If you are planning to make a relatively substantial contribution to a charity, college, etc., you should consider donating appreciated stock from your investment portfolio instead of cash. Your tax benefits from the donation can be increased and the organization will be just as happy to receive the stock.
This tax planning tool is derived from the general rule that the deduction for a donation of property to charity is equal to the fair market value of the donated property. Where the donated property is “gain” property, the donor does not have to recognize the gain on the donated property. These rules allow for the “doubling up,” so to speak, of tax benefits: a charitable deduction, plus avoiding tax on the appreciation in value of the donated property.
Example: Tim and Tina are twins, each of whom attended Yalvard University. Each plans to donate $10,000 to the school. Each also owns $10,000 worth of stock in ABC, Inc. which he or she bought for just $2,000 several years ago.
Tim sells his stock and donates the $10,000 cash. He gets a $10,000 charitable deduction, but must report his $8,000 capital gain on the stock.
Tina donates the stock directly to the school. She gets the same $10,000 charitable deduction and avoids any tax on the capital gain. The school is just as happy to receive the stock, which it can immediately sell for its $10,000 value in any case.
Caution: While this plan works for Tina in the above example, it will not work if the stock has not been held for more than a year. It would be treated as “ordinary income property” for these purposes and the charitable deduction would be limited to the stock’s $2,000 cost.
If the property is other ordinary income property, e.g., inventory, similar limitations apply. Limitations may also apply to donations of long-term capital gain property that is tangible (not stock), and personal (not realty).
Finally, depending on the amounts involved and the rest of your tax picture for the year, taking advantage of these tax benefits may trigger alternative minimum tax concerns.
If you’d like to discuss this method of charitable giving more fully, including the limitations and potential problem areas, please give us a call.
Under these rules, up to $250,000 of the gain from the sale of single person’s principal residence is tax-free. For certain married couples filing a joint return, the maximum amount of tax-free gain doubles to $500,000.
Like most tax breaks, however, the exclusion has a detailed set of rules for qualification. Besides the $250,000/$500,000 dollar limitation, the seller must have owned and used the home as his or her principal residence for at least two years out of the five years before the sale or exchange. In most cases, sellers can only take advantage of the provision once during a two-year period.
However, a reduced exclusion is available if the sale occurred because of a change in place of employment, health, or other unforeseen circumstances where the taxpayer fails to meet the two-year ownership and use requirements or has already used the exclusion for a sale of a principal residence in the past two years. A sale or exchange is by reason of unforeseen circumstances if the primary reason for the sale or exchange is the occurrence of an event that the taxpayer does not anticipate before purchasing and occupying the residence. Unforeseen circumstances that are eligible for the reduced exclusion include involuntary conversions, certain disasters or acts of war or terrorist attacks, death, cessation of employment, change of employment resulting in the taxpayer’s inability to pay certain costs, divorce or legal separation, multiple births from the same pregnancy, and events identified by IRS as unforeseen circumstances (for example, the September 11 terrorist attacks). The amount of the reduced exclusion equals a fraction of the $250,000/$500,000 dollar limitation. The fraction is based on the portion of the two-year period in which the seller satisfies the ownership and use requirements.
These rules can get quite complicated if you marry someone who has recently used the exclusion provision, if the residence was part of a divorce settlement, if you inherited the residence from your spouse, if you sell a remainder interest in your home, if there are periods after 2008 in which the residence isn’t used as your (or your spouse’s) principal residence, or if you have taken depreciation deductions on the residence. Also, the exclusion does not apply if you acquired the residence within the previous five years in a “like-kind” exchange in which gain was not recognized.
Let us know if you have any questions about the exclusion or would like additional information. We are happy to go over the specifics of your situation with you to determine whether a sale of your residence would qualify for this valuable tax break.
Have you created your online accounts with the Internal Revenue Service (IRS) and Franchise Tax Board (FTB) yet? We encourage ALL of our clients to create or update their online accounts with the IRS and relevant state tax agencies. With online accounts, taxpayers gain access to important tax information including balances due, payments made, tax records, and more.
