Welcome to February 2012's Daily Tax Tips. Thanks for making the jump from the January list.
Just like the January tips, this month you'll get a tax tidbit each day -- Monday through Sunday, holidays included -- with ways to make your 2011 tax return filing easier and, I hope, less costly.
Along the way, there will be some tax planning ideas so you can get a start on reducing your 2012 tax bill.
This daily tax advice will continue through April 17, this year's extended filing deadline day.
You can find each day's new tip in the upper right corner of the ol' blog. But if you miss a day -- What!? You have a non-tax life?!? -- you can catch up on this and the other monthly tax tip compilation pages.
Many of the tips posted throughout filing season appear courtesy of Bankrate's annual tax guide. But some will be original Don't Mess With Taxes advice.
So now that you're through perusing last month's tax tidbits, let's flip that tax calendar page and take a look at the Daily Tax Tips for February 2012.
- It's time to adjust your withholding -- I know you like getting a big tax refund every filing season, but it's really time to rethink that strategy. Yes, it's an easy forced savings account that requires you to stash cash that you can't touch for months. And yes, there aren't any short-term savings instruments paying any worthwhile interest rates (thanks for nothing, Ben Bernanke!). But if you find your monthly cash flow always falls a bit short, then get your money back from the Uncle Sam by adjusting your withholding. The tweaking of your W-4 works the other way, too. If you discover when you fill out your 1040 that you owe the IRS more than you expected, a withholding recalibration can fix that shortfall and protect your from any possible under-withholding penalty charges. The IRS has an online withholding calculator to help you determine the precise amount of income tax you should have taken out of your paychecks. Check it out, give your payroll office an updated W-4 and enjoy the rest of the year knowing that the IRS and your bank account are both getting the proper amount of money each payday. (Feb. 1, 2012)
- Checking out your tax professional -- You've decided to get tax help and have determined which type of tax pro fits your filing needs. Now you need to pick a specific preparer. There are some steps you can take to ensure that the person you hire can do the tax job. First, make sure he or she is registered with the Internal Revenue Service. This is a new requirement this filing season. You'll also want to check their credentials, memberships in professional organizations, whether the tax pro or an associate will be working on your return, accessibility once the April filing deadline is passed (remember, the IRS often has questions long after you send in your 1040) and, of course, fees. A little extra care upfront will mean you'll be sure your tax pro is prepared to fill out your return. And that means a less stressful tax season for you. (Feb. 2, 2012)
- 10 overlooked tax breaks -- One of the best ways to whittle down your tax bill is to make sure you don't overlook any tax deductions or credits. Here are 10 that sometimes fall through the tax filing cracks: charitable donations other than cash; moving expenses; job-hunting costs; military reservists' travel expenses; child care credit; mortgage refinancing points; medical costs; retirement tax savings credit; educational expenses; and home energy efficiency upgrades. Some of these tax breaks require you to itemize. Others are available even if you claim the standard deduction, which most taxpayers do. Of course, there are eligibility requirements to meet. In some cases you'll have to fill out extra worksheets or forms or schedules. And you always need to have proper documentation for these and all deductions and credits you claim. But don't be dissuaded from doing the extra effort. It could produce nice tax savings. (Feb. 3, 2012)
- Tips are taxable income -- In our everyday life we frequently rely on others, such as food servers or hairdressers or cab drivers or delivery people. When they do their jobs well, we should tip them since the base compensation in many such jobs is low. But those tips mean that the workers who receive them have another job: reporting the tip income to the Internal Revenue Service. Yes, tips are taxable income. That includes cash gratuities an appreciative customer leaves of the table or slips into your palm, as well as non-cash tips. The value of those tickets to the big game or that nice new coat is income in the IRS' eyes, so be sure to include it as such on your Form 1040. (Feb. 4, 2012)
