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Home Sellers’ Profit Exclusions Aren’t One-Time Opportunities

November 23, 2022 by David Moseman CPA

happy older couple sitting in front of sold house

The tax code authorizes “exclusions” that allow home sellers to completely sidestep federal and state income taxes on sizable portions of their profits when they unload their principal residences. The profit exclusions are as much as $500,000 for married couples who file joint returns and $250,000 for single filers and couples who file separate returns. So says Julian Block, an attorney and former IRS special agent.

Contrary to what many sellers mistakenly believe, the exclusions aren’t one-time opportunities. They can avail themselves of the exclusions as often as every two years.

The law allows a seller we’ll call “Louise” to qualify for the exclusion only if she satisfies two requirements:

  1. She has owned and lived in the property as her principal residence or main home for at least two years out of the five-year period that ends on the date of sale.
  2. She can’t have excluded the gain on the sale of another principal residence within the two years that precede the sale date.

An accommodating Internal Revenue Service cuts Louise some slack on the two years that she occupies the home. The two years don’t have to be consecutive; they can actually be off and on for a total of two full years.

What about short temporary absences for vacations or other seasonal absences? No problem, says the IRS. It’s OK for Louise to count them as periods of owner use. This holds true even if she rents out the property during the absences.

The IRS doesn’t limit exclusions to sales of conventional single-family homes. It considers Louise’s principal residence to be any of the following:

  • A condominium.
  • A cooperative apartment.
  • Her portion of a multi-unit apartment building.
  • A house trailer.
  • A mobile home.
  • A houseboat or yacht that has facilities for cooking, sleeping and sanitation.
  • A vacation retreat that she moves into full time after retirement.

Another plus: The location of her principal residence doesn’t matter. It can be outside the U.S.

Partial profit exclusions. Suppose Louise sells another home within the previous two years or fails to satisfy the ownership and use requirements; all is not lost. She may be able to claim a partial exclusion.

Primary reasons for sales. The IRS permits sellers to avail themselves of reduced exclusions only when the primary reasons are health problems (for example, if Louise moves to a new school district for her special-needs child); changes in employment; or certain unforeseen circumstances, broadly defined to include divorces or legal separations, or natural or man-made disasters that cause residential damage — floods, for example.

An example: Louise is single and has lived in her dwelling for just 12 months before she moves to a new job in another city. She can exclude a gain of as much as $125,000 — 12 months divided by 24 months, or 50% of her maximum allowable $250,000 exclusion.

The bottom line? Don’t make assumptions about what you may or may not be allowed to deduct. Work with a tax professional to make sure you get everything you’re entitled to claim.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Individual Taxes Tagged With: home sales tax, profit exclusions, real estate

Advising Business Owners During Volatile Economic Times

November 6, 2022 by David Moseman CPA

worried businessman

The landscape of accounting and taxation has been very dynamic over the past several years. Tax reform, the adoption of digital currency, pandemic-induced debt, supply chain disruptions and workforce changes are layered upon an already complex and regulated industry.

The purpose of tax planning before you are in the throes of tax season is to minimize your tax liability. At CironeFriedberg, our experienced CPAs take a holistic view of the impact of new and existing tax programs and regulations that can be implemented to optimize your tax situation.

CironeFriedberg clients are C corporations, S corporations, Limited Liability Companies (LLCs), partnerships, and sole proprietors across various industries. We assist business clients to structure transactions in the most advantageous tax manner to help minimize the tax impact and take advantage of tax benefits.

Tony Cirone CPA
Tony Cirone, CPA

“Our business clients in all industries are working to improve product and service delivery while controlling costs in a very challenging economic environment. We listen to them and approach each client as a having a unique set of needs and challenges. Our team collaborates in ways to find and implement creative approaches to deliver the best solutions possible.”

– Tony Cirone, CPA

Business Mergers, Acquisitions, Sales, and Expansion

Business owners and family businesses rely on us to advise them on business structure, acquisitions, sale of a business, and compensation plans for management and owners. When faced with growing through acquisition or transferring a business to family members, they seek our advice. They know CironeFriedberg has their back.

