Tax Strategies For Surviving Spouse When Selling A Home

Do you know someone that recently passed away and the surviving spouse wants to sell the home but was not sure about the tax issues?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

The $500,000 capital gain exemption that applies to married couples also applies to unmarried surviving spouses if he/she meets the following rules:

1. Only one spouse must meet the two-year ownership test
2. BOTH spouses must meet the two-year USE test
3. Neither spouse used the exemption the last 2 years
4. Sale should happen within 2 years
5. Exemption will not apply if the spouse remarries before the sale within the two-year period
This is very important! The tax planning then is to sell the property first before you get married again!

There you have it! Make sure you apply these rules in order to claim the $500K capital gain exemption.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog. Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

Can I Use My 401-K / IRA To Buy My House?

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here’s a tax question I got from one of my clients: “Can I use my 401-K / IRA to buy a house?” The short answer: “yes!” However, and you already know that I’m going to say this, here are four things that you need to consider:

1. First-time homebuyer – for purposes of IRA distributions, a first-time homebuyer means “you did not own a home the last 2 years”.

2. Roth IRA – if you are considered a first-time homebuyer, you can take out contributions tax free as well as earnings up to $10,000 tax free.

3. Traditional IRA – if you are considered a first-time home buyer, you can take out $10,000 distribution without the 10% tax penalty. However, the $10,000 will still be reported as income. Now, if you take a distribution that is more than $10,000, the excess will be subject to 10% penalty and would be reported as income.

4. Traditional or Roth 401-K – you can take out a loan from your 401-K plan. The amount you can borrow is the lesser of 50% of your account value or $50,000. This is not taxable because it’s considered a loan that you are paying back.

To sum it up, if you are planning to buy your home in the future and you are looking for cash, you might want to look into your retirement plans as an option for additional cash down payment while avoiding paying taxes.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog. Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How To Structure Your Tax ID When Starting A Business

Have you ever done a home-based business before? And you were required to fill-out form W-9 to provide your name and social security number so you can be issued a 1099 during tax time.

Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.

Here’s a LowerMyTaxNow strategy on how to properly structure your tax ID when starting a business.

I would recommend applying for a separate tax ID number with your preferred business name. Make it a generic name so you can use it for your existing or any future businesses. Fill-out form SS-4 and you can go to irs.gov for both the forms and instructions.

I know what you are thinking. Your million dollar question is: “why?” Answer: identity theft. The sole purpose of doing this is to prevent any identity theft in the future. You want to avoid providing your social security number as much as possible.

There you go! That is my LowerMyTaxNow strategy that you can use when you start a home-based business.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

New Relief Re: 60-Day IRA Rollover Errors

Have you ever received an IRA distribution with the intention of “rolling it over” or depositing it into another IRA account but you missed the 60-day rollover rule?

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Under this rule, you’re required to complete the rollover within 60 days of receiving the distribution. If you miss the deadline, tough luck, you have to report the distribution as income and perhaps pay a penalty. Ouch!

In the past, you had to request a special statement from the IRS to avoid that outcome. Now, the IRS says you may qualify for a waiver if you meet one out of eleven allowable reasons. Here we go:

1. Error was committed by your financial institution
2. Distribution check was misplaced and never cashed
3. Distribution was deposited into an account that you thought was an existing retirement plan
4. Your principal residence was severely damaged
5. A family member died
6. You or a family member was seriously ill
7. You went to jail
8. Restrictions were imposed by a foreign country
9. Postal error occurred
10. Distribution was due to IRS levy and then the proceeds was returned by the IRS
11. The party making the distribution delayed providing information that delayed the rollover

There you have it! So next time, if you missed the IRA 60-day rollover rule, please look into the eleven allowable reasons to get relief.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How to Pay ZERO tax

Are you aware that there is a tax code that can potentially “0” your taxes?
If you are a real estate investor and working in a real estate business, you are in a unique position to take advantage of this powerful tax strategy that could potentially “0” your taxes. It’s called the “real estate professional” designation.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Under this law, if you are a real estate professional, you can fully deduct rental losses against your W-2, business income and other income without limitation. What does that mean? It means, if you understand the tax rules and apply it correctly, you can potentially “0” your taxes.

REQUIREMENTS:
1. 50% test – You must spend more than half (51%) of your working hours in a real property trade or business like purchase, rental, management or sales.
2. 750-hour test – You must spend 751 hours in real property trade or business
3. You must be at least a 5% owner of real property trade or business
4. The 50% test and 750-hour test must be met by only one spouse in the case of married taxpayers
5. You must materially participate in the management operations of your own rental real estate. Married couples can combine their hours to meet the material participation hours.

To recap, a “real estate professional” designation is one of the most powerful tools that you can use in order to legally zero out your taxes! So make sure you understand the rules and keep good records.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.

How to Avoid The Number One Mistake When You Pass Away

Do you know someone that recently passed away? Do you know that after your death, the distribution of retirement accounts, life insurance policies, annuities, and bank and investments accounts are guided by beneficiary designations. If those designations are outdated, unspecific, or wrong, your assets may not be distributed the way you would like.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here are three items to consider:

Be specific and stay current. When you name a beneficiary, your assets can pass directly to that person or entity without going through a legal process called probate. So make sure you update the designations for life events such as divorce, remarriage, births, deaths, job changes, and retirement account conversions. Likewise, keep your beneficiary designation forms in a safe location, and maintain current copies with your financial institution, attorney, or advisor.