- Contribute to your retirement accounts -- The key to a comfortable retirement is putting away money for your post-work years now. There are lots of tax-favored retirement accounts. Employees should max out their 401(k) or similar plans at work. IRAs, whether you opt for a traditional or Roth version, also are good ways to save for retirement and save on taxes. Self-employed folks also have a variety of retirement plans from which to choose: SEP (Simplified Employee Pension) IRA, Solo 401(k) or SIMPLE (Savings Incentive Match Plan for Employees) IRA. Most retirement plans let you contribute money for the preceding tax year by the April filing deadline. Self-employment contributions for the prior year can be put off as late as the October tax filing extension deadline. Whichever retirement plan you have, the sooner you put money into it, the sooner it starts earning money. And the power of compounding will help you retire on the timetable you choose. (Feb. 5, 2012)
- How to report your gambling winnings -- Congratulations on cashing in on the New York Giants' Super Bowl win. The Internal Revenue Service is very happy you received some added taxable gambling income. Here's how to let the tax man know about your winnings. The good news is that you don't have to worry about it until next filing season. The bad news is that depending on how much you won and from what sources, withholding -- generally at 25 percent -- might have already come out of your winnings. Even if you didn't lose any betting proceeds off the top, you might have had to give the payer your Social Security number. That means you'll get a Form W-2G next year that will tell you, and the IRS, the amount you won and, if applicable, how much in taxes you already paid on it. Generally, report all gambling winnings on the "Other income" line of Form 1040. Be sure to reduce that amount by your gambling losses that you can claim as an itemized deduction in the "Other Miscellaneous Deductions" section of Schedule A. But remember, you cannot claim more losses than winnings. The best you can do is zero out your winnings. And if you find that you regularly have more losses than winnings, then maybe you should rethink wagering altogether. (Feb. 6, 2012)
- Taxable vs. nontaxable income -- Sometimes it seems like the Internal Revenue Service is after every red cent. But not everything is taxable. Truly! Yes, you owe Uncle Sam a piece of your salary or wages (both for your fulltime job or a business on the side), tips, commissions and various investment earnings. And the ex you divorced is still a pain; that alimony you're getting is taxable. Everyone knows by now about the tax due on gambling winnings and prizes. Sorry, but you can't sidestep the tax collector by bartering. The value of your exchanged goods is taxable income, too. And don't even think about trying to hide money in a foreign, or as the IRS calls them "offshore," account. Heck, even illegally earned income is taxable. The IRS doesn't care how you got the money; it just wants its portion of your gains, ill-gotten or otherwise. But there are some payments that are tax-free. The big problem here is that in many cases, this is not the type of money you want to get. It includes damages awarded for emotional distress due to a physical injury or physical sickness, disability payments if you paid the premiums with already taxed cash and disaster relief grants. Still, it's at least a bit comforting to know that there are some things the IRS won't tax. (Feb. 7, 2012)
- Deducting moving costs -- If you moved to take a new job, then your Uncle Sam can help pay some of your relocation costs. In addition to being work-related, your move also must time and distance tests in order for you to claim the expenses. The distance test is designed to keep folks from writing off moves they made simply within their current areas. To deduct your move's costs, the new job you relocated to take must be at least 50 miles farther from your previous residence than your last office was. So if lived 20 miles from your old job, your new job must be at least 70 miles from your old home. And speaking of jobs, the time test requires that you work full time at a new job for at least 39 weeks during the first 12 months of your move. But the weeks worked don't have to be consecutive or even with the same employer. Self-employed folks get 24 months to work at their new business for 78 weeks. The best thing about deducting moving costs is that you don't have to itemize to claim the expenses. You do, however, have to file the long Form 1040. The moving expenses write-off is part of the adjustments to income, also known as above-the-line deductions, on that long form. But that's a small price to pay for what could be a nice deduction amount. (Feb. 8, 2012)
