Should You Sell Your Under Performing Stock and then Buy it Back?

You sold one of your stock investments at a profit, so now you’ll have to report a capital gain on this year’s income tax return. Since another stock you own has been losing ground lately, you’re thinking of selling it to claim a capital loss on your return to offset your gain.

However, because you believe the company will bounce back eventually, you’re reluctant to part with your stock for the proven best forex indicators blog. What would happen if you sold your stock to claim the loss and then bought it back again right away?

Wash-Sale Rules

At first glance, it might appear to be the perfect plan. But it won’t work because of the tax law’s wash-sale rules. These rules prevent you from claiming a capital loss on a securities sale if you buy “substantially identical” securities within 30 days before or after the sale. If you want to claim the loss, you’ll have to wait more than 30 days to repurchase stock in the company.

Gone for Good?

Wondering what happens to wash-sale losses you can’t deduct? They don’t just disappear from your tax calculations. Instead, you’re allowed to add the losses to the cost basis of the shares you reacquire. This increase in cost basis will mean a smaller capital gain (or a larger loss) when you eventually sell your shares.

Potential Trap

Keep track of any share purchases you make through a stock dividend reinvestment plan or by having mutual fund distributions automatically reinvested.  Selling shares of the same stock or mutual fund at a loss within 30 days of the automatic purchase (before or after) will trigger the wash-sale rules, and part of your loss will be disallowed. We recommend to check out this review of Cryptohopper which explains how to use the platform properly.

Is There a Plan B?

Is there any way you can take your tax loss and still maintain your position in the stock? You may be able to double up on the loss securities, then wait 30 days and sell your original securities at a loss. Be sure to consult your tax advisor before taking this, or any, action.

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Are You a Non-Profit? Then Politics are Out of Bounds

Nonprofit organizations exempt from tax under Section 501(c)(3) of the federal tax code — schools, religious groups, hospitals, social service providers, and other public charities — should be careful not to violate the law’s prohibition on political campaign activities.

What’s Prohibited?

Participation or intervention in a political campaign on behalf of, or in opposition to, a candidate for public office is absolutely prohibited, whether it’s done directly or indirectly. This restriction applies across the board to campaigns of candidates running for national, state, or local public office.

Examples of prohibited political campaign activities include:

> Endorsing a candidate

> Donating to a candidate’s campaign

> Allowing a candidate to make a campaign speech at an organization-sponsored event

> Allowing a candidate to use an organization’s assets or facilities if other candidates are not given an equivalent opportunity

> Distributing materials that favor or oppose a candidate (whether the statements are prepared by others or by the organization)

> Posting comments about a candidate on the organization’s website or maintaining a link to only one candidate’s profile on the site

Permissible Activities

An organization may educate voters as long as it’s done in a nonpartisan, unbiased way. For example, organizations may prepare and distribute voter education guides or hold public forums that we have learned across the mba duel degree studies. But all candidates seeking the same office should have an equal opportunity to be represented or participate. Neutrality — in content, wording, questioning, issues for discussion, etc. — is key.

Board members and other leaders of an organization may, of course, hold their own political views. But when they express those views, they should make it abundantly clear they are speaking for themselves, not on behalf of the organization. Leaders should avoid making political statements at organization meetings. Similarly, the organization’s resources or publications should not be used to express political views.

A charity may conduct educational activities regarding public policy issues of importance to its mission, including issues that divide candidates in an election for public office. However, messages that could be construed as political campaign intervention should be avoided.

Failure To Comply

Violating the prohibition on political campaign activities can result in revocation of an organization’s tax-exempt status and the imposition of certain excise taxes.

To learn more about non-profit compliance issues, give us a call today. We look forward to helping your non-profit grow.

 

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Finding the right route: special topics for LGBT couples

Tax-Saving Tips for LGBT Couples

The issues around marriage equality caused lots of debate, but it was federal tax laws that finally prompted the Supreme Court to take a look. Prior to the 2013 United States v. Windsor decision, same-sex couples who were legally married in states or countries that recognized their union were unable to take advantage of certain federal benefits. For example, individuals in same-sex marriages were ineligible for the insurance benefits of their spouses who worked in government, and they could not receive social security survivor’s benefits or file joint tax returns.

