What are the Section 179 limits? Bonus Depreciation – Is it allowed and how much?
The maximum amount of Section 179 that can be claimed for 2019 is $1,020,000. This amount is phased out dollar-for-dollar once your annual investment in qualifying fixed assets exceeds $2.55 million. Bonus depreciation is available on qualified new and used asset additions and allows for 100% first year write-off on assets placed in service from after September 27, 2017 and before January 1, 2023, taxpayers. 100% bonus depreciation phases down 20% per year starting in 2023.
I have a 401k with a company that I terminated from. Can I roll it over to a Roth or regular IRA? What happens if I decide to just keep the money?
You can choose to roll your vested balance from a qualified 401(k) plan into an Individual Retirement Account (IRA) without being subject to the additional early withdrawal penalty and income tax. You can also choose to roll your vested balance from a qualified plan into a Roth IRA upon termination without paying an additional early withdrawal penalty; however, this would still be considered a distribution and would be subject to income tax, there are some exceptions that may apply. If you choose to keep the money and are under 59 ½, you will be required to pay an additional early withdrawal penalty of 10% of the distribution. Because the contributions were excluded from income taxes at the time, they were contributed into the qualified 401(k) plan, these distributions are also subject to income tax at the time they are distributed from the plan. Taxation would be different if some or all the 401k contributions were made as Roth contributions.
What are available retirement options and what are the deductibility limits?
The 2019 IRA traditional and Roth contribution limits are the lesser of earned income or $6,000 ($7,000 if you are 50 or older). For tax year 2020, they are scheduled to remain the same as 2019. There are phase out levels based on modified adjusted gross income and your filing status if you or your spouse participate in another qualified plan. Contributions for 2019 can be made up to filing or April 15th so often best to wait on this contribution until your taxes have been prepared to see what you qualify for. There are other retirement options if you are self-employed, such as SEP (Simplified Employer Pension), SIMPLE (savings incentive match for employees) and a Solo 401k Plan. Each of these has its own rules such as when it must be established by to use and contribution limitations. They are typically used when you want to put more money into retirement than a traditional or Roth IRA will allow. Dependency/Filing Status
What determines if I am head of household?
To qualify, a taxpayer must meet all three of the following tests.
The taxpayer is not married or is considered unmarried, and not a surviving spouse on the last day of the year.
The taxpayer paid more than half the cost of keeping up his/her home.
A qualifying individual lived with the taxpayer in the home for more than one-half the year, unless the person is the taxpayer’s dependent parent. A qualifying individual includes a qualifying child that is a dependent of the taxpayer determined without regard to the rules for divorced parents. However, a child is not a qualifying individual if the child is married at the close of the tax year and a) files a joint return with his or her spouse, or b) is not a U.S. citizen, national or resident of the United States, Canada or Mexico.
Can I claim my 23-year-old daughter as a qualifying child on my 2019 tax return? She was under 24 at the end of the year, was a full-time student until 11/30/19 and we paid more than 50% of her support. She did however not live with us at all during the year. She has had her own apartment since September of 2017.
Your daughter meets all the tests to be claimed as a dependent. One qualification is that the child must live with the taxpayer for more than half the year. They do allow an exception to this residency test due to temporary absence due to special circumstances, including education. Since she was a full-time student, she would meet this exception allowed in the residency test.
How do I file if my spouse died during the year?
You can file as either married filing separately or married filing jointly. Filing married filing jointly typically produces the best tax result.
How do I file if I got married or divorced during the year?
If the taxpayer was married during the year; the couple would file either as married filing separately or married filing jointly. A taxpayer that is divorced during the tax year and their divorce was finalized during the year and the taxpayer has not remarried would file as single or head of household. Additional filing status criteria must be met to file as head of household.
What income level do I need to file a return for my child?
For 2019, if an individual can be claimed as a dependent on another persons’ return, that individual/dependent must file a return if unearned income exceeds $1,100 plus any additional standard deduction allowed. The additional standard deduction that may be allowed is equal to the earned income plus $350 but not to exceed $12,200.
Is health insurance going to be reported on my W-2 and will I have to pay tax on it? A. Most employers must report the aggregate cost of employer-sponsored health insurance coverage on Form W-2 in box 12; using code DD. The amount reported should not be taxable income. Any insurance paid by the employer that is taxable should be included on the W-2 as part of the taxable wages.
My son is 25 and done with college. Can he still be on my health insurance?
