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Using Losers to Make Winners

Effectively using your investment losses can make a big impact in your taxable income. Why? These losses could offset income that is barely taxed, or it could offset income taxed at 39.6% or higher! Here are some ideas to make those losers into winners on your tax return.

Understanding the Home Gain Exclusion- When is a tax planning session essential?

One of the biggest tax benefits available today is the exclusion of gains when you sell your qualified home. Here is what you need to know.

The tax benefit explained

For those who qualify, a married couple can exclude up to $500,000 ($250,000 for unmarried taxpayers) in capital gains from the sale of your principal residence. This exclusion can be taken once every two years as long as you meet a two-years out of five residency and ownership test before you sell the property.

Special situations can cause complications

Often tax planning is required to ensure you maximize this tax benefit. Here are some situations that require a review prior to selling your home.

Ownership and principal residency tests met using different years. As long as the two-year requirement is met for both tests you can take the deduction. It does not matter that you use different years for each test. The most common example of this occurs when you rent a home or condo and then buy it later.

Life events complicate things. Marriage, divorce, and death are common life-events that require planning to maximize the gain exclusion tax benefit. For example, you can take advantage of the full $500,000 gain exclusion after the death of a spouse, but usually only during the time you are able to file a joint tax return.

Selling a second home requires planning. While you can use the gain exclusion every two years, you need to be careful with a second home. You may be able to plan your living arrangements to make each home a primary residence during different tax years to meet the two-year requirement for both properties. This means you need to determine your primary residence each year with good record keeping in case you are audited.

Business use of your home. You will need to adjust your home basis (cost) for any business activity and depreciation of your home. This can create a depreciation recapture tax event when you sell your home.

A partial gain exemption is possible. There are exceptions to the two-year tests when certain events occur. The normal exceptions include a required move for work, health reasons, or unforeseen circumstances. Since the IRS definition of each is vague, you should review your options if you are required to move.

Record keeping matters. Be prepared to document the gain on your property and how you meet the residency and ownership tests. Please keep all documents relating to the purchase and sale of your property. Save any receipts that document improvements to your home. Also keep an accurate record to support your claim of principal residence if you own a second home.

Given the potential for tax savings, please ask for help before selling your home or vacation property.

Review IRA Beneficiaries Now- Lost in the pandemic is a tax law change that may require your attention

Lost in the media storm during the coronavirus pandemic is a law change enacted in late 2019 that eliminates an IRA withdrawal technique known as the stretch IRA. Here is what you need to know.

Time to review beneficiaries

While the chances of you having a severe reaction to the coronavirus are low, it is a reminder of the importance to review your retirement and legal documents. Key among this review should be the beneficiaries you have assigned to all your retirement accounts. This includes reviewing primary beneficiaries and establishing secondary beneficiaries on all your IRAs, 401(k)s, 403(b)s and similar accounts. But it doesn’t stop there, you also need to understand and adjust beneficiaries because of new stretch IRA rules.

The old stretch IRA technique

With the stretch IRA technique, you name a younger person—say, a child or grandchild—as beneficiary of your account. When you die, this non-spouse beneficiary can stretch out receiving the balance of funds from these inherited accounts over his or her longer life expectancy. A stretch IRA could allow withdrawals to go on for decades!

In the meantime, the funds in the account continue to grow with any taxes owed being deferred until the funds are withdrawn.

Current situation

As you can imagine, the federal government wants their share of the earnings built up in these accounts. The old rules could put off the receipt of tax for another 30 years or more! Under the new rules, funds in an IRA or defined contribution plan, like a 401(k), must now be distributed to non-spousal beneficiaries within ten years of the account owner’s death.

What you need to know

This rule change makes assigning beneficiaries for your retirement accounts more important than ever, but the rule does not apply in all cases. The new rules do not apply to:

  • A surviving spouse.
  • Disabled or chronically ill individuals.
  • Individuals who are not more than ten years younger than the account owner.
  • A child of the account owner who has not yet reached the age of majority.