- Don't forget to deduct your mortgage points -- Homeowners are well aware of the tax breaks for buying a home. One of them is how points can pay off when you get a mortgage. These payments of 1 percent of your loan amount will get you a lower mortgage rate. And a lower rate means less mortgage interest you pay over the life of your loan. But the points also can pay off at tax filing time, too. When you get a new home loan, you generally can deduct any points you pay in the year that you paid them. Even if you don't pay them and the seller does as an enticement to get you to buy, you the buyer still get to deduct the points. Sweet! So be sure to look for the points listed on your home loan closing statement and include them on your Schedule A when you file your taxes. If you refinance you home loan, you also can deduct any points paid. Exactly how much and when you can deduct them, though, depends on what you use the refinancing cash for. With most refi loans, you must deduct mortgage points ratably over the life of the loan. However, if you use the loan to pay for improvements to the residence that secures the loan, you can deduct those points in the year they are paid. More details on all the various ways to deduct home loan points are available from your tax pro and/or IRS Publication 530, Tax Information for Homeowners, and Publication 936, Home Mortgage Interest Deduction. (Feb. 9, 2012)
- Write off your job-hunting costs -- If you're looking for a job, hang onto receipts for all your search expenses. You might be able to deduct them. This is good news for employment seekers, but there are some job hunt tax deduction rules you must follow before you get this tax break. First, your search must be in the same field in which you're currently or were formerly employed. That means first-time job seekers are out of luck. You also must itemize to claim this tax deduction. So if you claim the standard deduction, this won't help cut your tax bill. Finally, the amount of job hunting costs are a miscellaneous expense. To deduct these costs, a taxpayer's total of these costs must come to more than 2 percent of the filer's adjusted gross income. And then you can only claim the amount that exceeds that deduction threshold. So the job-hunting deduction is not a slam dunk tax break. But if you do have enough of work hunting costs along with other qualifying miscellaneous expenses that you can bunch into one tax year, they could help reduce your tax bill. (Feb. 10, 2012)
- Tax apps offer filing help -- Technology has become a big part of our everyday lives, and that includes our taxes. Most of us now e-file our returns. Now some of us can do it via our smartphones. Even if you don't want to send the Internal Revenue Service your 1040 (well, for now it's only 1040EZ filing that's available) via a smartphone, your mobile device still comes in handy for getting tax information. As the IRS continues to try to entice (or force) us into the electronic tax world instead of old-fashioned paper tax filing, it has issued an upgraded version of its IRS2Go tax app. Available for iPhones and Android devices, the new app doubles the tax information and services you now can get from Uncle Sam in mobile format. Intuit's TurboTax has several mobile options, including the aforementioned filing of the simplest tax return. The tax prep franchises H&R Block and Jackson Hewitt are available via smartphone, as are TaxSlayer and TaxACT. You also can get Tax FAQs via your smartphone. And if you're a diehard tax geek and have a generous data plan, you can even download the Internal Revenue Code to peruse while you're on the go. A lot of the apps are free, but some also link to additional services that will cost you, so make sure before you click. (Feb. 11, 2012)
- Why tax exemptions are so excellent -- Every taxpayer's situation is different, but one thing almost everyone gets to claim is exemptions. The exemption amount that filers can claim each year is sometimes called a deduction. True, exemptions are like deductions in that each helps reduce your adjusted gross income (AGI) to a smaller taxable income amount. That's good because the less money that the IRS can tax, the smaller your eventual tax bill. But the exemption amount is in a tax class all its own. Here are a few exemption highlights. There are two types of exemptions, personal exemptions and exemptions for dependents. Each is worth the same amount, which is adjusted annually for inflation. In most filing instances, you get to claim a personal exemption for yourself … unless someone else can claim you as a dependent exemption. A husband or wife is never a dependent, but married couples filing jointly get to claim a personal exemption for each spouse. You generally can take an exemption for each of your dependents, be they children for whom you cared during the tax year or another dependent relative. (Feb. 12, 2012)
