0% tax on Long Term Capital Gains
For low and many middle income taxpayers
By: Richard Schneider
A major tax law passed in 2003, and extended in 2005, contained provisions that set 0% tax for most long term capital gains and qualified dividends, for taxpayers in the 15% bracket or below.
The 0% applies for 2008, 2009, and 2010. This is an opportunity that may never happen again. The problem for most taxpayers is their investments have diminished in value, and if sold now would generate a loss. There are at least three situations that come to mind where you may benefit. But first let’s see what the qualifying income levels are.
Your adjusted gross income must be below $83,000, for a married couple, and $41,500 for a single, including the capital gain. You may add $3,500 for each dependent child. Seniors receiving social security, include 85% of your SS benefits in computing your total income and increase the limit by about $1,000 if you are age 65 or over.
Now the three situations that do come to mind are 1. Stock purchased many years ago, such as Fastenal Stock that is still above its original cost, 2. Purchasing stock or mutual funds in this down turn, and holding on to it for over one year and it goes up, and 3. Dependent children may be holding investments.
Stock purchased many years ago, such as Fastenal Stock may have a basis of say $4 per share and is now selling at $36 per share. You could sell the stock, take the $32 per share gain, pay no tax if you are below the income limits, repurchase the stock the same day, and now be holding the stock with an increased basis of $36. Another case may be stock received as a gift, which had a low basis, because grandma or your parents purchased the stock say twenty years ago.
The second opportunity occurs because the 0% window runs for 3 years, and to qualify, you need to hold the investment only 12 months or more. You purchase now at a low price, in hopes that it will go up after 12 months but before the end of 2010, if so, you sell at a nice tax free gain.
Stock or other investments may have been given to dependent children, and if the stock or other investment’s market value is above the basis, this would be an opportunity to report a tax free gain, and increase the basis of the stock. The children may not be used as a dependent deduction in the year this is done. The assumption is the child’s tax bracket would be 15% or lower including the capital gain.
Each taxpayer’s situation is unique and you should consult a professional who is familiar with your tax situation. Also a word of caution, congress with the president could change the tax law in 2009 and/or 2010, eliminating this opportunity, so 2008 is the only sure year for this tax benefit.
Sunday, January 4, 2009
0% tax on Long Term Capital Gains
0% tax on Long Term Capital Gains
For low and many middle income taxpayers
By: Richard Schneider
A major tax law passed in 2003, and extended in 2005, contained provisions that set 0% tax for most long term capital gains and qualified dividends, for taxpayers in the 15% bracket or below.
The 0% applies for 2008, 2009, and 2010. This is an opportunity that may never happen again. The problem for most taxpayers is their investments have diminished in value, and if sold now would generate a loss. There are at least three situations that come to mind where you may benefit. But first let’s see what the qualifying income levels are.
Your adjusted gross income must be below $83,000, for a married couple, and $41,500 for a single, including the capital gain. You may add $3,500 for each dependent child. Seniors receiving social security, include 85% of your SS benefits in computing your total income and increase the limit by about $1,000 if you are age 65 or over.
Now the three situations that do come to mind are 1. Stock purchased many years ago, such as Fastenal Stock that is still above its original cost, 2. Purchasing stock or mutual funds in this down turn, and holding on to it for over one year and it goes up, and 3. Dependent children may be holding investments.
Stock purchased many years ago, such as Fastenal Stock may have a basis of say $4 per share and is now selling at $36 per share. You could sell the stock, take the $32 per share gain, pay no tax if you are below the income limits, repurchase the stock the same day, and now be holding the stock with an increased basis of $36. Another case may be stock received as a gift, which had a low basis, because grandma or your parents purchased the stock say twenty years ago.
The second opportunity occurs because the 0% window runs for 3 years, and to qualify, you need to hold the investment only 12 months or more. You purchase now at a low price, in hopes that it will go up after 12 months but before the end of 2010, if so, you sell at a nice tax free gain.
