Unsure of whether you should use the standard deduction amount, or take the time to itemize deductions? The answer is fairly straightforward; you should itemize deductions if your total deductions are more than the standard deduction amount. Also, you should itemize if you don’t qualify for the standard deduction. Taxpayers should initially calculate itemized deductions and then compare that amount to their standard deduction to determine which provides the greater benefit. A taxpayer may be subject to a limit on some itemized deductions if he or she exceeds the adjusted gross income limits.
Real Estate Loss Deduction for Individuals
In the last ten years, too many taxpayers have sold real estate at a loss. How does this type of loss ultimately affect the amount of taxes owed to the IRS? First, to accurately determine the amount of a loss from disposition, compare the property’s sale price to its tax basis. The tax basis is generally the original purchase price, plus the cost of improvements (but not expenses deducted as repairs and maintenance) less depreciation.
What Is A Federal Tax Lien?
A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:
• Puts your balance due on the books (assesses your liability);
• Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
You:
• Neglect or refuse to fully pay the debt on time.
The IRS files a public document, the Notice of Federal Tax Lien, to alert potential creditors and the public that the government has a legal and enforceable interest in your property.
Losses, Expenses and Interest between Related Taxpayers – Know The (Tax) Code: 26 U.S.C. §267
Congress, aware that related parties could create fictitious tax losses lacking economic substance based upon the related parties continued enjoyment of the property subject to the loss, enacted § 267 of the Internal Revenue Code to disallow certain losses and deductions on transactions between related taxpayers.
Frivolous Tax Arguments And Their Perils
“Like moths to a flame, some people find themselves irresistibly drawn to the tax protester movement’s illusory claim that there is no legal requirement to pay federal income tax. And, like moths, these people sometimes get burned.” United States v. Sloan, 939 F.2d 499, 499-500 (7th Cir. 1991).
As long as the federal income tax has been with us, taxpayers have tried to argue that income taxes don’t legally apply to them. The reasons and bases for these arguments usually include the voluntary nature of the federal income tax system, the meaning of income, and the meaning of certain terms contained in the Interenal Revenue Code. Taxpayers hanging their hats on frivolous positions risk a variety of civil and criminal penalties for tax evasion and tax fraud . And taxpayers that adopt these frivolous positions may face more severe consequences than those who only promote them.
Gifts and Inheritances Under the Tax Code (26 U.S.C. §102)
Section 61 of the Tax Code states that “except as otherwise provided in this subtitle gross income means all income from whatever source derived”. Thus, the federal tax law requires taxpayers to pay income taxes on earnings, commissions, rents, royalties, retirement benefits, investment profits, tips, fringe benefits, bonuses and almost anything else of value, unless the Internal Revenue Code specifically provides an exception to the general rule contained in §61. An exception to the general rule is §102 of the Internal Revenue Code.
Child and Dependent Care Credit Explained (26 U.S.C. §21)
Federal courts have long held that expenses incurred by taxpayers for the care of dependents, such as a daycare or babysitting expense, while the taxpayer is away from home and at work, are not deductible under I.R.C. § 162(a). However, taxpayers who incur daycare expenses for their children or disabled adult dependents may be eligible for a federal tax credit of up to 35% percent of the cost of day care. To qualify for the child and dependent care credit, you must have a dependent child age 12 or younger, or a dependent of any age who cannot care for himself or herself. You may calculate your tax credit on IRS Form 2441.
Tax on Capital Gains and Losses, Explained
A capital gain occurs when you transfer or sell a piece of property for more than its acquisition cost. To be more succinct, it’s the profit realized on the sale of a non-inventory asset. Capital gains are realized from the sale of all types of property, both real and personal such as investments and other traditional non-investment types of personal property. In the United States, with certain exceptions, individuals and corporations pay income tax on the net total of all their capital gains.
What You Need to Know About Deducting State and Local Taxes
Taxpayers that itemize deductions on Schedule A, (and file Form 1040) can deduct the cost of state income taxes on their federal tax return. The ability to deduct the full cost of these taxes has its obvious advantages. Taxpayers may either claim such a deduction from state and local income taxes or state and local sales taxes, but not both. Basically, to be deductible, the tax must be imposed on a taxpayer and must have been paid during the particular tax year. Taxpayers that elect to deduct state and local general sales taxes, may use either their actual expenses or the optional sales tax tables.
A Primer for US Taxpayers Residing Abroad
Here’s a primer for United States taxpayers residing abroad:
U.S. citizens must file a tax return. Any U.S. citizen who earns income of any kind is obligated to file a U.S. tax return every year, no matter where he or she resides in the world. Many Americans, living abroad and in the U.S., find it unfair that the United States is the only country that requires citizens to file tax returns whether or not they are earning income on U.S. shores. This is a leading reason why some Americans are renouncing their U.S. citizenship.