The 2013 United States v. Windsor decision and the 2015 Obergefell v. Hodges decisions changed these practices, and LGBT couples became eligible for federal tax savings that were previously unavailable. The Amazon Best Selling book, The Great Tax Escape, offers a comprehensive look at making the most of these programs to enjoy greater tax savings.

Choosing Your Filing Status

The first tax-related issue to consider after you are married is how you will file your returns. Depending on your income, “married filing separately” could offer larger savings than “married filing jointly”. There is a phenomenon knows as “the marriage penalty”. This references the tax increase that many couples face when filing joint returns versus single returns.

Tax specialists can assist with significantly reducing tax liability through a combination of smart financial planning, examination of the impact of each filing status, and a review of all possible deductions. Filing status is expected to be particularly relevant for the 2018 tax year, as new tax regulations with revised tax brackets may reduce or eliminate the marriage penalty.

Quick Tips to Avoid Tax Filing Pitfalls

Completing your tax returns after you are married is not necessarily more complicated than filing as single, but there are a few differences to keep in mind. Small errors can lead to major frustration if your returns are rejected or you have to file an amended form. These are the most common pitfalls – and how to avoid them:

  • You must either choose “married filing jointly” or “married filing separately”. Other filing statuses are not permitted, including “head of household”. (Note: There is an exception available for married couples who have lived apart for six months or more.)
  • Your spouse cannot be listed as your dependent.
  • If you choose “married filing separately”, only one spouse can claim each dependent child.
  • Married couples must choose the same option with regard to itemizing deductions versus claiming the standard deduction.

Your Certified Tax Coach can provide the guidance you need to complete your returns correctly.

New Options for Reducing Estate Taxes

The underlying issue that prompted United States v. Windsor was the application of federal estate tax regulations. In short, married couples pay far less when a spouse dies than they would if no marriage existed. The individual who brought the suit wanted the same benefits as married couples who are opposite-sex. Today, all married couples can enjoy the tax savings that come with careful estate planning thanks to a estate planning attorney. Your Certified Tax Coach is an excellent resource for putting a tax minimization strategy in place to protect your wealth after one partner passes away.

For more tips on how LGBT couples can increase tax savings, visit our consultation form for your copy of our new release, The Great Tax Escape.

Famed Hedge Fund Manager Makes History with Billion Dollar Bet

It was one of the greatest financial bets of all time. Hedge fund manager John Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning billions in profits for his funds. It was a gamble that, in the long run, didn’t pay off.

Along with the $4 billion he earned for himself, he nailed a second record-breaking honor when he was slapped with one of the largest personal tax bills in history.

According to people close to the firm, Paulson used installment loans available at the time to hedge fund managers. After deferring the bulk of taxes on the profits, Paulson’s personal tax bill came due on April 17th when he was required to pay about a billion dollars. This is on top of $500,000 he paid late the year before.

Only one problem.

The sum of his payment surpasses the maximum amount allowable by the IRS for payment by a single taxpayer with a single check. That amount is $99,999,999.

Like many investment managers, Hedge fund managers profit from fees amounting to a percentage of gains generated for their clients. In the case of Paulson & Co. that percentage is 20%.

For years—decades actually—tax authorities allowed hedge funds to defer receipt of this type of income. The reason the IRS permits this deferment of compensation by executives is that it tends to lower the company’s compensation costs, forcing them to pay higher taxes on profits. This offsets income taxes not paid right away by the employees.

Sounds like a win-win situation, right?

Well, maybe not this time.

In the case of offshore hedge funds that don’t pay offsetting U.S. taxes, such as some of those operated by Paulson, the treasury was not on the winning team.

A tax change mandated by Congress in 2008 gave hedge fund managers like Paulson until April 17, 2018 to pay taxes on money accumulated before the law changed. People close to the firm say Paulson turned to his Credit Opportunities fund, which is one of several he operates.

