Selling items on eBay and other online auction Web sites has become a very popular way to get rid of unwanted household stuff, as well as a way to turn a little profit. Many users have even started full-time businesses auctioning merchandise on the Web. But like any business venture, selling items in the virtual world has tax implications that are all too real.

From a tax standpoint, casual selling on eBay is essentially the same as holding a garage sale. If you sell an item for less than you paid for it, you cannot deduct the loss. When you sell something for a profit, however, you must report it on your tax return. Long-term gains on the sale of collectibles, such as artwork, antiques, or rare coins, are taxed by as much as 28%.

Profit is the difference between the selling price and your “basis” in the item. In most cases, basis is simply the amount you paid for it. Inherited items generally have a basis equal to their fair market value at the time of receipt. If the basis cannot be documented, it becomes zero, and you pay tax on the entire selling price.

Online selling activity can reach the point where it is deemed to be a business venture. Status as a for-profit eBay business versus a casual online seller is not clearly defined. Factors considered by the IRS include the amount of time you spend selling online and whether you conduct yourself like other self-employed business owners, such as keeping accounting records and advertising your services.

The good news is that if you are treated as a business, you can deduct expenses related to your selling activity. The downside to business status is that profits from selling online may be subject to self-employment tax. What’s more, depending on where you live, you may have to deal with sales taxes.

Taxpayers who operate like a business, but rarely show a profit, may be treated as hobbyists. In this scenario, losses can only be deducted to the extent of gains.

Whether you are an infrequent user of online auction sites, or an all-out eBay business owner, you cannot afford to ignore the tax implications of selling online. For the details you need to avoid tax problems, call our office today.

You probably know that you can exclude up to $250,000 of gain ($500,000 for most joint filers) when you sell your principal residence. IRS regulations may now allow you to apply this gain exclusion when you sell vacant land that is adjacent to your home.

To qualify, the land you sell must be adjacent to the parcel on which your house sits. Also, the land sale must occur within two years before or after the residence is sold. You must meet the other usual requirements for claiming the exclusion. If you qualify, you can apply your $250,000 or $500,000 exclusion to both sales combined.

Example: You own and live in a house which sits on four acres. You decide to sell the house on a one-acre lot and sell the other three acres of empty land to a developer. Provided the land sale occurs within two years before or after you sell the house, you can exclude up to $250,000 ($500,000 if you file jointly) of the combined gain from both sales.

When your financial situation leaves you no other choice but to borrow from your 401(k), there are a few things you can do to make the situation better. Consider withdrawing the funds from the cash or fixed-rate portion of your plan’s portfolio. This may leave higher-earning investments at work. Try to pay off the loan as quickly as possible, and continue making regular plan contributions in order to take full advantage of your employer’s match.

If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It’s easy to overlook this requirement because it’s separate from your federal income tax filing, with a different deadline and strict rules.

FBAR refers to “Form 114, Report of Foreign Bank and Financial Accounts.” That form is new this year, replacing the prior Form 90-22.1.

Your 2013 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2014. No filing extension is available. Contact us if you need details or filing assistance.

You can enjoy a vacation home and cut your taxes – with some careful planning and a little discipline.

The IRS rules can be complex and potentially restrictive, so a word of caution is in order as you plan the use of your vacation home.

Owners of vacation homes often rent out the property when they’re not using it themselves. Renting out your vacation home may or may not make sense for you. The principal variables are the number of days you rent the property, the number of days of personal use, your individual tax situation, and your personal wishes for the use of your vacation home.

* Rent for 14 days or less and a simple tax break is available. If you rent your vacation home for 14 days or less, all of the rental income is tax-free. This attractive tax benefit can help provide cash for your mortgage and other expenses.

* Rent for more than 14 days and your tax planning and personal life become more complex. If you rent your vacation home for more than 14 days, all your rental income is reportable. Whether you treat the income and expenses as a second residence or as rental property depends on the personal use of your vacation home relative to the time the home is rented out. This test is made annually and determines the nature of deductions, loss carryovers, and the tax treatment if the vacation home is sold.

Please call us to guide you through the IRS rules to find the rental strategy that meets your financial goals, yet ensures the personal enjoyment of your vacation home.