So as you review your beneficiaries, be aware of who will be required to withdraw funds sooner using these new rules. Changing your account beneficiaries with an understanding of these new rules can provide significant tax savings.

Consider converting funds into another account type. Fortunately, you can take some of the sting out of the situation by converting a traditional IRA to a Roth IRA. Unlike a traditional IRA, Roth contributions are never tax-deductible, but payouts from a qualified Roth account are 100% tax-free. While you must pay tax on the transfer in the year of the conversion, your heir will not have to deal with getting taxed when taking funds out of the account.

In other words, your beneficiary can arrange to take tax-free withdrawals from the Roth IRA, as long as the account is emptied out within ten years. Not quite a stretch IRA, but still a good deal.

Tax efficiency becomes more important than ever. Should you pay the tax with a pre-conversion to a Roth IRA to save the hassle for your heirs? Should an heir take the money out all at once? How much should you take out of an inherited account each year? Given the progressive nature of our tax system (currently 0% to 37%), taking a planned approach can save you a bundle in tax as the funds are withdrawn. This makes creating a tax plan and reviewing it more important than ever!

In light of all the pandemic uncertainty, this is an area you can review now to not only be better prepared, but to create a strategy that can yield tremendous tax savings for you and your heirs.

Beware: COVID-19 Tax Scams are Here- Economic impact payments bring out thieves

The coronavirus pandemic is bringing out the best in most of us. Unfortunately, it is also bring out some of the worst of us as well. Be aware of the following scams.

Tax Savvy Moves to Consider Now

Within the coronavirus pandemic are tax planning opportunities. Here are a few to consider.

Get Your Money: Ensure You Receive a Stimulus Payment- Status and non-filer tools launched by IRS

The IRS recently announced the launch of web sites for non-tax filers to register to receive their economic impact payment and a new Get My Payment tool. Here is what you need to know.


As a response to the coronavirus pandemic, the government is sending $1,200 to single taxpayers with income less than $75,000 ($98,000 with phaseouts). $2,400 is being sent to married taxpayers with income less than $150,000 ($198,000 with phaseouts). An additional $500 is being sent for each child under the age of 17.

The Problem

The payments are being made based on 2019 or 2018 tax returns. If you do not need to file a tax return, you run the risk of not receiving this payment. Additionally, getting payments out to everyone is technically complex. The IRS must look at both 2019 tax returns and 2018 tax returns, PLUS they are directed by Congress to match these files against two years of Social Security filings for seniors. Not an easy task!

The Solution

The IRS worked to launch a way to register to receive your payment and to determine the status of your payment. You can find the sites here:

For non-filers: Submit information to receive an Economic Impact Payment

Payment status and direct deposit registration: There is also an IRS provided Get Your Payment tool to register to receive your payment via direct deposit.

It can be found here: Get My Payment Tool

This tool will also be used to review the status of your payment.

Who should use

If you fall into one of these cases, you need to review whether it makes sense to use these tools.

Not required to file. If you have not filed a tax return in either 2018 or 2019, using the non-filer tool or other tax filings methods is the only way to receive the payment.

College students. If you are not a dependent on someone else’s tax return, you need to look into using the non-filer tool. If you are a dependent, it may also be worth a conversation to see if you can or should change your filing status in 2019 in order to receive this payment.

Non-filer. Even if you know you need to file a tax return, but have not yet done so, consider using the tool. You will still need to file a tax return, but in the meantime, you can receive your payment.

Seniors. Seniors that do not file tax returns in 2018 or 2019 will eventually receive the payment based upon their form 1099-SA or railroad retirement information. The non-filer site asks you not to register, but you may receive the payment sooner AND protect your identity from would be thieves by filing a tax return.

To check on status or speed things up. Want faster payment? Payment not yet received? Use the Get My Payment tool to help understand the status of your payment.