Word has it this fund held about $3.5 billion in assets late last year. The bulk was represented by Paulson’s own interests. He made an initial tax payment late last year by pulling funds from this account. He pulled another $1 billion from the fund and used it for the money due on April 17th.

Guess who was said to be the largest investor in the fund?

Right.

The government wants its money, but paying Paulson’s bill might not be easy. He could wire it if he wanted but might prefer paying by check if he’ll earn interest on the money until authorities cash the check. If so, he might have to submit multiple payments because the IRS will only accept a payment of less than $100 million.

He could do that if he can get past the most common problem: fitting such huge numbers onto the appropriate line on a check.

We should all have such problems….

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California Courts Put the Squeeze on Statewide Hiring Practices

In an effort to even the playing field, a unanimous decision by the California Supreme Court recently put business owners across the state in somewhat of a chokehold. With a ruling that could change the workplace status of people across the state, they’ve made it harder to classify workers as independent contractors.

Class-Action Lawsuit

The ruling came as a result of a class-action lawsuit against Dynamex Operations West, Inc. The suit charged that Dynamex, a package, and document delivery company, misclassified its delivery drivers, calling them independent contractors when they were actually employees.

If they did misclassify, they are not the only company doing the same thing. The ruling has implications for the expanding gig economy, an environment in which organizations contract with independent workers for short-term engagements.

Companies such as Uber and Lyft are also being targeted but it could extend to other business models. Hiring independent contractors versus employees is a swiftly growing trend.

The trend is popular in part because it makes good financial sense for businesses. With employment overhead rising over the last couple of decades, employers are backing away from the would-be money-suck and instead of hiring independent contractors for the jobs once held by full-time and part-time employees.

In recent years, the trend toward hiring independent contractors instead of employees has gone through the roof. A 2016 study by economists at Harvard and Princeton universities estimated 8.4% of the U.S. workforce is classified as independent contractors.

That’s 12.5 million people.

It’s a no-brainer really. Companies that hire independent contractors are not bound by the rules governing employment.

The Advantages?

No workers comp.

No deductions.

No piles of paperwork.

No minimum wage or overtime pay.

A 1099 at the end of the year does it, and they’re good to go. Contractors are in charge of managing their own responsibilities to the IRS and state governments.

End of story.

But the story doesn’t always have a happy ending.

If workers are misclassified, the business doing the hiring faces stiff fines. Employment lawyers at this page say many are questioning whether it would be best to reclassify before someone waves a red flag in their direction.

What is an Independent Contractor?

According to the court ruling, independent contractors:

  • Perform work outside of the hirer’s core business
  • Engage in an independently established trade, occupation or business.
  • Would not reasonably be viewed as working for the hiring business.

The court says businesses that hire workers must show that the workers are working in their own established businesses, free from the control and direction of the employer. That means no established hours or expectations as would be expected of an employee.

The aforementioned ruling did not resolve the Dynamex case, but it did help define independent contractors for lower courts grappling with the dispute. The court said wage and hour laws were adopted to enable people to earn a subsistence standard of living and to protect workers’ health and safety. The laws also shield the public from having to assume financial responsibility for workers earning substandard wages or working in unhealthy or unsafe conditions, the court noted.

“This is an effort to level the unequal playing field — misclassified workers have been taken advantage of for decades,” said Gutman Dickinson, a partner at Bush Gottlieb.

The risk of misclassifying workers—intentionally or otherwise—is substantial. A worker may be denied the status of employee “only if the worker is the type of traditional independent contractor — such as an independent plumber or electrician — who would not reasonably be viewed as working in the hiring business,” the court said.

Examples of Independent Contractors:

    • Plumber
    • Electrician
    • Hairdresser
    • Copywriter
    • Computer Tech

As long as the worker is temporarily hired he or she would be classified as an independent contractor. But a cake decorator who works on a regular basis custom-designing cake—even from home—would be an employee.

This discussion is significant on many levels, not the least of which concerns the California Labor Commission. According to their website, the misclassification of workers as independent contractors costs the state roughly $7 billion in lost payroll taxes each year.

To follow these changes and others, connect with one of our tax experts.

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Are Entertainment Deductions History?

