Housing is a big expense for everyone. The choice generally involves either renting or purchasing – and financing that purchase with a home loan. This article explores the tax benefits and drawbacks that individuals should consider when deciding whether to buy a home.
If you are like most investors, you occasionally will pick a loser that declines in value. Sometimes, a security can even become worthless when the issuing company goes out of business.
U.S. citizens and residents with a financial interest in or signature or other authority over any foreign financial account need to report that relationship by filing FinCEN Form 114 if the aggregate value of the accounts exceeds $10,000 at any time during the year. The due for 2018’s report was April 15, 2019, with an automatic 6-month extension to October 15, 2019. Failure to file can result in draconian penalties. Form 114 is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) BSA E-Filing System and not as part of the individual’s income tax filing with the IRS.
The IRS announced in late July 2019 that it is ramping up its campaign to ensure that taxpayers with cryptocurrency transactions report these transactions on their income tax returns – and report them correctly – by sending “educational” letters to approximately 10,000 taxpayers who either didn’t report their crypto-transactions or may have reported them incorrectly.
Anyone who collects tips must include those tips in their taxable income. This requirement is not limited to waiters and waitresses; it applies to anyone who collects tips, including taxicab, Uber, Lyft, and similar drivers; beauticians; porters; concierges; and delivery people.
August 12 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during July, you are required to report them to your employer on IRS Form 4070 no later than August 12. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
According to the Internal Revenue Service (IRS), just about 2 million Individual Taxpayer Identification Numbers (ITINs) are set to expire at the end of 2019.
If you are contemplating selling real estate property, there are a number of issues that could impact the taxes that you might owe, and there are steps you can take to minimize the gain, defer the gain, or spread it over a number of years.
A taxpayer’s filing status for the year is based upon his or her marital status at the close of the tax year. Thus, if you get married on the last day of the tax year, you are treated as married for the entire year. The options for married couples are to file jointly or separately. Both statuses can result in surprises – some pleasant and some unpleasant – for individuals who previously filed as unmarried.
Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes:
- Being pushed into a higher tax bracket
- Causing capital gains to be taxed at higher rates
- Reducing the child care credit
- Limiting the deductible IRA amount
- Triggering a tax on net investment income that only applies to higher-income
- Causing Social Security income to be taxed
- Reducing the Earned Income Tax Credit
- Reducing or eliminating medical deductions
Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to jointly filing higher-income taxpayers by filing separately.
On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets and a higher standard deduction, double the amount for single individuals ($24,400 for 2019), if the couple does not itemize deductions. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return.
Filing as married but separate will generally result in a higher combined income tax for married taxpayers. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, and where the spouses have lived together at any time during the year, the taxable threshold is reduced to zero.
Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability.
Once a couple files as married filing jointly they cannot undo that. However, if they file separately, they can later amend that filing status to married filing jointly. Once the knot is tied, the Social Security Administration should be notified of any name changes, and if they’ve moved, the IRS needs to be notified of the couple’s new address.
If either or both of the newlyweds purchased their health insurance through a government marketplace, the marketplace should be advised of the couple’s marriage so that any advance premium tax credit (APTC) being applied to pay the insurance premiums can be adjusted when necessary. Doing so could prevent having to repay some or all of the APTC when filing their federal return(s) for the year of the marriage.
Of course the couple needs to notify their employers of their new marital status so any affected benefits can be updated. Usually new W-4 forms should be prepared and given to their employers so income tax withholding can be revised for the new filing status.
Other issues that may come into play and should be considered are:
- If one of the spouses has an outstanding liability with the IRS or state taxing
authority, that situation could jeopardize any future refund on a jointly filed
- It may be appropriate not to commingle income from assets a spouse wants
to maintain as separate property or where the spouses want to name
- Individuals marrying later in life may wish to keep their incomes separate or
only pay the tax on their own income.
If you have questions or would like an appointment to evaluate the impact of marriage on your tax liability before saying “I do,” please give this office a call.
Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.
1300 SW 5th Avenue
Portland, Oregon 97201
July 1 – Time for a Mid-Year Tax Check Up
Time to review your 2019 year-to-date income and expenses to ensure estimated tax payments and withholding are adequate to avoid underpayment penalties.