- Tracking down your tax refund -- If you filed your tax return early because you're getting a refund and it hasn't arrived yet, the IRS offers several ways you can track it down. First, though, make sure you're not overly impatient. The IRS says that e-filing and direct deposit speed up tax refund processing, you still need to give the agency time to process your return before you start worrying about the status of your refund. When it is time to check, the IRS recommends its Where's My Refund online tracking tool. Have on hand your Social Security number, the filing status entered on your return and the amount of money you're expecting. If you filed a joint return, enter the name and tax ID number of the spouse shown first on your 1040. If you prefer, you can call the IRS' toll-free refund status hotline at (800) 829-1954. You'll need the same info as required when you check your tax refund status online. If you have a smartphone, you can use the IRS2Go app to check your refund's status. And if you asked the IRS to direct deposit your tax cash, but sure to check your account. The IRS won't alert you when it electronically sends your refund; it will just show up there. (Feb. 13, 2012)
- Is joint filing the best move? -- Most married couples file a joint tax return. That's understandable. It's easier to file just one return and in many cases it produces a better tax result for husbands and wives. But sometimes, a joint 1040 is not always the best idea. Separate returns could produce tax savings for a spouse who files separately if that person has a lot of medical expenses and a low income. That husband or wife then might be more able to clear the 7.5 percent medical tax deduction threshold. Separate returns also might be justified if one spouse uses questionable tax-filing techniques. Remember, when both partners sign a joint return, each is legally liable for the tax bill and any issues that might come up later. And when a divorce is imminent, a lot of couples opt to split taxes before the ink on their divorce decree dries. But married filing separately also has some downsides. That income tax bracket usually produces higher tax bills and some tax breaks are not available to husbands and wives who file separate returns. So look closely at the advantages, disadvantages and your personal marital and financial situations before you decide which filing status to use when you and your spouse file your taxes. (Feb. 14, 2012)
- Alimony has tax implications for both ex-spouses -- When that loving feeling leaves a marriage and divorce is the answer, you can't forget about taxes. There are lots of ways that the Internal Revenue Service makes itself known to former husbands and wives. One that sometimes is overlooked is alimony. In fact, this post-divorce payment shows up twice on the long Form 1040. When kids are involved in the dissolution of a marriage, the custodial parent knows that any child support the ex pays is not taxable. But if you're also getting spousal support payments, that money is counted as income. Sorry. You can hide it. The IRS will be looking for it on line 11 of the 1040. If you are the ex making the alimony payments, you get a tax break. You can use the annual amount as an adjustment to your gross income. Alimony payments are one of the above-the-line deductions, specifically noted on line 31 of Form 1040. And if you don't remember your ex's Social Security number, ask. You must include that tax ID number, also on line 31, when you subtract the alimony. (Feb. 15, 2012)
- First-time homebuyer credit payback, claims -- The first-time homebuyer credit has been around since 2008. And it's that original version of the tax break that has caused some refund problems for some taxpayers. The first version of the first-time homebuyer credit was not a real credit. It really was a $7,500 interest-free loan from Uncle Sam. But like all loans, it has to be paid back, specifically in 15 equal payments of $500 each tax-filing time if the owner stays in the house that long. If an owner sells sooner, that will trigger an early lump-sum payback. When the paybacks started with 2010 tax returns filed last year, there was a lot of confusion and frustration. Hoping to avoid a similar scenario this filing season, the IRS has made some homebuyer credit-related changes this filing. The tax agency has an online First Time Homebuyer Credit Account Look-up so that taxpayers can make sure their payback info matches the IRS data. Even better for some taxpayers, they might have less filing to do in connection with the credit. If you used the credit to buy your home in 2008 and owned and used it as your main residence for all of the last tax year, simply enter your 2011 repayment directly on line 59b of Form 1040. You no longer have to fill out and attach Form 5405. (Feb. 16, 2012)
