For years the gain on the sale of residence was taxable as a capital gain. Back in the day folks would buy a more expensive home to avoid the capital gains tax. In mid 1997 (I’m writing about this in 2016 because I still get questions about it) the law changed. Now single people are allowed to exempt up to $250,000 per sale every 2 years. That is $500,000 for a married couple.
The law is fairly straight forward. It must be your primary residence for 2 of the previous 5 years and you can take the exemption every 2 years. If your holding period is less than two years then your exemption is prorated based on the time you live in the property. There are some potential caveats that can come into play if you rent the property for some period of time prior to selling. It makes flipping a property while you live in it a real income opportunity.
Many people can not itemize their deductions on the federal income tax return because the standard deduction is just so high that it is often better than itemizing. However, in Alabama it takes a lot less to itemize because the standard deduction is lower and FICA taxes (Social security and Medicare) are deductible as itemized deductions for Alabama purposes. This means that income alone may be enough to create itemized deductions for state purposes. That is where I see many people be a little lazy.
There are several deductions that most people have and they are good deductions if you are having to itemize anyway. Car Tag Tax, Real Estate Tax, Charitable Contributions, and Mortgage Interest are all deductible expenses that have no AGI limits. That makes them pound for pound equal. The only big deal about mortgage interest is that it is typically much large than the others. What I often see is people itemize on state just because of their FICA tax but they forget their car tags, property taxes, or contributions and when we mention it they just say oh don’t worry about it. I get that a little. They have come down, waited to get their taxes filed and now they don’t want to wait to go dig up that stuff. But, if those things totaled to $1,000 (not uncommon) that is a $50 bill their throwing away. I bet they would say something if my bill went up $50.
Medical deductions are the least useful of all deductions you can take as itemized deductions because they have a 10% of AGI limitation before they become deductible. Medical may help on your state return even if it isn’t useful on the federal. In AL the AGI limit is 4% for 2015. However, some people will still benefit because of the new out of pocket limits made standard by the NOT SO ACA. Most folks keep up with checks, or prescription receipts, Dr receipts and so on. That is a good idea but here is a secret. Auditors prefer the annual print outs that are available from your pharmacy or health care providers. I personally think it is more laziness than anything else on the auditors part but it doesn’t really matter. Those reports make their job quick fast and in a hurry and when you are being audited that is a good thing. So get the reports and log your medical miles too http://www.tmicpa.com/mileage/. One other thing to consider to maximize this deduction is bunching your medical expenses into a single year when possible.
I know the headline sounds a little crazy but let me set the stage for you. I had a client today that had a couple of 1099’s he received from a manufacturer of a product he sells. He had rightly reasoned that regardless of the tax he had pay on the money he was money to the good. Here is where the story takes a strange turn. A peer of his had the same opportunity to receive the same type of incentive but had chosen not to take the extra money due to the tax implications. Worse yet, his taxpreparer had told him it was a waste of time to take the money because of the taxes it was costing him. My client had a great analogy on taking the money. If I give you a $100 and then you have to give me $50 in return will you take the money or consider it a waste of time? I am glad to know that my client was smart enough to grasp the concept. I am embarrassed that anyone giving out that kind of advice can somehow find enough client’s to stay in business. If you have received this kind of advice come on over to the light. I am here and ready to help you keep more of what you earn.
Hiring your children to help you in your business is a smart tax planning strategy. The IRS says that children under 18 are not subject to social security, medicare taxes, or FUTA taxes. The State of AL says they are exempt from SUI until they are 21 and the same applies to FUTA. They are subject to Federal and State income taxes but a little planning can make sure you don’t exceed certain threshold amounts which would create the need to file a federal or state tax return. For some it may even be worth the filing for the tax savings.
I recently ran into a little Quickbooks quirck so I thought I would give you a warning. When I archive something on a computer my expectation is that if I need it I will be able to pull it up and use it. When processing W-2’s I archive them inside Quickbooks. I can see a link to them so I have always believed that if I needed and old W-2 for an employee I could just pull it up and print it. No need to store nasty paper documents for 3 years because I do a great job of backing up my data and if I need it I can get it.