It’s no secret that many a sale has been closed over a three-martini lunch. Client entertainment is a given in most industries and most salespeople carry a company credit card for just such transactions.

It’s also no secret that more than a little commingling goes on between personal entertainment expenditures and those that qualify as business expenditures. That is no longer an issue; at least for now. Here’s why….

Under the new tax reform, the veil separating business expenses and pleasure has come crashing down with the elimination of entertainment deductions.

Not good news for business owners who counted on this deduction to defray tax bills at the end of the year. Even the limited deduction of 50% is no longer valid for dinners or cocktails with prospective clients or service providers and similar entertainment expenses.

What could be worse?

Well, how about this: sales related entertaining such as:

  • Sporting events—nixed,
  • Boating and Golfing—nixed.
  • Theater and other shows, box seats at stadiums—yes, those too.

What Does This Mean for Tax Planners?

Will they still be able to work their magic? Their expertise as tax planners is founded in creative workarounds and alternatives. The old saying, when one door closes, another opens applies in the tax world too.

What are The Options?

Well, there’s always Internal Revenue Code Section 274(e).

Despite reforming entertainment-related expenses, this will allow some expenses to be deducted, albeit under different circumstances.

For instance, if you pay for the use of club seating or a private box at a stadium, using this as compensation for your employees will still allow this expense to be deductible.

You need to meet two criteria to make this shift:

  • Ensure your employees attend these events.
  • Include the value of each event as taxable wages.

The “downside” for your team is an additional tax that will be subject to withholding and is includable on their form W-2.

The “upside” is it will ensure you can still deduct the expense.

Are Business Meetings Still Covered?

Brace yourself for the GOOD NEWS … YES!

As always, events and entertainment expenses related to business meetings including the board of directors and employee meetings continue to be deductible, . Deductible expenses continue to include meals and beverages, subject to the 50% limitation, facility rental, décor, supplies, and ancillary costs.

Is There Any Other Way to Deduct Entertainment Expenses?

Again, yes. You can still provide entertainment to the public, your clients, or prospective customers by issuing an information tax statement to the recipient. The most common form to use would be the form 1099-Misc. The recipient will need to include it as income and it will be taxable, but your business will still benefit from the deduction.

Let’s get more creative.

You might consider charging for the event or experience, being able to use different services online like an event company in London that specializes in producing events in this city. Sure the income will be taxable, but the cost of the activity will become deductible, transforming your expense from after-tax to pre-tax dollars.

The new tax reform brings big changes but your tax planner will still be able to work with you and provide valuable advice. To find out more about how to navigate the tax laws both new and old, be sure to work with someone who is certified in tax planning. We’ll help you find the new ways to open doors to a lower tax bill!

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Starting a Business Are Startup Costs Deductible?

There can be no more exciting a time than to go from punching a clock to being your own boss. But starting a business means more than deductible lunch dates and setting your own hours. If you think self-employment means you get to kick back and relax, it won’t happen. Most entrepreneurs will tell you they have never worked harder.

Starting a new business takes time and money. If you do nothing else, begin with a business plan. Your investment of blood, sweat, and tears can pay off for the life of your business—as long as you make prudent choices, and a business plan will help you calculate what you’ll need and how much it will cost.

The money you invest is tax deductible, right?

Well … not always.

Don’t make the mistake of assuming all your startup costs are deductible. As long as your total startup costs are $50,000 or less, the IRS allows you to deduct a limited amount of startup costs, and also organizational costs.

On the other hand, if your startup costs for either area exceed $50,000, your allowable deductions are reduced by that dollar amount. Once you make your first sale, however, you can claim all of your business startup expenses. Read on for details.

What Are Startup Expenses?

These days no business can operate without using some form of technology. Unless you plan to use your 3-year-old laptop to run your online business, you’re going to need to purchase equipment to help facilitate your business. Oh, and you’ll need a smartphone if you want to keep up.

Of course, computers and office equipment would qualify as startup expenses. If you need to rent office space or even a cubicle in a cooperative setting, they would also qualify. However, shelf any plans to stand by the mailbox waiting for your hefty check from the IRS. Neither of these expenses can be deducted until after your first sale, at which time they will be deducted over a period of 15 years.

