Contributed by Elizabeth A. Maxson, Lizzy Bee’s Tax & Accounting
First order of business. The tax extension deadline for tax payers who have filed and have been approved, for a filing extension ends October 17th! Take this opportunity to find any missing credits, deductions, etc. There are a few common misconceptions about what the extension does for you when you file. The extension allows you to file 6 months after the deadline without a late filing penalty. However, you will still accrue interest from the last date the IRS requires you to file (this year April 18th) to the date you submit your return to the IRS. If you miss the extension deadline, you will then also be charged the late filing penalty.
Winter is coming, but the snow birds are leaving. Lots of homes are on the market now and if you’re one of those sellers, profits on your home’s sale are usually taxable. However, there are a few exclusions to paying taxes, here are some tips:
1. You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
2. There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see IRS Publication 523, Selling Your Home.
3. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions.
6. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
7. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale.
8. If you sell your main home at a loss, you can’t deduct the loss on your tax return.
It coming up on the season of giving. With all the charities and non-profits out there, it’s hard to tell which are credible, or not. One rule of thumb, ask the group about their status before you donate. Only qualified charities who have applied through the IRS grant you the ability to deduct your contributions on your tax return. Churches and Governments are generally qualified and do not need to apply with the IRS to qualify. Also, make sure you get a receipt detailing the organization’s name, address, date, what you donated- or if you donated cash- how much.
That’s it for this edition of the financial corner! We’d love to answer any questions you may have. You can email us at email@example.com.