Record Retention: Federal law requires you to maintain copies of your tax returns and supporting documentation for 3 years. However, if the IRS believes there is significant underreporting of your income or believes there may be fraud, it may go back 6 years in an audit.
If you have sold your primary residence, you may be able to exclude up to $250,000 (single) and $500,000 (married filing jointly) of the gain.
If you have recently been married or divorced, make sure the name on your tax return is the same as with the Social Security Administration. A mismatch will delay the electronic filing of your return. You can create an account with the SSA to verify your information.
Qualified Tuition Programs (529b plans) – earnings from these accounts are tax-free. This represents an opportunity to accumulate funds for children and grandchildren's college education tax-free. Gifts to 529b accounts can exceed the regular annual gift maximum of $15,000. This represents a manner to reduce potential estate taxes.
The IRS requires a Social Security number for all dependents. Without it the IRS can deny personal exemption, child care or dependent care credit.
IRA and Keogh Distributions. Minimum distributions are generally required when you are seventy and one-half. The first distribution may be delayed until April 1 of the year following the year you reach 70 and one-half. In subsequent years the distribution must be made an annual basis. Careful planning can determine the most advantageous year to take the first distribution.
STOCK MARKET:
In a period of volatile stock prices you may be able to reduce your taxable income by moving out of unfavorable investments and shift to investments you are more comfortable with. Remember a tax loss only occurs upon the sale of the security. Recognized stock losses are used to offset capital gains. Excess capital losses can be used to offset up to $3,000 of ordinary income. If the loss exceeds $3,000 the balance of the loss is carried forward to future years. Because a capital loss is used too offset ordinary income it is advantageous to recognize a capital loss in one year and defer long term gains to the following year.
You can write off the cost of a worthless security as a capital loss. In order to take the loss you must have evidence that the security is worthless, company has liquidated or gone bankrupt.
IRA FREQUENTLY ASKED QUESTIONS:
Roth IRA's are non deductible but grow tax free.
Roth IRA's can used in college funding planning.
Traditional IRA's are deductible but distributions are taxable.
BUSINESS TAX TIPS
Utilize Section 179, expensing of business asset purchases, $1,040,000 in 2020.
Start-up costs- If you estabilished your business and you incurred expenses before the business actually began operating (start-up costs), you may be able to deduct these expenses. As long as the business is operating, you can elect to currently deduct up to $5,000 of start-up expenses. Once start-up costs exceed $50,000 the $5,000 limit is reduced dollar for dollar. The remainder of the costs must be deducted ratably over a 180-month period.
The Disabled Access Tax Credit allows $5,000 of expenditures annually for purchase of equipment to make your building more accessible to the handicapped.