At CironeFriedberg our Certified Valuation Analysts offer specialized knowledge and expertise in valuations as required for purchase, sale, merger, gifting or tax election requirements. Our valuation professionals are trained in current professional standards and hold Certified Valuation Analyst (CVA) and Accredited in Business Valuation (ABV®) certifications.

Our unique expertise in Litigation involving shareholder and partner disputes, dissenting shareholder actions, and related expert testimony is also in high demand.

Continually Changing and Evolving Tax Laws

Our experienced tax CPAs stay up-to-date and informed on complex and constantly changing tax regulations. David Moseman, CPA, is one of the partners in charge of tax services at CironeFriedberg and oversees a team of experienced accounting professionals with excellent critical thinking skills.

Tax laws are complex and continually changing. Our CPAs specialize in Federal and state tax laws and regulations and are committed to delivering accurate and timely tax filings. At CironeFriedberg, we put our clients’ needs front and center. We listen. Our team has the technical expertise and experience required to ensure efficient tax compliance and effective tax planning for each client.

David Moseman CPA
David Moseman, CPA

“We are constantly expanding our knowledge to proactively meet our clients’ needs. There are new IRS regulations affecting many areas such as cryptocurrency and digital currency taxation. We stay on top of these changes and are continually expanding our expertise and capabilities to serve the needs of new clients including those stepping into the Cannabis industry.”

– David Moseman, CPA

Careful tax planning is critical for business success in today’s volatile economy. In a complex regulatory environment with global pressures and challenges beyond our control, strategic tax planning is necessary to achieve business success and preserve and grow wealth.

Filed Under: Business Taxes Tagged With: ABV, cannabis, compensation plans, cryptocurrency, CVA, digital currency, family business, tax planning, valuation

Capital Gains Tax Rates

October 28, 2022 by David Moseman CPA

capital gains tax and money rolls

Long-Term Capital Gains Tax Rates

Long-term capital gains tax is a tax on gains from the sale of capital assets held for more than a year.

The long-term capital gains tax rates are 0%, 15% or 20% depending on a combination of your taxable income and filing status.

While the capital gains tax rates did not change for 2022, the income required to qualify for each bracket was increased to adjust for inflation.

Filing Status Single Married filing jointly Married filing separately Head of household
0% Rate Up to $41,675 Up to $83,350 Up to $41,675 Up to $55,800
15% Rate $41,676 – $459,750 $83,351 – $517,200 $41,676 – $258,600 $55,801 – $488,500
20% Rate Over $459,750 Over $517,200 Over $258,600 Over $488,500

Source: Internal Revenue Service

Filed Under: Individual Taxes, Investing Tagged With: capital gains, taxes

The Impact of Virtual Currency on Income Tax Reporting

October 1, 2022 by David Moseman CPA

bitcoin and digital currency coins

According to Insider Intelligence, in 2021, cryptocurrency accounted for $6.10 billion worth of transactions worldwide. That represents an increase of 177.3% over the year before. The transaction value is expected to surpass $16.16 billion in 2023 as more businesses accept digital currencies as forms of payment.

As the use of virtual currency explodes, the IRS is adapting tax forms to record taxes due for related transactions. As we enter the last quarter of the year, the IRS has started drafting the new tax return forms for 2022. While not final, we have seen some of the changes on Form 1040 from last year. One significant difference is the use of the phrase “digital assets” instead of “virtual currency.”

On the 2021 Form 1040, the question was asked “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

The draft 2022 Form 1040 asks, “At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)”

In 2021, the IRS used the term “virtual currency” to describe various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency. Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it is treated as virtual currency for Federal income tax purposes.

In 2022, changing the phrase “virtual currency” to “digital assets” indicates that the IRS seeks to include other forms of assets besides cryptocurrency, such as blockchain and nonfungible tokens (NFTs). However, even though the IRS is changing the phrase to “digital assets” for the 2022 tax forms, the IRS website is still continuing to use the phrase “virtual currency” at this time.

A more detailed definition of digital assets will likely be included in the 2022 Form 1040 Instructions, which have not yet been published. Also, the IRS may revise the draft 2022 Form 1040 prior to issuing the final version.