Stock or other investments may have been given to dependent children, and if the stock or other investment’s market value is above the basis, this would be an opportunity to report a tax free gain, and increase the basis of the stock. The children may not be used as a dependent deduction in the year this is done. The assumption is the child’s tax bracket would be 15% or lower including the capital gain.
Each taxpayer’s situation is unique and you should consult a professional who is familiar with your tax situation. Also a word of caution, congress with the president could change the tax law in 2009 and/or 2010, eliminating this opportunity, so 2008 is the only sure year for this tax benefit.
For low and many middle income taxpayers
By: Richard Schneider
A major tax law passed in 2003, and extended in 2005, contained provisions that set 0% tax for most long term capital gains and qualified dividends, for taxpayers in the 15% bracket or below.
The 0% applies for 2008, 2009, and 2010. This is an opportunity that may never happen again. The problem for most taxpayers is their investments have diminished in value, and if sold now would generate a loss. There are at least three situations that come to mind where you may benefit. But first let’s see what the qualifying income levels are.
Your adjusted gross income must be below $83,000, for a married couple, and $41,500 for a single, including the capital gain. You may add $3,500 for each dependent child. Seniors receiving social security, include 85% of your SS benefits in computing your total income and increase the limit by about $1,000 if you are age 65 or over.
Now the three situations that do come to mind are 1. Stock purchased many years ago, such as Fastenal Stock that is still above its original cost, 2. Purchasing stock or mutual funds in this down turn, and holding on to it for over one year and it goes up, and 3. Dependent children may be holding investments.
Stock purchased many years ago, such as Fastenal Stock may have a basis of say $4 per share and is now selling at $36 per share. You could sell the stock, take the $32 per share gain, pay no tax if you are below the income limits, repurchase the stock the same day, and now be holding the stock with an increased basis of $36. Another case may be stock received as a gift, which had a low basis, because grandma or your parents purchased the stock say twenty years ago.
The second opportunity occurs because the 0% window runs for 3 years, and to qualify, you need to hold the investment only 12 months or more. You purchase now at a low price, in hopes that it will go up after 12 months but before the end of 2010, if so, you sell at a nice tax free gain.
Stock or other investments may have been given to dependent children, and if the stock or other investment’s market value is above the basis, this would be an opportunity to report a tax free gain, and increase the basis of the stock. The children may not be used as a dependent deduction in the year this is done. The assumption is the child’s tax bracket would be 15% or lower including the capital gain.
Each taxpayer’s situation is unique and you should consult a professional who is familiar with your tax situation. Also a word of caution, congress with the president could change the tax law in 2009 and/or 2010, eliminating this opportunity, so 2008 is the only sure year for this tax benefit.
Bail Out Bill October 2008
Bail Out Bill
Tax Provisions – Pork?
By: Richard Schneider, CPA - inactive
Professor of Accounting - Retired
The bail out bill, H.R. 1424, the Emergency Economic Stabilization Act of 2008, signed into law on October 3rd, 2008, had a number of sweeteners added to get it passed. The sweeteners were all called pork, and indeed some of the provisions, such as the waiving of excise tax on wooden shafted children’s arrows, but there are many tax provisions affecting individuals and business, which I would not consider pork. Here are some, not all, of those that affect individuals.
1. Alternative Minimum Tax (AMT):
The limit is adjusted so many in the middle income group are not caught. This is extended only to 2008, and will have to be addressed again for 2009 and the future.
2. Home Mortgage Debt Forgiveness Relief:
Up to $2 million of qualified debt forgiveness on a principle residence is not taxable. This applies to debt forgiveness from 01/01/2007 to 12/31/2013. This act extended this provision from 2010 to 2013. Normally any forgiven debt is taxable income to the debtor.
3. Higher Education Costs – as an adjustment to Gross Income – Extended.
This provision had expired, and the Act extends it for 2008 and 2009. Generally higher education costs may qualify for the deduction or one of the education credits, Hope or Life Time Learning. The credits are still good, but it was the deduction that had expired. These three different treatments are confusing and need to be simplified.