- Some taxes can lower your IRS bill -- Yes, Virginia, some taxes are beneficial. I use the classic "Santa Claus is real" reference because a lot of folks think that there's no positive side to any taxes. Not true. We all know that taxes are how we pay for public services upon which we've come to depend. And while you can't fully recoup what you pay in taxes, some also are valuable as tax deductions. If you itemize and live in one of the 43 states with an income tax, you can deduct those taxes on your federal return. If you prefer, you can deduct state and local sales tax amounts instead. And don't forget real estate taxes and/or personal property taxes; write those off on your Schedule A, too. Don't, however, go tax-deducting crazy. The IRS won't let you deduct federal excise taxes, Social Security and Medicare taxes, gasoline taxes, transfer taxes on the sale of property or any other in the wide range of fees (licensing, car registration, etc.) that we pay to local governments. But where you do pay deductible taxes, be sure to count them. They could make a difference in your federal tax bill. (Feb. 17, 2012)
- Finding free tax help -- The Internet has helped taxpayers find a lot of free tax help, but there are options in addition to blogs and online forums. There is, of course, the Internal Revenue Service itself, via its website IRS.gov its smartphone app IRS2Go, tax software programs at Free File and the old-school toll-free telephone line 1-800-829-1040. Want more face-to-face help? Check out Volunteer Income Tax Assistance (VITA) for low- to moderate-income taxpayers; Tax Counseling for the Elderly (TCE) for filers age 60 or older; and special tax assistance programs for U.S. service personnel and their families. For post-filing tax problems, there are Low-Income Taxpayer Clinics (LITC), IRS Taxpayer Assistance Centers (TAC) and the National Taxpayer Advocate Service (TAS). If none of these free tax help options works for you, remember that the price of a good tax professional usually will pay for itself in tax savings, especially if your tax situation is complicated. (Feb. 18, 2012
- Home improvements that can help cut your tax bill -- Call me a wild-eyed optimist, but home values eventually will rebound. That means that some folks will one day worry about possible taxes when they sell their residences. Among the many tax breaks afforded homeowners is the sales exclusion. Single homeowners can exclude up to $250,000 in profit from taxation; married couples who file jointly get a $500,000 exclusion. Long-time owners and those in hot real estate markets could push those tax-free limits. But an increase in the house's basis can make sure the seller holds profit at or below the exclusion amount. In the most simple terms, basis is the value of your property. You subtract basis from the sales price to determine taxable profit. More basis produces less money the IRS can tax. Some home improvements can increase a residence's basis. These are upgrades that that materially add to the value of the home, considerably prolong its useful life or adapt it to new uses. Don't confuse improvements with repairs, which are necessary but don't do you any tax good. And keep good records of your basis-adding home improvements so when you do sell, you make sure you won't owe any taxes on your profit. (Feb. 19, 2012)
- Deduct your sales taxes -- If you live in one of the states that doesn't collect a state income tax on wages -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming or New Hampshire and Tennessee where only investment income is taxed -- you'll likely claim the itemized deduction for the sales taxes you paid to your state and local tax collectors. But this tax break also could benefit taxpayers in other states that have low income tax rates. Wherever you live, pick the amount, income or sales tax, that gives you a bigger deduction amount. Your sales tax total also could be boosted by big-ticket items you bought, such as a car, boat, airplane or major renovations to your home. Taxes on these expenditures can be added to the standard sales tax table amount you can claim on the Schedule A you send in with your 2011 tax return. Remember, however, that the sales tax deduction might not be available for the 2012 tax year. It's one of the 77 extenders -- temporary tax breaks that Congress renews every year or so -- that expired on Dec. 31, 2011. If lawmakers on Capitol Hill don't sign off on the lapsed extenders this year, you won't be able to claim the sales tax deduction (and more) when you file your return next year. (Feb. 20, 2012)
- Take tax advantage of stock losses -- The stock market has been doing well of late, but even when the overall market is moving up, it's all too possible to still have some individual holdings that stink. But those poorly performing assets could have some value at tax time. You can use capital losses to help erase any taxable capital gains. If you don't have any gains, you can use up to $3,000 of the losses to reduce your ordinary income amount. And if you have more than $3,000 in losses, fire your financial adviser and then carry the excess forward to a future tax year. (Feb. 21, 2012)