The Upside?

You can choose to deduct the first $5,000 in your first year of business for startup costs, and another $5,000 for organizational costs. Expenses such as legal fees, corporate filing, DBA, and related expenses fall under this designation, but only if your total startup costs are $50,000 or less. If your expenses were over $55,000 you lose the right to any deduction at all.

Make sure you save all receipts for purchases. The laws change so it’s in your best interest to be aware. Check with your tax professional, who will be aware of the latest IRS tax laws. He or she will advise as to whether your startup expenses qualify for a deduction.

 

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Know what Documentation you Need for Your Charitable Donations

To claim a deduction for a charitable donation, you must have certain documentation. The current tax law requirements are summarized in the table below.

 

Additional Tips

 

Here are some other points to keep in mind.

 

Multiple contributions. If you make multiple contributions of less than $250 to the same charity during the year, you generally should treat each contribution separately in determining the amount of the contribution and the supporting records you should have.

 

Donations of clothing and household items. To be deductible, these donations must be in “good used” condition or better unless you are claiming a deduction of over $500 and include a qualified appraisal of the item with your return. If you can’t get a receipt from the charity because you left items at a charity’s unattended drop site, note the charity’s name, the contribution date, and a description of the items you donated and keep it on file. Also, note the donated items’ fair market values and how you determined the values.

 

Text message donations. If you donate money by sending a text message — to a disaster relief charity, for example — the donation will be routed through the cell phone company you use. The company forwards the amount you donate to the charity, and the charge appears on your bill. Therefore, the telephone bill showing the date and amount of your donation to the organization will serve as the proof you need to substantiate your contribution.

 

Contribution        Amount                 Records

Type                    Contributed          Required

 

Monetary              Less than $250      Bank record or written receipt:

(cash, credit                                        • Name of organization

card, check)                                       • Amount of contribution

  • Date of contribution

 

Monetary              $250 or more         Same as for monetary contribution of less than

(cash, credit                                        $250 plus written acknowledgment stating:

card, check)                                       • Contribution amount

  • Whether charity provided goods/services in exchange
  • Description, an estimated value of goods/services provided

 

Monetary              Any amount           Pay stub, Form W-2, or another document from the employer

(payroll                                              that shows amount withheld for payment to charity

deduction)                                          Pledge card showing charity’s name

Written acknowledgment if $250 or more is deducted

from single paycheck

 

Property               Less than $250      Receipt, letter, other written communication from

charity stating:

  • Name of organization
  • Date and location of contribution
  • Property description

(receipt not required when impractical to obtain)

Record of property’s fair market value on the contribution

date and how the value was determined

 

Property               $250-$500             Same as for property donation of less than $250 plus

written acknowledgment must state whether charity provided

goods or services in exchange and, if so, their value

 

Property               $500-$5,000          Written acknowledgment

Form 8283 (filed with tax return) stating:

  • How and when a property was acquired
  • Cost or another adjusted basis of property (unless publicly

traded securities)

 

Property               Over $5,000          Same records as for property donations of $500-$5,000 plus:

  • Qualified appraisal (exceptions apply)
  • Appraisal summary with Form 8283

 

To learn more about donations and taxes, give us a call today. Our staff of professionals is always happy to help.

 

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IRS Requirements for Documentation for Charitable Donations

Recently, the U.S. Tax Court denied a taxpayer’s claimed deductions for over $27,000 of charitable contributions because the taxpayer had failed to properly document them.

 

Individual taxpayers and business owners claiming deductions must be able to substantiate them according to specific rules established by the IRS. Watch out for these common pitfalls.

 

Donations. Cash contributions of less than $250 require a bank record or written receipt indicating the name of the organization and the date and amount of the contribution. For noncash donations, you need a receipt and a record showing the donee’s name and a description of the gift. If the value of any gift equals $250 or more, you also need a contemporaneous written acknowledgment, a statement of whether the charity provided any goods or services in exchange for the gift, and, if so, a description and a good faith estimate of the value. Additional rules apply to contributions of noncash property of more than $500.