The Health Care and Education Reconciliation Act of 2010 states that any health care plan which provides coverage for dependent children must continue coverage for an unmarried adult child until the child’s 26th birthday. Income Inclusion
How much is the gift exemption? I received $14,000 do I have to claim it? Is there a difference if the gift is land vs. cash?
The gift tax annual exclusion for 2018 is $15,000 per donee but is not taxable to the donee. The donor is responsible for reporting and paying any gift tax on gifts in excess of $15,000 per donee. The $15,000 applies to both property and cash. However, if the donor gifted land, the donor may want to file a gift tax return to establish a value for the land. Filing a gift tax return starts the statute of limitations running for the period the IRS can challenge the value of the land gifted. If no gift tax return is filed, no statute of limitations is started, and therefore, the IRS can go back more than three years to challenge the value of the land gifted.
I’m inheriting $50,000. Is this money taxable? What if it is property?
An inheritance of cash is not taxable. An inheritance of property other than cash may or may not be taxable. An inheritance would only be taxable to the recipient if the amount was income earned prior to a taxpayer’s death but not included in their taxable income during their lifetime. A common example is a taxpayer’s IRA or other qualified plan retirement account. Other examples include annuities, investment income paid after death, wages due, contracts-fordeed, interest on savings bonds, and accounts receivable from a cash basis business are all taxable as received.
Does taking money from a retirement account count as earned income when you are on social security?
No. Retirement account income is not earned income, so it will not affect your social security benefits. Retirement income does however count toward your income for tax purposes when determining the amount of Social Security benefits that are taxable.
My husband worked this fall for a local farmer with the harvest and received a $2,400 check. How do I report this income since the farmer did not take out any taxes and no Form W-2 was provided? Is there a special form?
You should report this income on a Schedule C as self-employment income. You will also use Schedule SE to compute the social security tax on the net income from this job. Net income is calculated as income less any related job expenses. Your husband most likely will receive a Form 1099-MISC from the local farmer for the income received
How much is the personal exemption in 2019?
The Tax Cuts and Jobs Act removed the personal exemption deduction beginning in tax year 2018. However, the standard deduction nearly doubled and, for 2019, sits at $12,200 for single taxpayers as well as married taxpayers who file separately. Married filing jointly is $24,400 and Head of Household is $18,350.
Is there a limit to how much you pay out of pocket for medical expenses before you can deduct them for taxes?
If you are itemizing your deductions (meaning your deductions are greater than your standard deduction of $12,200 for single or $24,400 for married filing joint) then your medical costs paid out of pocket must be greater than 7.5% of your adjusted gross income before you see any benefit or deduction for them.
I give cash most often in church for offering. Can I deduct this without proof of it? I also donated a lot of items to goodwill over the year. Is there a way to claim that?
Outright gifts of cash (which include donations made via check, credit card and payroll deduction) are the easiest. The key is to substantiate them. To be deductible, cash donations must be:
Supported by a canceled check, credit card receipt or written communication from the charity if they’re under $250, or
Substantiated by the charity if they’re $250 or more.
Deductions for cash gifts to public charities can’t exceed 60% of your adjusted gross income (AGI). The AGI limit is 30% for cash donations to non-operating private foundations. Contributions in excess of the applicable AGI limit can be carried forward for up to five years. Non-cash donations must be substantiated with: 1. Name of charity, 2. Date and location of donation, 3. Reasonable detailed description of the property (i.e. 3 jeans, 4 blouses, 2 coats, etc.), 4. Fair market value and method of valuing. Specific requirements exist for non-cash donations exceeding $250. The above information must be in a written statement from the charity or reliable written record. If the charity does not give an approximate fair market value, then take a picture of what was donated and consult the web for charity publications regarding values of certain items. If the non-cash donation is greater than $500, then in addition to the above, your records must include how the property was acquired, the date acquired, and the adjusted basis. Non-cash gifts greater than $500 must also complete Form 8283 and attach it to your return. If the non-cash donation is greater than $5,000, then in addition to the above you must also have a written appraisal.
How far do you travel for National Guard before it can be treated as a deduction? What is mileage reimbursement rate?
If you are a member of the National Guard or military reserve, you may be able to claim a deduction to reduce Adjusted Gross Income. To qualify, Guard and Reserve personnel must travel more than 100 miles from their home in connection with their performance of services (for a drill or meeting). Expenses must be ordinary and necessary, and the deduction is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate of 58 cents per mile (for car expenses) plus any parking fees, ferry fees, and tolls. These expenses are claimed on Form 2106 and carried to the Form 1040.