The Economic Impact Payments are now officially being sent out, so the sooner you let the IRS know that your payment should be included, the sooner your payment will arrive.

Key Coronavirus Tax Changes- What every taxpayer should know

In addition to filing delays and stimulus payments, the IRS is implementing many changes in response to the coronavirus pandemic. Here are some of the major topics that could affect you and your family.

Early distribution penalty waived

The 10% early distribution penalty on up to $100,000 of retirement withdrawals for coronavirus-related reasons is waived during 2020. New provisions allow tax liabilities on these distributions to be paid over a three-year period. The new rules also allow individuals to return these distributions to the retirement account over a three-year period and not be subject to annual contribution limits.

Action: This could be a great way to handle emergency payments until you receive a stimulus check, unemployment payments, or a pending small business loan.

Required minimum distributions (RMDs) waived for 2020

Required minimum distributions (RMDs) in the year 2020 for various retirement plans is suspended. The corresponding 50% penalty associated with not taking an RMD is also suspended in 2020.

Action: Taking out distributions when the market takes a tumble can hurt retirement income for many years. This change allows you to wait to let the value in your retirement account rebound before you withdraw funds.

IRS installment agreement suspension

The IRS announced suspension of payments of all amounts due from April 1 through July 15, 2020 and will not be in default on any IRS installment agreement during this period. Interest will continue to accrue on these installment agreements.

Action: Being on the bad side of the IRS is never fun. If you currently have an IRS installment agreement, look to take advantage of this delay.


The IRS will allow you until July 15, 2020 to provide additional requested information for any pending offers-in-compromise (OIC) and will not close out the OIC during this time without your consent. The IRS is also suspending any payments due under an OIC until July 15, 2020.

Enforcement activities suspended? Not so fast…

The filing and enforcement of liens and levies will generally be suspended. However, IRS Revenue Officers will continue to pursue high income non-filers and initiate other actions when warranted.

No new audits

The IRS will not initiate new audits during this time, but will act to protect the statute of limitations.

Much is happening during this unique time in our country’s history. Rest assured, as changes are made you will be informed. In the meantime, please keep yourself and your family safe.

COVID-19 Stimulus Payments. READ THIS NOW!

The Coronavirus Aid, Relief, and Economic Security (CARES) Act recently signed into law provides a one-time payment, among other items, to individuals to help ease the economic strain caused by the coronavirus epidemic.

Here are the details of the stimulus payment initiative.

Who qualifies to receive a payment? A one-time payment of $1,200 will be sent to most adults. For every qualifying child under age 17, families will receive an additional $500. Retirees and people on disability are also eligible to receive a payment.

When will I get my payment? The IRS hopes to get the first batch of payments out the week of April 6. It may take up to a month for everyone to get their payment, assuming everything goes as planned.

How are payments being made? If you included your bank account and routing information on your 2019 tax return, you will receive your stimulus payment via direct deposit. If you haven’t filed your 2019 tax return, the IRS will use information from your 2018 tax return. If you did not include your bank account and routing information on either your 2019 or 2018 tax returns, the IRS will allow you to request direct deposit from a screen (under development) from their website. All others will receive their payment via a check in the mail.

Alert! Invalid bank information. If you have not filed your 2019 tax return AND the direct deposit information on your 2018 tax return is no longer valid (you have a new bank account or closed your old one), you will need to take action immediately! If you do nothing, the bank deposit will, hopefully, be rejected and you will receive your check in the mail. Expect a delay, however, as it may take some time to receive a check by mail. You can also try calling the IRS to update your information.

Will I get the entire amount? As with other government programs, there is an income phaseout. Here are the thresholds:

Single adults with income of $75,000 or less get the full $1,200. The $1,200 payment is reduced by $5 for every $100 in income above $75,000. Full income phaseout is $99,000.

Married couples with income of $150,000 or less get the full amount of $2,400. The payment is reduced by $5 for every $100, making the full payment phased out at $198,000.

