DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...

Mike's weekly post usually concentrated on tax saving strategies.

Where Do You Think You're Going?! State tax authorities becoming very aggressive when you move

moving

Suppose you retire to a new state with warm weather and lower taxes. If you keep a part-time home in your original state or you later decide to return, you could have a tax problem. State tax authorities may argue you never really left, and that you owe them a big tax bill for all the income you earned while away. Here are tips to ensure this does not happen to you.

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Major Tax Reform: What is Proposed

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There is now a ton of media chatter about the recently introduced federal tax reform package being passed around in Washington, D.C. While it's still early in the process, here are some of the key elements of the current proposal.

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Seeing Inside the Mind of the IRS: Using the IRS Audit Technique Guidelines (ATGs)

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While most of us are never audited, when it happens we can feel like a lamb thrown in a room with a lion. The IRS auditor does these audits every day. They know what to look for, and may ask leading questions that are easy to answer incorrectly. Here are some tips to help you when you are in the crosshairs of an IRS audit.

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Five Tax-Loss Harvesting Tips

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Though the markets have been up strongly this year, your investment portfolio could have a few lemons in it. Using the tax strategy of tax-loss harvesting, you may be able to turn those lemons into lemonade. Here are five tips:

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Alternatives to the College Tuition Deduction

EducationSavings

Now that college students are settling into their first weeks of school, it's important for parents and students to recall that the $4,000 tuition and fees deduction they may have relied on in past years is no longer available in 2017. The good news is that there are alternatives. Here are two of the more popular education credits:

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Reminder: Third Quarter Estimated Taxes Due!!!

due taxes

If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The third-quarter due date is now here.

Normal due date: Friday, September 15th 2017

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One Last Checkup: Are you withholding enough for your taxes?

Hold Tax

As we enter into the fall months, it's a good time to check your tax withholdings to make sure you haven't been paying too much or too little. This is especially true if major changes took place in your life this year to your marital status, number of dependents, or your employment.

This quick checkup will ensure you are not surprised with a large tax bill when you file your income tax return. Fortunately, you still have a few months left to fix any problems. 

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Save on Your Doggone Taxes: The IRS and your pets

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It seems like there’s a tax statute that touches on nearly every aspect of our lives. But that’s not all. Tax laws also include the lives of our furry friends. That’s right, even your pets can show up in your tax return in surprising ways.

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Better Bartering Basics

Barter

Better Bartering Basics

The IRS is clear on their point of view. If you barter you must include the barter activity's fair market value as income on your tax return in the year the barter activity is performed. But is it really that simple? Here are some things to consider if you barter.

What is fair market value? The classic definition is the price someone is willing to pay and someone is willing to receive for the exchange of goods or services. But we all know this requires a level of judgment. What if an item is on sale when the barter activity is performed? Are prices always the same for a similar item or service? Prior to establishing the value of a barter item, shop around and take the lowest defendable value possible for your bartered item.

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Be Sure It's Really the IRS: Constantly changing scams require your attention

danger IRS

Believe it or not, pretending to be an IRS agent is one of the favorite tactics of scam artists, according to the Better Business Bureau. The con artists impersonate the IRS to either intimidate people into making payments over the phone, or to send misleading emails tricking people into sharing personal information digitally.

You can defend yourself against these scammers by knowing these simple rules:

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Turning Your Hobby Into a Business

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You’ve loved dogs all your life so you decide tostart a dog breeding and trainingbusiness. Turning your hobby into a business can provide tax benefits if you do it right. But it can create a big tax headache if you do it wrong.

One of the main benefits of turning your hobby into a businessis that you can deduct all your qualified business expenses, even if it results in a loss. However, if you don’t properly transition your hobby into a business in the eyes of the IRS, you could be waving a red flag that reads, “Audit Me!” The agency uses several criteria to distinguish whether an activity is a hobby or a business. Check the chart below to see how your activity measures up.

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Understanding Tax Terms: The Marriage Penalty Couples filing jointly still get the short end of the stick

Marriage Tax

There are a lot of positive things about getting married, but the IRS' marriage penalty isn't one of them.

The marriage penalty occurs when you pay more tax as a married couple than you would as two single filers making the same amount of money. It pops up again and again in the federal tax code.

