 | |  | |  | |  | |  | |  | |  | |  |
Skody Scot & Company, CPAs
Charitable Donations of Appreciated Stock
You should consider donating appreciated stock from your investment portfolio instead of cash. The deduction
for a donation of property to a public charity is equal to the fair market value of the donated property. Where the
donated property is “gain” property, the donor does not have to recognize the gain on the donated property.
Home Office Expense Deduction for Self-Employed Taxpayer
If you're self-employed and work out of an office in your home, and if you meet any of the following three tests you might be entitled to a favorable “home office” deduction The
principal place of business test (i.e. using it exclusively and on a regular basis), the place for meeting patients, clients or customers test, and located in a separate unattached
structure on the same property as your home test (e.g. separate room, garage). If you own your own home, it might be preferable not to take this deduction due to limiting the
amount of exclusion available at time of sale (see below).
Sale of Primary Residence
All or part of the gain on sale of your primary residence might be tax free. Under existing rules, up to $250,000 ($500,000 for married couple) of the gain from the sale of your
principal residence is tax-free. To qualify the seller must have owned and used the home as his or her principal residence for at least two years out of the five years before the
sale or exchange. In most cases, sellers can only take advantage of the provision once during a two-year period.
Gift-splitting by Married Taxpayers
Individuals can give a tax free gift up to $12,000 a year to another individual. If the donor of the gift is married, gifts can be treated as split between the husband and wife, even if
the cash or gift property is actually given to a donee by only one of them. Therefore, up to $24,000 a year can be transferred to each donee by a married couple because their two
annual exclusions are available.
Unreimbursed Business Expenses
Getting reimbursed by your employer for employment-related expenses is always the best situation. However, if your employment-related expenses aren't reimbursed by your
employer they might be deductible by you, but only as a “miscellaneous itemized deduction.” This means they are lumped together with other miscellaneous items (e.g., investment
expenses, tax return preparation costs) and are only deductible as an itemized deduction to the extent the total exceeds 2% of your adjusted gross income (AGI).
Job-Related Moving Expenses
Job-related moving expenses (the cost of moving household goods and personal effects plus transportation and lodging en-route) are above-the-line deductions, which can be
claimed even by non-itemizers. This writeoff generally is available only if (1) you start a new job or business at the new location (or are transferred by your employer), and (2) the
new job location is at least 50 miles farther from your old home than your old job was from your old home. Even if you don't qualify, however, you can claim the writeoff if your
spouse does. The fact that your move was driven by your job-related needs, not your spouse's, doesn't matter.
Mortgage and Home Equity Interest Deduction
Interest that you pay on a home mortgage is deductible within limits, depending on whether it is home acquisition debt, home equity debt, or grandfathered debt. Interest on the
refinanced mortgage will be deductible if it falls into one of these categories. Home acquisition debt is a mortgage you took out after Oct. 13, 1987, to buy, build, or substantially
improve your main or second home, and that is secured by that home. Interest on home acquisition debt is deductible up to $1 million ($500,000 if married filing separately). Home
equity debt is any debt secured by your first or second home, other than home acquisition debt, or grandfathered debt. Thus, it includes mortgage loans taken out for reasons other
than to buy, build, or substantially improve your home, and is deductible on up to $100,000 ($50,000 if married filing separately).
Code Section 179 Expense Election
Generally, the cost of property placed in service in a trade or business can't be deducted in the year it's placed in service, and instead must be “capitalized” and depreciation over
a period of years. However there is an expense election (Section 179 election) that can be made on a year-by-year basis, that, subject to a dollar limit, allows you to deduct the full
cost of qualifying property placed in service during the tax year. The deduction limit is $250,000 for tax years beginning in 2008 (up from $125,000 for 2007). The deduction is
phased-out (i.e. gradually reduced) if more than $800,000 of qualifying property is placed in service during tax years beginning in 2008, or if taxable income from your trade or
business is relatively low for that tax year. To qualify for the election, the property must be “tangible personal” property (i.e. no land, buildings or intangibles such as patents).
Married Couples Filing Separate
In most cases, filing jointly offers the most tax savings for a married couple. However, there is a potential for tax savings when filing separate returns when one spouse has
significant amounts of medical expenses, casualty losses, or “miscellaneous itemized deductions” and where one spouses income is significantly different from the other. This is
because these expenses are limited or reduced by a percentage of adjusted gross income (AGI). More specifically, medical expenses are deductible only to the extent they exceed
7.5% of AGI, and casualty losses must exceed 10% of AGI. Miscellaneous itemized deductions, which include a variety of deductions such as investment expenses are deductible
to the extent their combined total exceeds 2% of AGI.
Dependent Deductions for Caring for an Elderly Parent or Grandparent
You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption. To qualify, (a) you must provide more than 50% of the individual's support
costs, (b) he or she must either live with you or be related, (c) he or she must not have gross income in excess of the exemption amount ($3,400 for 2007), (d) he or she must not file
their own joint return for the year, and (e) he or she must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
You should consider donating appreciated stock from your investment portfolio instead of cash. The deduction
for a donation of property to a public charity is equal to the fair market value of the donated property. Where the
donated property is “gain” property, the donor does not have to recognize the gain on the donated property.