Can sales tax be deducted and how do you determine the correct amount?
There is an option of claiming either state and local income tax or state and local general sales tax. If you itemize (meaning your actual deductions exceed your standard deduction) and you choose to deduct state and local general sales tax, then you can determine your deduction either based on 1) actual sales tax amounts based on your actual receipts, or 2) a predetermined amount from the IRS tables listed in Publication 600 increased by actual sales tax on major purchases (defined as motor vehicles including recreational vehicles, aircraft, boat, homes and home building materials) for the year. Deduction is limited to $10,000 ($5,000 if married filing separately).
With the purchase of a car in June 2019--are we able to use the sales tax as an income tax deduction?
In 2019, only if you itemize on Schedule A and choose to deduct state and local general sales tax, can you increase your sales tax deduction by the actual amount of sales tax paid on a vehicle purchase.
When do I get the child tax credit and how much per child?
The new Child Tax Credit is worth up to $2,000 per qualifying child with a refundable amount of up to $1,400 per qualifying child. The phase-out for the credit begins at $200,000 ($400,000 for joint filers). A qualifying child must have been under age 17 (i.e., 16 years old or younger) at the end of the tax year for which you claim the credit. A partial credit of $500 is available for each qualifying child for whom the credit is not otherwise allowed and for each qualifying relative. The definition of a qualifying child and relative is the same as the definition of a dependent, except the dependent must be a U.S citizen, national or resident.
I flex $5,000 in dependent care but pay $3,000 more than that. Can I get a credit for that?
The maximum dependent care costs that qualify for the dependent care credit is $3,000 for one qualifying dependent or $6,000 for two or more qualifying dependents. The $5,000 flex would be offset against the $3,000 for one dependent or the $6,000 for two or more dependents in arriving at the amount of care that qualifies for the credit, or if any of the flex would need to be included in income.
What expenses are eligible for credit for my child attending college?
Qualifying tuition and related expenses are eligible for the American Opportunity Credit or the Lifetime Learning Credit. Qualifying expenses for the American Opportunity Credit include tuition, required enrollment fees and course materials purchased as a condition of enrollment or attendance. For the Lifetime Learning Credit qualifying expenses include tuition, required enrollment fees as well as books and course materials purchased directly from the school. Room and board, insurance, transportation or other similar personal living expenses do not qualify as expenses towards these credits.
Are there differences between the college credit available and how do I know which credit is the best?
The credits available are either the American Opportunity Credit or Lifetime Learning Credit. The differences in the credits are based on the year the student is in college, the amount and type of expenses qualifying for the credit, and income phase out limits. Expenses for students in their first four years of college qualify for the American Opportunity Credit and generally provide the largest amount of credit. You should review the instructions to Form 8863 for more information on which credit maximizes your tax benefit.
Who is eligible to take the education credits?
You can claim the American Opportunity credit for qualified education expenses you pay for a dependent child as well as for expenses you pay for yourself or your spouse. If you have several students in your family, you can claim multiple credits based on the expenses of each student. For example, if you have three kids in college, you can claim up to $7,500 ($2,500 x 3) in American Opportunity credits.
The credit is not allowed for a student who has completed the first four years of postsecondary education as of the beginning of the year. So, if your child completed less than four years of college as of January 1, 2019, you can claim the credit on your 2019 return.
Note: You can only claim the credit for a year during which the student carries at least a half-time course load for a minimum of one semester beginning in that year. Additionally, the student must be enrolled in a program that leads to an associates or bachelor’s degree or some other recognized credential.
You can claim the Lifetime Learning credit for qualified education expenses you pay for a dependent child as well as for yourself or your spouse. However, the maximum amount of covered expenses is $10,000 no matter how many students you have. This translates into a $2,000 maximum credit ($10,000 X 20%).
Warning: You can’t claim both the American Opportunity credit and the Lifetime Learning credit for the same student for the same year. However, you can potentially claim the American Opportunity credit for one or more students and the Lifetime credit for up to $10,000 of qualified expenses for other students in your family.
Both are subject to phase-out based on certain modified adjusted gross income levels.
Is student loan interest deductible?
In most cases, the interest portion of your student loan payments during the tax year is tax deductible. Your deduction is limited to interest up to $2,500, or the amount of interest you paid, whichever amount is less. As with most tax credits and deductions, there are limits in place. You can deduct student loan interest if:
You paid interest on a qualified student loan in the tax year
You are legally obligated to pay interest on a qualified student loan
Your filing status is not married filing separately
You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s tax return
You are a single filer with income under $70,000, however, your full tax deduction phases out (is gradually reduced) between $70,000 and $85,000 ($140,000 and $170,000 married filing jointly). If your income falls above those limits, the deduction is phased out and not available.