Think about unexpected outcomes. You have to be alert for the effect of taxes. For example, if the money in your accounts is distributed directly to your heirs, they may be stuck with a large unexpected tax bill. If you are wealthy, estate tax may also play a role. In 2016, the estate tax exclusion is $5.45 million and the top estate tax rate is 40%. Another concern: If one of your designated beneficiaries is disabled, government benefits may be reduced or eliminated by the transfer of assets. You may want to consult an attorney to establish a special needs trust to ensure your loved one is not adversely affected.

Name contingent beneficiaries. If your primary beneficiary dies, having a backup, or contingent, selection will ensure that your assets are properly distributed. In some cases, a primary beneficiary may choose to disclaim, or waive, the right to the assets. In that case, contingent beneficiaries can step up to primary position.

Beneficiary designations are an important part of estate planning and the items we have discussed will ensure that your wishes and intentions will be followed.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Do I Use A Credit Card Or A Debit Card?

When you go out and eat, put gas in your car or pay for your business expenses, I’m going to assume that you are either using a credit card or a debit card. In your mind, you might think they are the same. But there are differences that you need to be aware of.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here are some differences that you need to be aware of:

1. Cash availability and fees

With a credit card, the money is not immediately taken out from your bank account. And as long as you pay back the credit card company within the allowed period, you won’t be charged interest on the money owed. And you don’t want to make a late payment – interest can build up quickly on credit cards.

In contrast, debit cards are linked to your personal bank account, so you’re using your own money and the charges are automatically deducted from your account. However, you might be charged extra fees on top of interest for any overdrafts.

2. Personal finance and budgeting

Earl Wilson said that there are three kinds of people: “The haves, the have-nots and the have-not paid what they bought.” You don’t want to be in the last group!

With credit cards, you might tend to overspend since you have available cash in a form of a personal loan. On the other hand, because you don’t carry a balance on the debit card, you’re more likely to stick with your budget and not overspend.

3. Consumer liability protection

Federal laws protect you in the event you need to dispute credit card charges and usually cap your liability at $50. Debit cards offer fewer protections than credit cards, including a sliding scale of liability depending on when you notify your financial institution.

Which card is best for you? The answer is generally a mix of the two is a good compromise. You can use a credit card wisely to bolster your credit, while still paying for everyday purchases with a debit card.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Can You Deduct A Work-Related Education Costs?

Can you deduct a work-related education costs?
I got this question from one of my clients. So as an accountant, I will answer you with my favorite words: “It depends.”

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

So, are you planning to go back to school to get an advanced degree or just to brush up on your work skills? The answer to those questions, will determine if you might be able to deduct what you pay for tuition, books, and other supplies.

So if you’re self-employed or an employee, you may be able to claim a deduction if the training is necessary to maintain your skills or is required by your employer.

However, just remember that even when the education meets those two tests, if you’re qualified to work in a new trade or business when you’ve completed the course, your expenses are personal and nondeductible. That’s true even if you do not get a job in the new trade or business.

Work-related education expenses are an itemized deduction when you’re an employee and a business expense when you’re self-employed. You may also be eligible for other tax benefits, such as the lifetime learning credit.

So next time you plan on going back to school, just make sure you understand issues re: work-related education.

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

How To Take Advantage Of Your Retirement Plans

Are you working for someone or are you working for yourself?
In regards to retirement plans, there are some things you need to be aware of so you can take advantage of the situation.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

Here are three things you need to consider:

1. Maximize employer matching. If your employer offers a 401(k) plan, try to put in at least the contribution amount in order to receive the maximize amount your company will match. Consider this free money! This also applies to self-employed. You can set-up a profit-sharing plan that will allow you to contribute up to 25% of your salary. This is tax deductible to the business but not taxable to the employee. It’s a win-win!

2. Try to catch-up. If you’re age 50 or older, you are allowed to make extra contributions to your retirement plans. These “catch-up” contributions depend on the type of retirement plan. Here is the list of catch-up items: IRA – $1,000, Simple – $3,000, and 401-K & 403-b – $6,000.

3. Maximize total contribution limit. The total limit for 2016 is $53,000. So if you are an employee, try to take advantage of any of your company’s retirement plans. Now, if you are the employer, try to structure different plans in order to maximize your contributions up to the limit.

There you go! Consider these strategies the next time you look into your retirement plans and I guarantee you…you would say…I lowered my tax now!

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com

Tax Tips Re: Your IRS Letter or Notice

Have you ever received a letter in the mail with the initials IRS?

I bet a million dollars that your heart started pounding! And I would have heard you say, “Oh my God, I’m getting audited!”

Stop right there!

The good news is there are various reasons why IRS will give you a letter.

Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.

The IRS sends notices and letters for the following reasons:
• You have a balance due.
• You are due a larger or smaller refund
• IRS has a question about your tax return
• IRS needs to verify your identity
• IRS needs additional information
• IRS changed your return
• IRS We need to notify you of delays in processing your return

Your thinking, “What now?”

Here are your next steps:

Read – the letter contains valuable information, so please read it carefully. If the IRS changed your return, compare the information on the letter with your original return.

Respond – don’t ignore the response due date of the letter. Respond or if you don’t have the information, call and request for an extension.

Pay – if you agree with the changes, then you can pay online or issue a check.

Keep a copy of your notice or letter – this is very important since you might need these at a later date.

Contact us – you can contact the IRS or if all else fails, you can contact us for assistance.

So there you go. You’ve learned the reasons and the steps to take when you receive an IRS letter or notice. So next time, when your receive one, instead of freaking out, I would hear you say, “I got this Noel.”

If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.

Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com