If you own rental properties, enjoy being in that business, and want to grow that rental property business, you need to know the ins and outs of the Section 1031 exchange. The word “exchange” is misleading; what you really do in a 1031 is sell an existing property and then buy a new property, but you do this using an exchange intermediary. It’s easy and the intermediary is not expensive. In this article you will learn how to avoid Mr. Adams’s fate as we follow him to court with an exchange that involved a rental to his son that raised issues with the IRS.
Is your receipt of a life insurance death benefit tax free to you? For income tax purposes, the likely answer is yes. But when you get into the estate, the answers are (1) maybe, (2) no, or (3) yes, depending on who the recipient is and what type of planning has taken place. Life insurance planning is important now because the current $5.12 million exemption from estate taxes expires on December 31, 2012, and lawmakers slotted the 2013 exemption at $1 million and increased the tax rate from 35 to 55 percent.
Your business ownership creates an opportunity for a tax plan that can give you tax deductions for hiring your children and can give your children tax-free income. But your tax plan does not stop there. Your children might start Roth IRAs where they can invest their tax-free income in a college fund. Done right, as described in this article, the government pays you for your help with this plan.
Stay with your mom and dad on a business trip, and create tax deductions by paying them for business lodging. You have a choice: deduct the cost of staying at the big hotel downtown or deduct the cost of staying with your parents. Either way, the choice of location does not change the fact that you are on a tax-deductible business trip.
Are you subject to the self-employment tax if your activity does not rise to the level of a trade or business? Answer: no. When not subject, you report the non-business income on page 1 of your Form 1040 where the self-employment tax does not apply. That’s good for the income. The deductions for this non-business activity have to take another route, and the deductions don’t fare very well.
Learn how you can qualify for a tax refund when you pay the “nanny tax” on the wages that you pay your nanny. For the most part, you want to qualify for the child and dependent care credit because the dependent care assistance program discriminates against the one-owner or husband-and-wife-owned business.
The single-member LLC is a disregarded entity for federal income tax purposes, but a corporation for employment tax purposes.
The newly enacted tax cut creates a new 2011 and 2012 estate tax. The new rules are taxpayer friendly in two respects. First, they are easy to understand. Second, they contain a $5 million exclusion (portable, if properly elected, for husband and wife, giving a married couple an exclusion of $10 million).
When the IRS invites you for a tax audit, the examiner does not know that you hired your children. This fact surfaces during the initial interview or survey process, and the IRS instructs its examiners to examine this hire closely. You avoid all the problems when you have the right records.
When your S corporation employs a relative, you need to be aware of the stock attribution rules that can wreak havoc on the health insurance fringe benefit.
Tax savings when renting to relatives depend on your compliance with the tax law’s fair-rent standards and your relatives’ use of the property. Violate these rules and you face the triple whammy of additional taxation.
Tax law favors the son or daughter working for the mother or father in a proprietorship or husband and wife partnership. If you operate your business as a corporation, you also can come out ahead by hiring your child.
Having your child work in your business produces college funding strategies with both the Roth and the traditional IRA. As an added bonus, you can use the traditional IRA with earned income to eliminate some kiddie tax.
Distributing the assets of an estate needs a tax plan to ensure the favorable results embedded in the tax law.
You can use a Section 127 education plan to obtain tax benefits for yourself (or your corporation) while you help your grandchild through college or other learning.
Establish a Section 127 educational assistance plan in your business to help pay your age 21 or older child’s college or other education costs. If you are in business and you have a child that’s age 21 or older in financial need of educational assistance, this is a plan to consider.
Higher inflation could be good for that home you buy today—and if you buy today, you will have today’s low interest rate. That’s a pretty good combination. Then add the 2009 tax credit and get the government to pay you $8,000 for taking the chance. Sounds like you hit the trifecta doesn’t it?
The sole proprietor may not claim a business deduction for child care that enables him to work. The tax benefit for this type of child care comes on the personal income tax return as a dependent care credit.
Most of the business property that you will expense and depreciate in this year’s tax return is MACRS (modified accelerated cost recovery system) property. When you convert this property to personal use, you need to know four rules to avoid recapture problems.
The kiddie tax applies to unearned income. It does not apply to earned income.
The $250,000 exclusion on the sale of this home is complicated by the mother and daughter owning this home together.
At death, IRAs are not treated like homes, which pass to the heirs at fair market value with no income tax issues. Instead, the IRA faces both the estate tax and the income tax. In this court case, the combined estate and income taxes devoured $1.6 million and the heirs had $1.1 million left to spend.
To deduct mortgage interest, (1) you must have title, (2) the mortgage must be in your name, (3) the home must secure the mortgage, and (4) you must make the mortgage payments from your money.
When you receive property in which you had an interest as a result of a family member’s death, make sure you clarify your income-tax basis in this property right away.