In many cases, you can locate or request relevant information via your online account which will minimize or eliminate the need to sit on hold with tax agencies. Plus, account creation takes just a few minutes! Individual taxpayers have the ability to create both Federal IRS and California FTB accounts, however businesses are only able to create California FTB accounts at this time.
The following and more can be done via your online accounts:
Both IRS and FTB:
IRS:
FTB:
Federal IRS
Log-In Page: https://www.irs.gov/payments/your-online-account
The IRS has partnered with ID.me, an IRS-trusted technology provider, to provide identity verification for IRS applications. Individual taxpayers and tax professionals are required to verify with ID.me for a secure login.
Please note, existing IRS username and passwords no longer work as of Summer 2022. As such, we suggest creating an ID.me account and completing the identity verification process now.
How to sign-up:
Select “Sign in to your Online Account” and either create a new account or sign-in using a previous login.
If you have an existing ID.me account from a state government or federal agency, you can sign-in without verifying your identity again. If you’re a new user, you’ll have to create a new ID.me account.
To create your account, you will need:
Tips for creating your ID.me account:
California FTB
Log-In Page: https://www.ftb.ca.gov/myftb/index.asp
Step-by-step Instructions: https://www.ftb.ca.gov/myftb/help/how-to-guides/individuals/register.pdf
How to sign-up:
You must have a recent California tax return on file in order to register for a MyFTB Individual account. If you filed a joint tax return, you must each register for a separate MyFTB Individual account.
To create your account, you will need:
After you create your account, you will receive a letter in the mail containing a Personal Identification Number (PIN). The PIN will be mailed via the United States Postal Service within 3 to 5 business days. Please allow 10 business days to receive the PIN. You have 21 days from the date you register to enter your PIN to activate your account.
This is a one-time use PIN is used to activate your MyFTB account. You will not need it again to login. You will need to enter this PIN online in order to activate and gain access to your account.
Please note: Individual taxpayers also have the option of activating their account via online “personal question” screening instead of the mailed PIN.
The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.
Existing reporting rules. As you probably know, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses. Furthermore, if you transfer stock from one broker to another broker, then the old broker is required to furnish a statement with relevant information, such as tax basis, to the new broker.
Digital asset broker reporting. The IIJA expands the definition of brokers who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (“Crypto Exchanges”). Thus, any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.
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Despite all the gridlock in Washington, as well as an impeachment, the SECURE Act has passed. It changes a number of important retirement plan rules. The act runs over 120 pages, so the experts will be poring over it for some time. Meanwhile, a number of sources have weighed in on what they think are the key provisions. (Note that last-minute alterations and more detailed analysis may lead to additional changes in the coming weeks.)
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Do you have an Individual Taxpayer Identification Number (ITIN)? If so, it may be expiring soon.
All ITINs not used on a federal tax return at least once in the last three years will expire on December 31, 2019. In addition, ITINS issued before 2013 with middle digits of 83, 84, 85, 86, or 87 (Example: 9XX-83-XXXX) will expire at the end of the year.
The Internal Revenue Service (IRS) is encouraging taxpayers to submit their renewal applications early in order to avoid refund and processing delays in 2020. Taxpayers can renew their ITIN by completing a Federal Form W-7 and mailing it to the address listed on the form’s instructions with any required documentation. You can find the form here.
What is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax processing number assigned to individuals who do not have, or are not eligible to obtain, a Social Security number (SSN). Typically, only United States citizens and those non-citizens who are authorized to work in the U.S. receive SSNs.
For more information, visit the IRS’s Individual Taxpayer Identification Number web-page.
In our hustle and bustle lives, working 40 or more hours a week has become the norm, leaving limited time for taking care of duties at home. This has led to an increased need for a nanny, housekeeper, gardener, or perhaps all three! What many people don’t realize, however, is that while their responsibilities at home may be going down, their tax bill could be going up.