- The many capital gains tax rates -- Investors who hold onto their assets for at least 366 days are rewarded for their patience with a lower long-term capital gains tax rate when they do sell. Through 2012, those profits will be taxed at only 15 percent. Taxpayers in the two lowest tax brackets (the 10 percent and 15 percent levels) get a better deal. Their long-term profits won't face any capital gains tax bill. That's right, zero capital gains taxes for them. But there are a few more capital gains tax rates for some other investment situations. A 25 percent capital gains tax rate applies to part of the gain from selling real estate you depreciated. And profits from the sale of small business stock and collectibles are subject to a capital gains tax rate of 28 percent. Still, for many taxpayers the capital gains tax rates are much lower than their ordinary income tax rates. So make sure you pay the appropriate, and probably lower, tax rate on your long-term investment profits. And keep an eye on Congress (and the ol' blog) to see what happens to capital gains rates in 2013 and beyond. (Feb. 22, 2012)
- Writing off worthless stock -- It's no secret that investing can be risky. So it's discouraging but not surprising when one (or more) of your investment decisions flops. But what if market events happened so quickly you weren't able to unload the losers before they totally tanked? You still might be able to get some tax use from the devalued assets. Write them off worthless stock. But take note. Before you can use this tax break, the stock must be totally worthless. If it's worth even a few pennies, it's not worthless. When you do find you've got a no-value stock in your portfolio, treat it on your tax return as if it were a capital asset you sold for zero dollars on the last day of the tax year. That way, the valueless stock acts as any other short- or long-term capital loss, offsetting any capital gains you might have. When you report the worthless stock, you don't have to put the details of the asset's demise on your return. But if the IRS questions it later, be ready to show that investors have no hope of ever getting anything for the security. You'll also need to do some digging to pinpoint when the asset actually became worthless. Here's hoping you don't have to use this tax break often, but just in case, be sure to take advantage of it. (Feb. 23, 2012)
- Calculating correct investment basis -- Investors know how critical it is to have the correct basis. This amount, which starts with the price your paid for an asset and then includes other adjustments, is what you subtract from your sales price to determine whether you have a capital gain or capital loss when you sell the asset. If you've kept good tax records, figuring your basis is easier. But even then some folks forget about reinvested dividends and capital gains distributions that affect your basis. In these cases, you already paid tax on the reinvested earnings (remember the 1099s you got with the earnings data?) even though you never had the cash in hand. These amounts were "constructively received" by you, meaning the money in your account belonged to you and you could have taken it out if you wished. To ensure that you don't pay tax on those amounts again when you sell the asset, you need to account for it as part of the holding's basis. The correct basis will affect both your eventual gains or loss amount. So get it right, so that you pay only the tax that you owe or get the tax reduction that you deserve. (Feb. 24, 2012)
- Plastic surgery usually isn't tax deductible -- There are lots of things you can claim as a medical tax deduction. Cosmetic surgery isn't one of them. The IRS will only accept plastic surgery expenses as Schedule A itemized medical deductions if the procedure is medically necessary. So if while repairing your deviated septum that's been causing respiratory problems your doctor makes your nose look a little better, too, then you're OK tax wise. Remember Bristol Palin's corrective jaw surgery? But a rhinoplasty simply because you don't like the look of your schnoz can't be counted at tax time. Of course, we are talking taxes, so there are always cases that diverge from the usual rules. The most famous (infamous?) involved an exotic dancer who won a Tax Court case to deduct her excessively large breast implants. But that was a work-related write-off, not a run-of-the-mill medical expense. So if you get a little work done, I hope you like the results. You're probably going to have to foot the doctor bill all on your own. (Feb. 25, 2012)