Head of Household adults (normally single adults with children or other dependents) will receive the full $1,200 payment if they earn less than $112,500. Reduced amounts will go out to Head of Household adults who earn up to $136,500.

How will my income be calculated? Your 2019 tax return will be used to determine your income for purposes of whether you receive the full amount of the stimulus payment and how many qualifying children you have. If you haven’t filed your 2019 tax return, your 2018 tax return will be used.

Alert! File a tax return. If you have low income or someone who does not typically file a tax return, you may wish to do so. A simple tax filing is all that is needed to ensure you receive the stimulus payment. Eventually, instructions to do this will be available on

Senior Alert! Seniors who did not file a tax return in 2018 or 2019 will automatically receive the payment based upon forms 1099-SSA and RRB-1099s. (April 1, 2020 U.S. Treasury press release)

Alert! Don’t use my current situation. It may make sense to get your 2019 tax return in immediately. Figure out if phaseouts using last year’s information lowers your payment amount. If so, you may wish to file your 2019 now. So pull out last year’s return and take a look!

Are the payments taxable? No. These payments are not taxable.

Remember, this is only one of the many relief components in recently passed legislation. There are also unemployment benefits, small business benefits and much more to come.

New Law Requires Small Business to Provide Paid Leave- Families First Coronavirus Response Act provides worker benefits

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Tax Deadlines Move from April to July- What you need to know now!

The tax deadlines move from the April 15th tax deadline to July 15th, per U.S. Treasury Secretary Steven Mnuchin. These announcements were made on Tuesday, March 17, 2020 and Friday March 20, 2020 with payment and penalty delays confirmed by an IRS notice.

Here is what you need to know

  • While the filing deadline for individual income tax returns, Form 1040, is April 15, 2020 per IRS notice 2020-17, published this Wednesday, the Treasury Secretary announced moving Tax Day to July 15, 2020 on Friday March 20, 2020.*
  • Individuals who owe the IRS money will be able to defer up to $1 million in payments for 90 days without interest or penalties. The new effective payment due date is July 15, 2020.
  • Corporations who owe the IRS money will be able to defer up to $10 million in payments for the same 90 days without interest or penalties.
  • The delay also includes first quarter, 2020 estimated tax payments for individuals. These payments are now due on or before July 15, 2020. This estimated payment delay DOES NOT apply to corporations.

* Late Breaking Alert: At 9:30 CST, Friday March 20, 2020 Treasury Secretary, Steven Mnuchin tweeted the following: “At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” The IRS retweeted this message.

What it means for you

While the federal government grants you an additional 3 months to pay your 2019 taxes, you may wish to file an extension or still file your tax return by April 15. Here are some thoughts on different situations.

You anticipate a refund. For now, the IRS is still issuing refunds as normal. For e-filers, refunds are often sent in less than three weeks. If the IRS is forced to scale back its operations for safety reasons, your refund could be delayed.

A better solution: an extension. If you cannot complete your tax return by April 15, consider filing an extension, even with the Treasury Secretary’s announcement. This moves your filing deadline to October 15. In the case of an extension under these new rules, your tax return would be due on or before October 15, 2020, but your tax payment is now due on or before July 15, 2020.

What about the audit window? The IRS normally has three years to audit a tax return. The three-year window to audit a return typically starts on either the tax return due date or the filing date, whichever is later. If shortening the audit window is important to you, consider filing sooner versus later as it is not clear what these delays in filing will do to audit rights.

What will states do? States are rolling out their own guidelines for extensions. Some are waiting on the IRS, while others are acting independently. Since most states require copies of federal tax return information, be prepared to still file by April 15. Remember, even if you wait until later to file your federal return and pay your tax, you may have to file your state and/or local return sooner.

What if I get a penalty anyway? Affected taxpayers subject to penalties and additional tax despite this relief may seek a waiver of them.

Rest assured, as the rules and deadlines change, updates will be provided. In the meantime, please stay safe during this challenging time.