Home Office Expense Deduction for Self-Employed Taxpayer
If you're self-employed and work out of an office in your home, and if you meet any of the following three tests you might be entitled to a favorable “home office” deduction The
principal place of business test (i.e. using it exclusively and on a regular basis), the place for meeting patients, clients or customers test, and located in a separate unattached
structure on the same property as your home test (e.g. separate room, garage). If you own your own home, it might be preferable not to take this deduction due to limiting the
amount of exclusion available at time of sale (see below).
Sale of Primary Residence
All or part of the gain on sale of your primary residence might be tax free. Under existing rules, up to $250,000 ($500,000 for married couple) of the gain from the sale of your
principal residence is tax-free. To qualify the seller must have owned and used the home as his or her principal residence for at least two years out of the five years before the
sale or exchange. In most cases, sellers can only take advantage of the provision once during a two-year period.
Gift-splitting by Married Taxpayers
Individuals can give a tax free gift up to $12,000 a year to another individual. If the donor of the gift is married, gifts can be treated as split between the husband and wife, even if
the cash or gift property is actually given to a donee by only one of them. Therefore, up to $24,000 a year can be transferred to each donee by a married couple because their two
annual exclusions are available.
Unreimbursed Business Expenses
Getting reimbursed by your employer for employment-related expenses is always the best situation. However, if your employment-related expenses aren't reimbursed by your
employer they might be deductible by you, but only as a “miscellaneous itemized deduction.” This means they are lumped together with other miscellaneous items (e.g., investment
expenses, tax return preparation costs) and are only deductible as an itemized deduction to the extent the total exceeds 2% of your adjusted gross income (AGI).
Job-Related Moving Expenses
Job-related moving expenses (the cost of moving household goods and personal effects plus transportation and lodging en-route) are above-the-line deductions, which can be
claimed even by non-itemizers. This writeoff generally is available only if (1) you start a new job or business at the new location (or are transferred by your employer), and (2) the
new job location is at least 50 miles farther from your old home than your old job was from your old home. Even if you don't qualify, however, you can claim the writeoff if your
spouse does. The fact that your move was driven by your job-related needs, not your spouse's, doesn't matter.
Mortgage and Home Equity Interest Deduction
Interest that you pay on a home mortgage is deductible within limits, depending on whether it is home acquisition debt, home equity debt, or grandfathered debt. Interest on the
refinanced mortgage will be deductible if it falls into one of these categories. Home acquisition debt is a mortgage you took out after Oct. 13, 1987, to buy, build, or substantially
improve your main or second home, and that is secured by that home. Interest on home acquisition debt is deductible up to $1 million ($500,000 if married filing separately). Home
equity debt is any debt secured by your first or second home, other than home acquisition debt, or grandfathered debt. Thus, it includes mortgage loans taken out for reasons other
than to buy, build, or substantially improve your home, and is deductible on up to $100,000 ($50,000 if married filing separately).
Code Section 179 Expense Election
Generally, the cost of property placed in service in a trade or business can't be deducted in the year it's placed in service, and instead must be “capitalized” and depreciation over
a period of years. However there is an expense election (Section 179 election) that can be made on a year-by-year basis, that, subject to a dollar limit, allows you to deduct the full
cost of qualifying property placed in service during the tax year. The deduction limit is $250,000 for tax years beginning in 2008 (up from $125,000 for 2007). The deduction is
phased-out (i.e. gradually reduced) if more than $800,000 of qualifying property is placed in service during tax years beginning in 2008, or if taxable income from your trade or
business is relatively low for that tax year. To qualify for the election, the property must be “tangible personal” property (i.e. no land, buildings or intangibles such as patents).
Married Couples Filing Separate
In most cases, filing jointly offers the most tax savings for a married couple. However, there is a potential for tax savings when filing separate returns when one spouse has
significant amounts of medical expenses, casualty losses, or “miscellaneous itemized deductions” and where one spouses income is significantly different from the other. This is
because these expenses are limited or reduced by a percentage of adjusted gross income (AGI). More specifically, medical expenses are deductible only to the extent they exceed
7.5% of AGI, and casualty losses must exceed 10% of AGI. Miscellaneous itemized deductions, which include a variety of deductions such as investment expenses are deductible
to the extent their combined total exceeds 2% of AGI.
Dependent Deductions for Caring for an Elderly Parent or Grandparent
You may be able to claim the cared-for individual as your dependent, thus qualifying for an exemption. To qualify, (a) you must provide more than 50% of the individual's support
costs, (b) he or she must either live with you or be related, (c) he or she must not have gross income in excess of the exemption amount ($3,400 for 2007), (d) he or she must not file
their own joint return for the year, and (e) he or she must be a U.S. citizen or a resident of the U.S., Canada, or Mexico.
| 10 TAX SAVING TIPS |
| For more information contact us at: 212-967-1100 |