The purchase of digital currency is not necessarily taxable. However, once it is sold, you must report the gains or losses to the IRS on the required forms and pay the taxes associated with the transaction. The tax rates will depend on how long you owned it in addition to your income level and tax filing status. Transactions, like selling digital (virtual) currency or using it for purchases, are considered capital gains or losses for tax purposes.

For more information on this topic, read our article, Overview of Blockchain and Cryptocurrency.  

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Cryptocurrency Tagged With: bitcoin, blockchain, capital gains, cryptocurrency, digital assets, digital currency, IRS, taxes

Understanding the Gift Tax

September 23, 2022 by David Moseman CPA

writing a paper check for donation

For tax purposes, gift givers, rather than gift recipients, have to account for and potentially pay the gift tax. But, you won’t owe the federal gift tax until you have given away millions in cash or other assets during your lifetime. It sounds simple enough, but you still may have to file gift tax returns even though you don’t owe any tax. Additionally, certain states have gift tax filing requirements and their exclusions and requirements may differ from federal requirements.

The annual federal gift tax exclusion changes almost every year to adjust for inflation and it allows you to give a certain amount to as many people as you wish without those gifts counting against your substantial lifetime exemption. Gifts made during your lifetime will reduce your taxable estate. So, making annual gifts up to the annual exclusion is a smart way to reduce your taxable estate without any negative side effects.

Sounds good so far, right? Well, it may not be so clear. Some gifts, for example, are exempt from federal tax, including the following:

  • Gifts to IRS-approved charities
  • Gifts to your spouse, with certain exceptions
  • Gifts covering another person’s medical expenses made directly to the service providers
  • Gifts covering another person’s tuition expenses made directly to the institution

So, when exactly do you need to file a gift tax return? Some gifts may require you to file Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. This is necessary even if you don’t owe taxes on the gifts you’re reporting.

If it sounds a bit confusing, it is. You don’t owe tax, so why do you need to file a gift tax form anyway? The federal gift tax exists for one reason: to prevent citizens from avoiding the federal estate tax by giving away their money before they die.

Some transactions that are not commonly thought of as gifts could be considered gifts for gift and estate tax purposes. For example, adding a joint tenant to real estate, canceling indebtedness, making a payment owed by someone else, making a gift as an individual to a corporation, giving real or tangible property all qualify as gifts that are subject to the gift tax.

Before you get bogged down in these many details, we suggest you talk to a professional about your gift habits, abilities, and financial picture. Contact us today to learn more.

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Individual Taxes Tagged With: charities, gift tax, taxes

2022 Tax Brackets and Standard Deductions

September 20, 2022 by David Moseman CPA

word tax planning and cup of coffee

The end of the year brings tax planning into focus, since tax filing is right around the corner. 

2022 Tax Brackets 

Tax rates for 2022 are remaining the same as 2021 but the tax brackets are changing slightly.  In 2022 a single filer with income up to $10,275 will see a 10% tax rate in comparison to up to $9,950 in 2021 for a 10% rate.

The taxable income for a married couple filing jointly, MFJ, will see a 10% tax rate up to $20,550 compared to $19,900 in 2021 and up to $14,650 for head of household (HOH) in 2022 compared to $14,200 in 2021.

These slightly wider brackets are due to inflation. Your CironeFriedberg tax CPA can review this with you. You can also find all updated 2022 tax brackets on the IRS website, 2022 IRS Tax Brackets.  

Standard Deduction

The standard deduction is increasing in 2022 to account for inflation.  Single filers under 65 will be able to claim a standard deduction of $12,950 in 2022 compared to $12,550 in 2021. Single filers 65 and over can claim a $14,700 standard deduction.

Married couples will be able to claim a standard deduction of $25,900 in 2022, an $800 increase over 2021’s standard deduction of $25,100. In addition each spouse 65 and older can claim an additional $1,400.

Head-of-Household taxpayers under 65 will be able to claim a standard deduction of $19,400 in 2022, up from $18,800 in 2021, while head-of-household filers 65 and older can claim a standard deduction of $21,150.

In addition, each blind person of any filing status will receive an additional $1,400 on their standard deduction in 2022, a $50 increase from the $1,350 allowed in 2021.  

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford) or email us at info@cironefriedberg.com.

Filed Under: Individual Taxes Tagged With: 1040, deductions, tax, tax brackets

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