Well here is my latest discovery. Quickbooks uses an image of a blank W-2. The data that goes on the w-2 is archived but the image is an active file an is update from year to year. So, if you need to print a 2015 W-2 in 2017 because an employee approaches you and has lost the original you can’t do it. You will have the correct data for the 2015 W-2 but the image that it pulls up will be 2016 form W-2.
For me that is not a real big deal because I always have back years of pre printed W-2’s. I also have the software to use the archived data so I can reproduce a lost or misplaced W-2 for an employee. But most folks don’t have the software or the forms just laying around so if you have relied on those archives you may have a problem. My recommendation is keep a copy of the employee W-2’s on paper for a minimum of 3 years. That way if you need it you will have it.
Maybe the guys at Intuit have never had an employee lose a W-2 in a future year. I doubt there are many employers that have not had a similar request at least once. Maybe we can get the programmers to give a choice or maybe we can get them to create a real pdf archive that does not depend on their W-2 image file. I’m not holding my breath.
Any of us that have ever shopped online and then gotten on Facebook to find them sending targeted ads has been a little creeped out. Well yesterday I got a whole new creeper experience. My wife was shopping on her I-Pad for a particular item. I log on to Facebook 10 hours later and receive a targeted ad to an item that local vendors do not stock which she was shopping. So I ask Jason Nunnelley, he knows such things, and he tells me it is Double Click. If you want to know about Double Click just Google it. If a simple product can do this what do you think Governments of the world know about you and I? It’s big time creeper.
I abandoned this web site about 3 years ago and began posting the same type of information on Facebook. My intent was to allow Facebook to be my primary web presence. I quickly gained a following and established a pretty decent distribution on my post there. So I continued to post and everything seemed fine. Then Facebook changed the way they distributed post to the users and my reach per post was reduced by 75% or more. I first sought to recover that distribution by getting folks to like and or share the articles. It does work but it is very time consuming. Unless you write something that strikes a big nerve, and get several shares from folks you don’t even know, distribution even among the people that like your page is sparse. Unpaid big distribution rarely happens. Turns out most folks are content to take care of their own tax situations and other than telling a friend “I use Barry Thompson and you would probably benefit by using him too” they don’t spend that much time sharing good tax advice. That is a major problem on Facebook for me.
I recently discovered another major reason to keep this sight up to date with fresh content. When I maintained this site on a regular basis by adding new and interesting content I was at or near the top in most major non paid advertising categories for CPA’s in Cullman, AL. When I stopped and began doing most of my sharing on Facebook I lost that placement in the search engines. Bottom line is I lost online marketing visibility by forgoing my website in favor of Facebook.
I am sharing this with you for two reasons: 1. I made a terrible decision that cost me money. I want those of you who will to learn from my mistake. 2. I am letting you know that I will be keeping this site updated on a regular basis. I will continue to share on Facebook to some degree but I will focus most of my efforts on this site. I love to get questions from you and share the answer publicly. I don’t use your name unless you want it that way so feel free to ask. If you have the question chances are many others do as well and everybody gets a chance to increase their knowledge. Knowledge about taxes and minimizing them legally is what I am all about.
In closing I want to say that I do not think Facebook is dead by any means. It is not the best way to build your web presence and benefit from the time it takes to share information with people. I have some ideas on how to use Facebook for my best benefit by integrating with things I post here however control over your asset is the best policy. Jason Nunnelly told me this more than once but I didn’t learn from his wisdom. Be smarter than me. Learn second hand from Jason and from my experience shared.
With gas prices dropping the standard rates have been lowered for 2016
Business – .54
Moving and Medical – .19
Charitable – .14
Mileage rates for 2015:
Business – .575 per mile
Medical and Moving – .23 per mile
Charitable – .14 per mile
Be sure and keep your log book for your miles. If you use more than 1 clever you should report each separately.