4. Additional Standard Deduction for Property Tax:
This is extended through 2009. This deduction was put into place as part of the housing stimulus act of 2008, passed in late July. That act provided the deduction for 2008 only. This is a deduction of $1,000 ($500 – single) for married filing jointly, in addition to the standard deduction, for qualified property tax.
5. Tax Free Transfers from IRAs to Charities:
Provision extended to 2009. Taxpayers age 70 ½ and older may transfer up to $100,000 directly to a qualifying charity from their IRA; there is no taxable income and no itemized deduction. This transfer counts toward the annual required minimum distribution.
6. Child credit of $1,000 per child:
This credit is used to offset tax and in some cases refundable where the credit exceeds the amount of tax, based on earned income. The Act modifies the computation for the refundable amount, lowering the earned income limit from $12,050 to $8,500, thus increasing the number of taxpayers that will qualify for this refundable credit.
7. The deduction, adjustment to gross income, for educator expenses of $250:
Extended through 2009.
8. Election to deduct Sales Tax rather than State Income Tax:
This is part of itemized deductions and is extended through 2009.
9. Home Improvement Energy Efficiency Improvement Credits:
This is extended through 2009. This is for qualified purchase and installation of insulation, windows, doors, biomass fuel stove, furnace, etc.
10. Plug-in
For a qualified vehicle purchased between January 1, 2009 and December 31, 2014.
11. Tax Free Bicycle Commuter Employee Fringe Benefit:
Employers may pay employees extra, tax free, for commuting to work on a bicycle.
12. Energy Efficient Appliance Credit:
Manufactured before 1/1/2011, and includes clothes and dish washers, and refrigerators.
2008 Disaster Losses:
Relief is provided for 2008 and 2009 presidentially declared disaster areas. The 10% of AGI, and $100 limits are waived. Taxpayers may increase the standard deduction by the amount of the loss rather than itemizing. Any Net Operating Loss created maybe carried back for an optional 5 year period. Note: this does not affect the 2007 disaster losses here in
There are many other provisions of the Act, and you should contact your tax advisor to determine if you are affected. You may want to give your tax advisor a few weeks to catch up with the new laws, before contacting them. Our tax laws are becoming more and more complex, with a seemingly unending list of deductions and credits, making compliance more and more difficult.
Saturday, January 3, 2009
Tax Changes for 2009 - 12/15/08
Tax Changes for 2009
By: Richard Schneider
Retired professor of accounting
What’s in store for 2009 when it comes to tax changes under the Obama administration? My tax services Kiplinger and RIA Check Point are weekly and daily tax news services and are the source for the following information.
When Barack Obama was elected there was and is an air of high expectation of a better future. He had promised tax relief for low and middle incomers, and an increase in tax for the wealthy, well lets see what the crystal ball says will happen.
1. Expanding the Earned Income Tax credit, increasing the income cap to qualify for the credit.
2. The Child Credit will be fully refundable. Currently the credit offsets tax and in certain cases where the tax is less than the credit, may be partly refundable depending on amount of tax and earned income.
3. No income tax for seniors with income less than $50,000. It is unclear what age qualifies for senior status, 50, 55, 60, 62, or 65. Will the $50,000 limit include the full amount of social security benefits?
4. A stimulus rebate, in the form of reduced tax withholding for workers, in stead of mailing out checks. This could happen as soon as February.
5. Prevention of the tax rate reduction on estates over $3.5 million, keeping it at 45%. This will help pay for some of the cuts.
6. Temporary fix for the Alternative Minimum Tax.
7. The maximum tax rate for long term capital gains and qualified dividends will increase to 20% from 15%, on a prospective basis. That is the change will affect gains realized from the date of enactment on, and not gains realized before that date.
8. In 2010 or 2011 there will be a restoration of the 36% and 39.6% tax rates for taxable incomes of over $250,000.
9. Pulling the plug on tax breaks for oil companies, related to oil drilling and production activities.
Remember these are guesses by the above tax services, and the actual future tax laws may differ considerably.
Friday, December 26, 2008
Disaster Tax News on the way!
In the next few days old tax articles will appear concerning disaster tax returns, and general income tax information.
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