income
  • You have a gap in coverage that is less than three consecutive months
  • You qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement

Coverage exemptions are claimed or reported on Form 8965, Health Coverage Exemptions.

8965If you are granted a coverage exemption from the Marketplace, they will send you a notice with your unique Exemption Certificate Number or ECN. You will enter your ECN in Part I, Marketplace-Granted Coverage Exemptions for Individuals, of Form 8965 in column C. If the Marketplace hasn’t processed your exemption application before you file your tax return, complete Part I of Form 8965 and enter “pending” in Column C for each person listed.  If you claim the exemption on your return, you do not need an ECN from the Marketplace. With the tax filing season underway, most exemptions for 2014 are only available by claiming them on your tax return.

If your income is below your filing threshold and you are not required to file a tax return, you are eligible for an exemption and you do not have to file a tax return to claim it. If you choose to file a tax return, you will use Part II, Coverage Exemptions for Your Household Claimed on Your Return, of Form 8965 to claim a health coverage exemption.

Other IRS-granted coverage exemptions may be claimed on your tax return using Part III, Coverage Exemptions for Individuals Claimed on Your Return, of Form 8965.

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How to Get a Copy of Your Prior Year Tax Information

How to Get a Copy of Your Prior Year Tax Information

There are many reasons you may need a copy of your tax return information from a prior year. You may need it when applying for a student loan, home mortgage or for a VISA. If you don’t have your copy, the IRS can help. It’s easy to get a free transcript from the IRS. Here are several ways for you to get what you need:

  • Tax Return Transcript.  A return transcript shows 1040most line items from your tax return just as you filed it. It also includes forms and schedules you filed. However, it does not reflect changes made to the return after you filed it. In most cases, your tax return transcript will have all the information a lender or other agency needs.
  • Tax Account Transcript.  This transcript shows any adjustments made by you or the IRS after you filed your return. It shows basic data, like marital status, type of return, adjusted gross income and taxable income.

How to Get a Transcript.  You can request transcripts online, by phone or by mail. Both types of transcripts are free of charge. They are available for the most current tax year after the IRS has processed the return. You can also get them for the past three tax years.

Order online.  Use the ‘Get Transcript’ tool available on IRS.gov. You can use this tool to confirm your identity and to immediately view and print copies of your transcript in a single session for free. The tool is available for five types of tax records: tax account transcript, tax return transcript, record of account, wage and income and verification of non-filing.

Order by phone.  Call 800-908-9946. A recorded message will guide you through the process.

Order by mail.  The easy way to order your transcript by mail is to use the “Get Transcript by Mail” online option on IRS.gov. On the other hand, you can complete and mail Form 4506T-EZ to get your tax return transcript. Use Form 4506-T to request your tax account transcript by mail.

  • How to Get a Tax Return Copy.  Actual copies of your tax returns are generally available for the current tax year and as far back as six years. The fee per copy is $50. Complete and mail Form 4506 to request a copy of your tax return. Mail your request to the IRS office listed on the form for your area.

Delivery times for online and phone orders typically take 5 to 10 days from the time the IRS receives the request. You should allow 30 days to receive a transcript ordered by mail and 75 days for copies of your tax return. You can print tax forms online at IRS.gov/forms. To get forms in the mail go to IRS.gov/orderforms to place an order.

Information from IRS Tax Tip 2015-17 was used in this blog post.

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New IRS Publication helps you understand the Health Care Law

There is a new publication that will help you learn about how the Affordable Care Act affects your taxes.  IRS Publication 5187, Health Care Law: What’s New for Individuals and Families is now available on IRS.gov/aca. While the health care law has several parts, this publication breaks down what’s new for the 2014 federal tax return you will be filing in 2015.

This new publication provides important information for taxpayers who:health-care-law

  • Had health insurance coverage for the entire year
  • Did not have health coverage for each month of the year
  • Purchased health insurance from the Marketplace
  • Might be eligible for an exemption from  the coverage requirement
  • Had advance payments of the premium tax credit sent to their insurance provider
  • Is claiming the premium tax credit on their tax return

The publication includes a glossary that will help you understand new terms related to ACA. It also addresses the new lines for reporting ACA information on Forms 1040, 1040-A and 1040-EZ.

Most people have qualifying health coverage, and all they will need to do is simply check a box on their tax return.

You can access Publication 5187 at IRS.gov/aca, along with other important information related to the health care law. You can also find it by typing “p5187” into the search window at the top of any IRS.gov page or “5187” in the Forms and Pubs search window on IRS.gov.

Information from IRS Tax Tips Issue Number HCTT-2014-23 was used in this post.