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Renters Miss Out on Homeowner Benefits

homeownsership

If you rent rather than own a home, you could be missing out on tax benefits that favor home ownership. The current low interest rates make the cost of getting a mortgage relatively inexpensive, despite U.S. house prices at record highs.

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Triple Tax: aka The Lottery

Lottery

Most everyone enjoys dreaming of winning it big in the lottery. News media outlets publicize the large unclaimed pots of money on the evening news and they put a spotlight on the lucky multi-million dollar winners. Ever wonder what the tax math looks like?

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The Standard Deduction May Be Costing You: This technique could save you plenty

Tax-deductions2

Only about a third of Americans file income tax returns using itemized deductions. Unfortunately many of those who don't itemize are overpaying their taxes. Don't wait until tax time to figure out if itemizing your deductions yields a lower tax bill. Start now to review your situation and plan for a reduction in your taxes by the end of the year.

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Avoid a Debt Settlement Tax Surprise

debt-settlement-service

The number of Americans struggling with high debt is increasing, according to the U.S. Federal Reserve. U.S. household debt reached a new record this spring, the central bank said, with the average indebted household owing more than $16,000 on their credit cards.

Seeking debt forgiveness from lenders is one option to try to deal with the burden of high debt. But there is an important tax consequence:

Any amount of cancelled debt is generally taxed as ordinary income.

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Avoid the 10% Early Withdrawal Penalty

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Avoid the 10% Early Withdrawal Penalty... What every Traditional IRA owner should know

It is one thing to be taxed on retirement contributions and their related earnings when you withdraw funds from your Traditional IRA, it is quite another when you pay the tax PLUS a 10% penalty for early withdrawal. Need funds prior to retirement and want to avoid the early withdrawal penalty? There are cases when this can be done:

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Understanding Tax Terms: Casualty Losses Does your loss qualify?

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Volcanoes, earthquakes, and sonic booms. Fires, floods, and storms. Terrorism, vandalism, and car accidents. All of these fall under the U.S. tax code definition of “Casualty Losses,” and your losses due to these events may be tax-deductible.

Tax Code Definition

According to the IRS, a casualty loss is the “damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected or unusual.”

As you can tell from the lists of events mentioned above, this definition covers a lot. It’s usually easier to describe what casualty losses are not:

  • Not sudden: Things that progressively deteriorate over time are not casualty losses. Damage from mold, pests or just the passage of time don’t count under IRS rules. For example, your water heater breaking down after years of use is not a casualty loss, but any sudden water damage to your carpets as a result is.
  • Not unexpected: If willful or negligent behavior caused the destruction, that’s not a casualty loss. For example, a fire caused by playing with matches is not unexpected, nor is a car accident caused by drinking and driving.
  • Not unusual: The typical breaking of fragile items like china or glass is not a casualty loss; nor is the common destruction of property by a family pet.
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Reminder. 2nd Quarter Estimated Taxes are Due

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If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is now here.

Normal due date: Thursday, June 15th 2017

Remember you are required to withhold at least 90% of your current tax obligation or 100% of last year’s federal tax obligation.* A quick look at last year’s tax return and a projection of this year’s obligation can help determine if a payment might be necessary. Here are some other things to consider: Underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year. So a quick payment at the end of the year may not help avoid the underpayment penalty. Who is impacted. If you paid additional tax last year with your tax return filing, have a business that flows profits to your personal tax return, or have a change in your filing status pay attention to this reminder. You may be a candidate for potential estimated tax payments. W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.

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2018 Health Savings Account Limits Time to plan your 2018 deductions

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The savings limits for the ever-popular Health Savings Accounts (HSA) are now set for 2018. The new limits are outlined here with current year amounts noted for comparison purposes.

What is an HSA?

An HSA is a tax-advantaged savings account to pay for qualified health care costs for you, your spouse, and your dependents. When contributions are made through an employer, they are made on a pre-tax basis. There is no tax on the withdrawn funds, the interest earned, or investment gains as long as the funds are used to pay for qualified medical, dental, and vision expenses. Unused funds may be carried over from one year to the next. To qualify for this tax-advantaged account you must be enrolled in a high deductiblehealth plan (HDHP)as defined by HSA rules.

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