The other good news regarding the student loan interest deduction is that you do not need to itemize deductions to claim it.
If you paid more than $600 in interest to a single lender during the year, you should receive a 1098-E form showing how much interest you paid for the year. If you made student loan payments but did not receive a 1098-E, you are still entitled to claim the interest deduction, but you should verify the amount.
Is your home mortgage interest tax deductible?
Qualified residence interest is interest incurred from buying, building, or improving your qualified residence (acquisition or home equity debt). You can deduct interest from up to two qualified residences: your primary home and one other vacation home or similar property. You can deduct the interest for acquisition debt incurred or modified after 12/15/18, on the first $750,000 of debt ($375,000 for married individuals filing separately) regardless of whether the debt is labeled acquisition debt, home equity loan, home equity line of credit or second mortgage. Note also that the $750,000 ceiling on deductible home mortgage debt includes both your primary residence and your second home combined.
Debt incurred on or before 12/15/18 is limited to $1 million on acquisition debt and $100,000 of home equity debt. An individual with debt incurred before 12/15/18 can deduct interest on debt of up to $1.1 million. Any home equity debt used for any purpose other than acquisition debt is no longer deductible.
Are any of my closing costs deductible?
Mortgage closing costs are never deductible but are capitalized as a part of the cost of the home. The only exception to this is if the closing costs involve mortgage interest in the form of “points paid” which are deductible as a Schedule A itemized deduction if they are associated with acquisition debt. Points paid as part of a home refinancing and the loan is qualified acquisition debt are amortized as a Schedule A deduction over the life of the loan.
We have been doing home improvements out of pocket, are these expenses eligible as a tax write off?
Generally no. These costs would increase your basis of the home and are used to determine a gain or loss in the year of sale.
I purchased a new furnace; can I receive an energy credit? Are there other items that qualify?
A credit is allowed for purchases of nonbusiness energy property equal to 10% of the amount paid by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights and roofs) of principal residences. There is also credits of fixed dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners and circulating fans subject to a lifetime cap of $500. This credit expires after December 31, 2020.
I sold my residence for $350,000, do I have to pay taxes on the $30,000 gain that I had from the sale? Does it make a difference if it is not my primary residence?
A taxpayer can generally exclude from income up to $250,000 of gain ($500,000 for joint filers) from the sale of a home owned and used by the taxpayer as a principal residence for at least 2 of the 5 years before the sale.
Are there any expenses or costs that I can deduct on the sale of my residence?
Generally no. If the sale of the home was excluded, none of the costs associated with the sale would be deductible. If the sale of the home was not excluded, costs associated with the sale are deducted as an expense of sale and reduce the amount of gain that is reported.
We refinanced our home in February 2019. Today we received our Form 1098 from the mortgage company which shows points paid of $1,850.00. This appears to be the loan origination fee included in the total settlement charges paid at closing. Can we deduct this $1,850? Would it be fully deductible or just partially?
You can deduct the points paid on a refinance of qualified acquisition debt over the life of the mortgage. Thus, if your mortgage is a 20-year loan, you will deduct 1/20 or $93 each year for the next 20 years or until the home is sold or again refinanced. The remaining points become fully deductible when the loan is paid off – either due to sale or refinance.
My wife and I decided to downsize our finances so that she could stay home with our children. In October we purchased a smaller home and put our existing home on the market (it is still for sale). We had a December loan payment for the newly purchased (less expensive) house, plus 12 normal monthly payments on our other more expensive house. For tax purposes when it comes to writing off the interest on the mortgage(s), I would imagine the IRS only allows for one of the two loans. Who determines which of the interest payments is applicable? Can we choose between the two houses for the months of Nov/Dec.? If so, we would prefer to take the interest write-off on the larger mortgage (the first house that we occupied through October). Or will we need to get our lenders to amortize the interest by month and write off mortgage interest from loan 1 Jan-Oct and loan 2 from Nov-Dec? If we can choose to write off the interest for all 12 months of the house that we moved out of in October, does this affect our ability to write off mortgage points, etc. on the newly purchased house?
