California Prop 19, also known as “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act,” went into effect on February 16, 2021. This blog will review the three classes of people who can benefit from this legislation, as well as the strict limitations it introduces to parent-to-child property transfers. Those who can benefit from Prop 19 are 1) people over age 55, 2) disabled persons, and 3) disaster and wildfire victims. Prop 19 … [Read more...]
Extensions to the Paid Sick Leave and Family Leave Credits in 2021
Employers will continue to see tax benefits for providing paid sick leave and family leave for the second and third quarters of 2021. The Families First Coronavirus Response Act (FFCRA) created an employer tax credit to reimburse employees’ sick and family leave for reasons related to COVID-19. This credit has been extended through the end of September 2021 by the Consolidated Appropriations Act, but the extension only applies to the second and third quarters (April through September) of … [Read more...]
Navigating Changes to the 2021 Dependent Care Credit
The Dependent Care Credit is available to taxpayers who pay someone else to care for a dependent under age 13 or to care for a spouse or dependent who is unable to care for themselves. The goal of the credit is to help subsidize dependent care expenses so the taxpayer is able to work or look for work. Much like the Child Tax Credit, significant changes have been made to the Dependent Care Credit for just one year, effective in 2021. Here’s a review of these changes: Prior to 2021 In … [Read more...]
Understanding the 2021 Changes to the Child Tax Credit
Taxpayers who have children in their care should be aware that the Child Tax Credit has been changed for one year, effective for 2021. Here’s a review of the changes to the previous Child Tax Credit laws: Prior to 2021 In 2021 Children under age 17 at the end of the tax year are eligible for the credit Children who are age 17 at the end of the tax year are now also eligible for the credit $2,000 credit for each child under 17 $3,000 credit for each child ages 6 to … [Read more...]
Taking Advantage of Passive Losses
Over the last two weeks we have outlined a strategy to intentionally fail the test for material participation, for purposes of converting non-passive income to passive income. Why might we want to do that? The first and most obvious reason is to save self-employment tax. A second reason you might want to do that is to create passive losses. When determining tax liability on passive income, the first step is to combine any passive losses with passive income. When you do that, your overall … [Read more...]
The Section 1244 Small Business Stock Loophole
This week’s blog focuses on a loophole to the $3,000 deduction on capital loss losses. Businesses don't always go as people hope they will. Unfortunately, in the last year we've seen a lot of struggle. Many businesses in specific industries, including food and entertainment, have had to close their doors. For business owners and entrepreneurs, that can often mean significant losses. A business is a capital asset. When you sell that asset for profit, that's a capital gain. When you sell at a … [Read more...]
Defining Material Participation
If you haven’t looked at last week’s blog (“Reclassifying Non-Passive Income”), we suggest you do that first. Last week, we focused on classifying activities as either passive or non-passive. This week, we want to look at the rules of material participation. When intentionally trying to recharacterize income from non-passive to passive, we need to prove a lack of material participation. Why? This is covered more fully in last week’s blog. In summary, if you materially participate in an … [Read more...]
Reclassifying Non-Passive Income
One strategy regarding income recharacterization is to shift non-passive income to passive income. Non-passive income is any income earned actively by the taxpayer: wages, salaries, self-employment income, etc. Passive income includes income derived from real estate, limited partnerships, interest in dividends, and more. In summary, passive income is any activity where the taxpayer is not actively involved and doesn’t have material participation. (In next week’s blog, we’re going to be spending … [Read more...]
Meet Your Local PVA!
Somewhere within your county, likely at this very moment, a Property Valuation Assessor (PVA) is determining the value of a specific piece of property. Who is your PVA? What is their role? And why does it matter? If you familiarize yourself with your local PVA, you can potentially realize significant property tax savings. Each county has a property valuation department responsible for assessing and collecting property taxes. It is the duty of every PVA to value and assess tax on all real … [Read more...]
Real Property Tax Basics
Property tax is one of our country's oldest taxes; it was even established prior to federal income tax. As far back as the founding of the United States of America, property taxes were assessed on colonists who were settling this country. Property tax is (and has been) one of the primary sources of revenue for local areas and is assessed at a state, county, or city level. These localities are dependent on property tax, as it typically funds community-based resources or services like schools and … [Read more...]