- Be a good tax client -- Most taxpayers get professional tax help. They get plenty of advice on how to pick a tax pro that fits your filing needs and then check out the pro you pick. But it's a two-way street. The preparer you hire to help you meet your tax responsibilities depends on you to get the job done. So remember to be professional, be responsible, be thorough and be honest. That will help get your returns done accurately and on time. And just as important, it will keep you from being the tax client from hell! (Feb. 26, 2012)
- Some stock basis now shown on 1099-B -- Figuring out cost basis can be one of the biggest tax-time hassles that investors face. Basis, at its most basic, is the price you paid for an asset. Some things are added to it, such as commissions and recording or transfer fees, and then you subtract the basis from the sales price to arrive at your net capital gain or capital loss. Beginning with some 2011 stock transactions, the Internal Revenue Service is requiring brokers to report basis to taxpayers on 1099-B (box 3). In 2012, basis reporting will apply to mutual funds. The phased-in basis rule will be completed in 2013 with the inclusion of reports on bonds, options and other holdings. Note that it's not a new form; 1099-B has been around for a while. But it is new rule about what brokers and other money mangers put on the third-party reporting document. While the phase-in could in the short term be a bit confusing -- for example, the basis amount is required on 1099-Bs only for stocks bought and sold in 2011; a similar limited applicable period will apply when the next stages kick in -- eventually investors will know how much an asset was worth so that the correct capital gains and capital losses can be reported. And the IRS will be happy, too. The agency estimates that it loses millions in tax dollars each year from inaccurate basis calculations. They hope that this new basis reporting rule will put an end to that. (Feb. 27, 2012)
- Reporting capital gains and losses -- When you sell an asset, you still report your capital gain or capital loss on Schedule D. But starting with your 2011 tax year filing, you'll also have to complete the new Form 8949. This form asks for details of your transactions that previously were reported on Schedule D. You'll still be required to differentiate your sales between short-term (a year or less) and long-term (more than a year and a day) and you'll need to know the correct basis for your assets. And at the top of each Form 8949 you file, you'll need to check box A for broker reported transactions with basis reported to the IRS on 1099-B; box B for broker reported transactions but for which no basis was reported to the IRS; or box C for all other transactions. This will help the IRS double check your filing against the information it received on 1099 forms. If you have a lot of transactions, use as many 8949 forms as necessary to report them all, making sure that each form includes only the type of transactions described by the box A, B or C you checked. Yes, it's a lot of work. But remember, long-term capital gains are taxed at a lower rate and capital losses can be used to offset any gains and/or up to $3,000 in ordinary income. So the extra effort is worth a lower tax bill. (Feb. 28, 2012)
- Some investors don't pay any capital gains taxes -- What's the ultimate tax-rate reduction? You got it: Zero. And that's the tax rate that some investors receive. Hold on a minute. You did see the word "some," right? Here's the deal on to whom and how the zero capital gains tax rate applies. Folks who will pay absolutely no, nada, zero, zilch, zip taxes on profits from sales of assets they've held long-term (that's for more than a year) are those in the bottom two tax brackets: 10 percent and 15 percent. For 2011 taxes, that's up to $34,500 for a single filer, $46,250 for a head of household; and $69,000 for a married couple filing a joint return. The 2012 tax brackets are a little wider thanks to inflation. While the biggest beneficiaries of the zero capital gains tax rate are those whose income goes no higher than the 15 percent bracket, folks whose taxable income is more than the threshold amounts might qualify for some tax-free capital gains. That's because there's no phaseout of the tax break for higher earners. Filers in the four upper tax brackets get the zero percent capital gains rate on that portion of their income in the two lowest brackets; then they just owe the regular, and lower, 15 percent rate on the remainder. The zero percent rate is in effect through 2012, so do the math. It might be a tax-wise move to sell some long-term holdings this year and walk away with the cash and no tax bill. (Feb. 29, 2012)
Missed a tip or two?
Again, thanks for continuing on the ol' blog's filing season tax tip journey.
Once we wrap up February, new pages for March and April tips will be added and those links will take their places up above with the January tax tips page URL.