The IRS allows for the deduction of interest on qualified acquisition debt on two homes, so you can deduct all the interest paid on both homes in addition to the points paid on the purchase of the new home on total debt up to $750,000 ($375,000 MFS).
I own stock that is currently less than .01 cents per share. Do I need to sell the stock to recognize capital loss or is there some other way to declare the stock worthless?
The law states that a specific event must occur that declares the stock completely worthless before you can recognize the loss. If the stock is sold, the loss would be deductible subject to the capital loss rules. Check with your broker to determine if the stock is completely worthless.
My husband was a partner in a land deed. The land was given to him 7 years ago and was sold this year. Does he have to report the sale and where does it get reported?
First, as to holding period, it is the same as the original holder. Therefore, his/her holding period of at least seven years is greater than the twelve months required to receive long-term capital gain treatment. Next basis must be addressed, in that if it was received through a gift his basis is the same as the basis of the original holder. If it was received through inheritance, his basis will more than likely be the stepped-up basis, meaning Fair Market Value (FMV) at the date of death. Last, he should receive a 1099-S from the real estate broker. If the property was used for business purposes, then the gain would be reported on Form 4797 part I, which in turn flows through to Form 1040 Schedule D. If the property was merely held for investment, then the gain would be reported on 1040 Schedule D. When computing the gain, the sale proceeds are reduced by expenses of sale and the basis of the land.
I purchased a common stock for $6,000.00 two years ago. The Company declared bankruptcy in 2019 and the stock was declared worthless. My question is do I have to declare the full loss for tax year 2019 or lose it. Also, can I spread that loss over several years?
The criteria for deducting a stock loss is evidence of worthlessness. There are several ways to prove worthlessness and bankruptcy is one of them. Once a company declares bankruptcy, the basis in the stock, in this case $6,000 can be deducted as a long-term capital loss. If there are no other capital gains present on your tax return, $3,000 of those losses will be utilized in the current year and the remaining carried forward. If you happen to have at least $3,000 of capital gains on your return, then the entire loss can be realized. It is not lost regardless, but capital losses in excess of capital gains are limited to $3,000 each year.
Estate and Gift Tax Changes
For estates of decedents and gifts made after December 31, 2017, and before January 1, 2026, the estate and gift tax exemption amount increases from $5 million to $10 million, before inflation adjustments. For 2019, the inflation adjusted exemption amount was $11.4 million; the amount increases to $11.58 million for 2020. The exemption amount remains unified for estate and gift tax purposes and eliminates the estate and gift tax on property transferred under these amounts via death or gift. Any use of the exemption for gift taxes decreases the estate tax exemption available at death. Prior law permitting a “step-up” in tax basis of assets to fair market value at death continues. The exemption reverts to the rules prior to 2018 (i.e., $5 million exemption) for deaths after December 31, 2025. The IRS has recently clarified that individuals will not owe retroactive (“claw back”) taxes for the gifts they made from 1/1/2018 to 12/31/2025 once the temporary provision expires, makes the current estate and gift tax exemption a “use it or lose it” proposition.
Question 5: I heard that the estate tax will be repealed. Does this mean I no longer need to prepare an estate plan?
No. Gift, estate and generation skipping taxes will only affect about 1 percent of the population in the U.S. Most estates are below the estate tax filing threshold, which is currently $11.58 million for 2020 per individual under the 2017 Tax Cuts and Jobs Act. Under the new tax law, the gift, estate and generation skipping tax exemptions doubled in 2018 and will continue at the higher level, adjusted for inflation, until January 1, 2026 when the amount will sunset back to the exemption in place prior to the new law bringing the exemption back to $5.6 million, adjusted for inflation. Therefore, for those taxpayers who find themselves at this threshold and who survive through 2026, may view this change under the new law as an increased gift tax exemption amount, because there is no certainty that these increases will be available after 2025. Wherever we find the exemption to be after 2025, most taxpayers will not be affected. But, as noted before, keeping the estate tax amount low is not the only reason estate planning is important.
In addition, several states consider estate and gift taxes as a significant source of revenue and will not likely conform to changes in federal tax laws. For example, many South Dakotans own properties in our neighboring state of Minnesota, without proper planning, you will be subject to Minnesota estate tax if your overall gross estate is over $2.7 million for 2019, $3 million for 2020 and after.
And, no matter what happens, income tax is not going away. Careful estate planning can achieve significant income tax saving, and this is especially true for business owners or taxpayers with significant investments and interests in pass-through entities. Without professional guidance, disposing, exiting or transitioning family business interest can come with costly income tax consequences.