Tax records should be kept year-round, not hastily assembled just for your annual tax appointment. Without tax records, you can lose valuable deductions by forgetting to list expenses on your return or having unsubstantiated items disallowed if you’re audited.

Generally returns can be audited up to three years after filing. However, if income is underreported by more than 25%, the Internal Revenue Service can collect underpaid taxes up to six years later. In other words, you need good records to verify what you report on your tax return, and you should hang on to those records for seven years.

For years, the IRS interpreted the IRA rules to allow taxpayers to do one rollover per year in each IRA he or she owned. In doing a rollover, the taxpayer is not taxed on the funds taken from the IRA so long as the funds are redeposited into an IRA within 60 days of the withdrawal.

A recent court ruling stated that the rollover limit should be applied on an aggregate basis, meaning that only one rollover per year is allowed for all IRAs owned by the taxpayer, not one for each. The change becomes effective January 1, 2015.

Contact us for assistance before planning any IRA rollover to be sure you don’t end up with a tax surprise.

Did you receive a large tax refund or owe a large balance due on your 2013 income tax filing? If so, it may be time for you to check your withholding. Changing your withholding is as simple as filing a new Form W-4 with your employer.

The smart taxpayer will calculate withholding to be as close to the actual amount 2014 tax liability will end up being. That will prevent you from being penalized for underpayment and from giving the IRS interest-free use of your money for a year.

Keep these general rules in mind. You won’t face an underpayment penalty if you pay for 2014, through withholding or quarterly estimated payments, at least 100% of your 2013 tax liability (110% if your adjusted gross income for 2013 is over $150,000), or if you pay at least 90% of what you’ll owe for 2014.

One of the first decisions you face as a new business owner is whether or not to incorporate the business. The biggest advantage of incorporating is limitation of your liability. Your responsibility for debts and other liabilities incurred by a corporation is generally limited to the assets of the business. Your personal assets are not usually at risk, although there can be exceptions to this general rule. The trade-off is that there is a cost to incorporate and, in some cases, tax consequences.

Should you incorporate? You might not need to incorporate. Depending on the size and type of your business, liability may not be an issue or can be covered by insurance. If so, you could join millions of other business owners and operate as an unincorporated sole proprietor.

If you do decide to incorporate, you’ll face a choice of corporate forms. All offer limitation of your liability, but there are differences in tax and other issues.

C corporation. The traditional form of corporation is the C corporation. C corporations have the most flexibility in structuring ownership and benefits, and most large companies operate in this form. The biggest drawback is double taxation. First the corporation pays tax on its profits; then the profits are taxed again as they’re paid to individual shareholders as dividends.

S corporation and LLCs. Two other forms of corporation avoid this double taxation: S corporations and limited liability companies (LLCs). Both of these are called “pass-through” entities because there’s no taxation at the corporate level. Instead, profits or losses are passed through to the shareholders and reported on their individual tax returns.

S corporations have some ownership limitations. There can only be one class of stock and there can’t be more than 100 shareholders, none of whom can be foreigners. State registered LLCs have become a popular choice for many businesses. They offer more flexible ownership than S corporations and certain tax advantages.

Whether you’re already in business or just starting out, choosing the right form of business is important. Even established businesses change from one form to another during their lifetime. Some companies use more than one type of corporation – for example, an LLC to hold the business’s real estate and an S corporation for other operations.

Consult our office and your attorney for guidance in selecting the form that is best for your business.

A recent study conducted by Harris Interactive of 1,000 middle class individuals aged 25 to 75 revealed some interesting statistics about retirement attitudes.

Among the survey’s findings:

* 37% of respondents say they don’t expect to retire; instead they expect to work until they are too sick or die.

* 59% said retirement is not their top priority; their priority is paying day-to-day bills.

* 34% felt they would have to continue working until age 80 or beyond because they won’t have saved enough to retire.

* 31% in the 40 to 59 age category say they have a retirement plan; 69% say they have no plan.

* Those who say they have a written plan say they have saved a median of $63,000 for retirement, which represents 32% of their retirement savings goal of $200,000. Those without a written plan say they have saved $20,000 or 10% of their goal.

* A third of those surveyed said that social security would be their primary source of income in retirement.

* 40% said a large unexpected health care expense was their greatest retirement fear; 37% said lower or no social security benefits was their biggest fear.