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...]
2020 Tax Update for the Tax Planner – Part 2
This is our second posting on the topic, so please check out Thursday’s blog, if you missed it. There have been so many tax changes this year! As you might expect, it is difficult to cover them all. We’ll try to highlight a handful of changes that we think will be most relevant to you as a tax professional. We’ll skip over the changes that are compliance-related, and focus on the provisions from the Secure Act that we feel will be most helpful when it comes to developing tax planning or … [Read more...]
2020 Tax Update for the Tax Planner – Part 1
There have been so many tax changes this year! As you might expect, it is difficult to cover them all. We’ll try to highlight a handful of changes that we think will be most relevant to you as a tax professional. We’ll skip over the changes that are compliance-related, and focus on the provisions from the Secure Act that we feel will be most helpful when it comes to developing tax planning or helping our clients make shifts in order to minimize their tax liability. Auto-Enrollment Tax … [Read more...]