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The Health Insurance Marketplace

The open enrollment period to purchase health insurance coverage for 2015 through the Health Insurance Marketplace runs from Nov.15, 2014, through Feb. 15, 2015.

The Marketplace is where you can find health insurance coverage options and enroll in the coverage that fits your budget and meets your needs. Visit your Marketplace thealth insuranceo find information about:

  • health insurance options,
  • how to purchase coverage, and
  • how to get financial assistance with the cost of insurance.

Visit the Department of Health and Human Services website at HealthCare.gov to learn more about coverage options, financial assistance and to enroll in coverage through the Marketplace.

If you get health insurance coverage through the Marketplace, you may be able to lower your monthly premium through an advance payment of the premium tax credit. This credit is for people who have household income between one and four times the federal poverty level. Find out more about the Premium Tax Credit and other Affordable Care Act tax provisions.

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Tax Refund Statute of Limitations

So you overpaid your federal income taxes, life got busy, and you forgot to file a return to claim your refund. You’ll get around to it — but will you get around to it in time to get your money back?

The time limit for claiming your refund is called the statute of limitations. The general rule for your federal income tax return is that you havEXPIREDe either two or three years to file a refund claim. Specifically, you have to file the claim within three years from the time you filed the tax return or within two years from the time you paid the tax, whichever period expires later.

Worse, there’s a wrinkle you may not expect: When you haven’t filed a return, the two-year period applies.

And more bad news: Even if you file your claim within the proper two-year time period, your refund could be limited further by a “lookback rule.” This rule says you can only get a refund for the tax actually paid during those two years. The outcome? Estimated taxes or withheld federal income taxes may fall outside the time period. That means those amounts might not be recoverable.

Be aware that other time limits apply in certain circumstances, such as when your overpayment is due to a bad debt.

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Employer-provided group-term life insurance

Does your employer provide you with group term life insurance? If so, and if your salary is higher than $50,000, this employee “benefit” may be creating undesirable income tax consequences for you. Here’s why.

The first $50,000 of group term life insurance coverage that your employer provides is excluded from taxable income and doesn’t add anything to your income tax bill. But the employer-paid cost of group term coverage in excess of $50,000 is taxable income to you even though you never actually receive it (i.e., it is “phantom income”). What’s worse, the cost of group term insurance must be determined under a table prepared by IRS even if the employer’s actual cost is less than the cost figured under the table. Under this table, the amount of taxable phantom income attributed to an older employee will often be higher than the premium the employee would pay for comparable coverage under an individual term policy. This tax trap gets worse as the employee gets older and as the amount of his compensation increases.

What should you do if you think you might be one of the people for whom the tax cost of employer-provided group term life insurance is undesirably high? First, you should determine if this is actually the case. If a specific dollar amount appears in Box 12 of your Form W-2 (with code “C“), that dollar amount represents your employer’s cost of providing you with group-term life insurance coverage in excess of $50,000, less any amount you paid for the coverage. You are responsible for any and all Federal, State, and local taxes on the amount in Box 12, and for the FICA tax (Social Security and Medicare) as well. But keep in mind that the amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2, and it’s the Box 1 amount that’s reported on your tax return.

If you then decide that this cost is too high for the benefit you’re getting in return, you should find out whether your employer has a “carve-out” plan (a plan that carves out selected employees from group term coverage) or, if not, whether it would be willing to create one. There are several different types of carve-out plans that employers can offer to their employees. For example, the employer can continue to provide $50,000 of group term insurance (since there’s no tax cost for the first $50,000 of coverage) and either provide the employee with an individual policy for the balance of the coverage, or give the employee the amount the employer would have spent for the excess coverage as a cash bonus that the employee can use to pay the premiums on an individual policy.

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Affordable Care Act – Action Notice

Beginning October 1st, employers are required to provide written notices to all employees – regardless of benefit enrollment status or full / part-time status – about health coverage options. This includes notifications about federal and state health insurance marketplaces.  These government-run marketplaces will be open this fall.

Employers can send the notices by mail or electronically.  Effective January 1st, 2014, employers will have 14 days from the employees start date to provide a notice. The Department of Labor has provided two sample notices or employers who currently offer coverage and for employers who do not offer health insurance.

Links to model notice from the United States Department of Labor:

http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf

http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

Employers can also create their own notices, which must include:

  •  Explanation of the marketplaces
  • Reference to www.healthcare.gov
  • Information about premium subsidies that may be available if employees purchase a qualified health plan through the marketplace
  • Notification that employees may lose their employer contribution to the health plan if it is obtained through the marketplace

To learn more about the Affordable Care Act please visit the US Department of Labor site at http://www.dol.gov/ebsa/healthreform/

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