 

Hobbies. Deductions for hobby expenses are strictly limited. If you wish to claim the full extent of any expenses, you must be prepared to show that your activity qualifies as a business. The IRS will presume it’s a business if you can show a profit in three of the past five years. If that isn’t the case, then you should be prepared to produce evidence to satisfy a number of more subjective tests to avoid application of the tax law’s “hobby loss” restrictions.

 

Divorce. Alimony payments are tax deductible, but payments for child support are not. Taxpayers should retain their final divorce decree and any agreements for child support and/or separate maintenance in case the IRS questions claimed deductions. Also, retain any agreements regarding who will claim exemptions for dependent children. For capital gains purposes, save cost records for both jointly owned and settlement property.

 

Business expenses for travel, meals, and entertainment, and transportation. Generally, you must retain documentation to establish the amount, time, place, and business purpose for each expenditure. Specific expense categories may have additional requirements.

 

Business use of an automobile. Maintain records for the cost of the car and any improvements; the date you started using it for business; the mileage, destination, and business purpose for each trip; and the total mileage for the year. When you use the actual expense method rather than the IRS standard mileage rate, you also need records of your operating costs, such as gas, oil, repairs, maintenance, and insurance.

 

Home office. Be prepared to produce records that substantiate your claimed expenses and show regular and exclusive business use of that part of the home.

 

To learn more about tax rules and regulations, give us a call today. Our knowledgeable and trained staff is here to help.

 

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Understanding the Tax Ramifications of Investing in Rental Real Estate

Investing in residential rental properties raises various tax issues that can be somewhat confusing, especially if you are not a real estate professional. Some of the more important issues rental property investors will want to be aware of are discussed below.

Rental Losses

Currently, the owner of a residential rental property may depreciate the building over a 27½-year period. For example, a property acquired for $200,000 could generate a depreciation deduction of as much as $7,273 per year. Additional depreciation deductions may be available for furnishings provided with the rental property. When large depreciation deductions are added to other rental expenses, it’s not uncommon for a rental activity to generate a tax loss. The question then becomes whether that loss is deductible.

$25,000 Loss Limitation

The tax law generally treats real estate rental losses as “passive” and therefore available only for offsetting any passive income an individual taxpayer may have. However, a limited exception is available where an individual holds at least a 10% ownership interest in the property and “actively participates” in the rental activity. In this situation, up to $25,000 of passive rental losses may be used to offset nonpassive income, such as wages from a job. (The $25,000 loss allowance phases out with modified adjusted gross income between $100,000 and $150,000.) Passive activity losses that are not currently deductible are carried forward to future tax years.

What constitutes active participation? The IRS describes it as “participating in making management decisions or arranging for others to provide services (such as repairs) in a significant and bona fidesense.” Examples of such management decisions provided by the IRS include approving tenants and deciding on rental terms.

Selling the Property

The gain realized on the sale of residential rental property held for investment is generally taxed as a capital gain. If the gain is long term, it is taxed at a favorable capital gains rate. However, the IRS requires that any allowable depreciation be “recaptured” and taxed at a 25% maximum rate rather than the 15% (or 20%) long-term capital gains rate that generally applies. Find out how to find property managers in Aventura and to protect your investment and valued property.

Exclusion of Gain

The tax law has a generous exclusion for gain from the sale of a principal residence. Generally, taxpayers may exclude up to $250,000 ($500,000 for certain joint filers) of their gain, provided they have owned and used the property as a principal residence for two out of the five years preceding the sale.

After the exclusion was enacted, some landlords moved into their properties and established the properties as their principal residences to make use of the home sale exclusion. However, Congress subsequently changed the rules for sales completed after 2008. Under the current rules, the gain will be taxable to the extent the property was not used as the taxpayer’s principal residence after 2008.

This rule can be a trap for the unwary. For example, a couple might buy a vacation home and rent the property out to help finance the purchase. Later, upon retirement, the couple may turn the vacation home into their principal residence. If the home is subsequently sold, all or part of any gain on the sale could be taxable under the above-described rule.

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