Tag: Tax Planning

Moving abroad? Think about the tax consequences – MoneySense
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Changing your tax residency

Canadian residents must report their “world income” in Canadian funds. When they become non-residents, they must file a final tax return as of the date of emigration to report income for the period of residency in Canada and, in some cases, pay a departure tax.

Tax form filing requirements

To begin, if the fair market value (FMV) of all property owned as of the date of emigration is more than $25,000, you’ll need to fill out and submit form T1161 List of Property of an Emigrant to Canada. This document must be attached to your T1 return. In fact, even if you don’t file a T1, failure to file this form by your tax filing due date will attract penalties.

To calculate a capital gain or loss on your deemed disposition, complete form T1243, Deemed Disposition of Property by an Emigrant of Canada and attach it to your T1 return. Some exceptions apply in both these cases, discussed below.

Should you owe money upon departure, but can’t pay because you haven’t sold your property or don’t want to, there is another important form: T1244, Election, under Subsection 220(4.5) of the Income Tax Act, to Defer the Payment of Tax on Income Relating to the Deemed Disposition of Property. Expect to post security in these cases if the capital gain exceeds $100,000.

Exceptions to reporting requirements

You don’t have to report the following assets when you leave Canada:
- Cash (including bank deposits)
- Pension plans, annuities, registered retirement savings plans (RRSPs), pooled registered pension plans, registered retirement income funds
- Registered education savings plans (RESPs), registered disability savings plans, tax-free savings accounts (TFSAs)
- Deferred profit-sharing plans, employee profit-sharing plans, employee benefit plans, salary deferral arrangements, retirement compensation arrangements, employee life and health trusts, and rights or interests in certain other trusts
Note that in the case of your Canadian pensions, non-residents are subject to a 25% withholding tax on the income paid, which is withheld at source by the pension fund. Non-residents can apply to reduce the withholding tax every five years, using form NR5. There may be tax treaty variations, but this would normally be a final tax owed to Canada with no further tax filing obligations on this income source.

Note that filing a tax return annually is a prerequisite to receive Old Age Security (OAS) when living abroad. Recipients must meet two other criteria. They must have:
- Been a Canadian citizen or a legal resident of Canada on the day before they left Canada
- Resided in Canada for at least 20 years since the age of 18
Income Tax Guide for Canadians

Deadlines, tax tips and more

If you hold the following taxable properties when you leave Canada, you won’t need to report them before you leave. The future disposition of these “taxable Canadian properties” will require filing when these assets are actually disposed of:

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- Canadian real or immovable property, Canadian resource property, and timber resource property
- Canadian business property (including inventory) if the business is carried on through a permanent establishment in Canada
You can elect to report the FMV of these properties on departure by filing form T2061. This is known as an Election By An Emigrant To Report Deemed Dispositions Of Property And Any Resulting Capital Gain Or Loss.

That leaves the non-registered financial assets in investment accounts on your balance sheet to consider. They must be reported on the final return at their FMV, so choose your departure date carefully. Remember, you won’t need to file your T1 return until April 30 of the year after you leave.

Even if you don’t have investments or real estate or business assets to report, you may not be off the hook: personal-use property with a fair market value of more than $10,000 must be reported on exit. That includes cars, boats, jewelry, antiques, collections, and family heirlooms if together these items are worth more than $10,000 in value.

Different rules for immigrants

The rules are different rules for immigrants who now wish to move on. It is not necessary to pay departure tax on property owned when the person last became a resident of Canada (or property inherited afterward) if residency in Canada was 60 months or less during the 10-year period before emigration. This rule doesn’t apply, however, if the person is a trust, and the property is not “taxable Canadian property.”

Penalties for failure to file forms

You’ll be subject to a penalty if you miss filing a final T1 return. Form T1161—your asset list—attracts its own penalties, too. Whether you file a T1 or not, the T1161 must be filed on or before your filing due date. The penalty for failing to file is $25 for each day it’s late, with a minimum of $100 and a maximum penalty of $2,500. Interest on the balance due and penalties is extra.

What about provincial taxes?

Remember, the Canadian tax filing system is based on residency, not citizenship. That means you report all your worldwide income in Canadian funds on your Canadian tax return. Your provincial share is normally based on where you lived on December 31 of the tax year. But this also changes to your date of emigration when you leave the country, for the purpose of determining provincial tax residency.

Coming back to live in Canada

If you ultimately change your mind about emigrating or a foreign job opportunity runs its course, it is possible to unwind your departure tax when you become a resident of Canada again, as long as you still own the property you previously reported at FMV when you left Canada. The Canada Revenue Agency (CRA) notes that if you make this election for taxable Canadian property previously reported, you can reduce the gain up to the amount of the gain that you reported.

For other properties, reduce the amount of the proceeds of disposition that you reported on your tax return by the least of the amount of the gain reported on your final T1 on departure, the FMV of the property when you returned, or any other amount up to the lesser of those two amounts. At this point your tax situation has become complex, so you’ll probably need professional help to get it right. Dealing with the CRA on these compliance issues can be very time-consuming.
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Evelyn Jacks, RWM, MFA, MFA-P, FDFS

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February 2, 2026
Startup founders urged to prioritize accounting and tax planning | Long Island Business News
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In Brief:
- Startups often make costly mistakes when accounting is deprioritized.
- Founders should understand cash flow, tax rules and entity structures.
- LLCs and multi-entity structures are rising due to pass-through tax benefits.
- CPAs advise revisiting business structure as the company grows and evolves.
Starting a business can be both exciting and daunting, and while the potential upside can seem promising, the path for a startup may be packed with pitfalls, especially those that forego strategic advice from tax professionals.

SHASHI SINGAL: ‘Ultimately, the decision on how to structure a business is shaped by a complex mix of tax rates, deductions and long-term strategic goals.’

While streamlined startups are usually efficient and adaptable, they often leave their founders juggling multiple roles, which can lead to mistakes. “Entrepreneurs often find themselves managing multiple aspects of their business, from operations and marketing to finance and HR,” says Shashi Singal, a tax partner at Anchin in Uniondale. “In the midst of this multitasking, it’s common for accounting to take a back seat to other priorities, and for occasional errors and misconceptions to happen.”

Learning the basics of business accounting beforehand can help founders avoid playing catch-up later, according to Singal, who suggests becoming familiar with some key concepts, including understanding the differences between profit and cash flow, knowing what counts toward book income and what is considered taxable income, and finding appropriate tax software order to establish accurate and efficient record-keeping. “While it may seem tedious at first, setting things up correctly from the beginning can save entrepreneurs the hassle and cost of fixing and cleaning up their records later,” she says.

Startups that fall behind in record-keeping can suffer in other areas of their business. “If a business has inadequate accounting staff or software which cannot provide the reporting needed, it can negatively impact the entrepreneur’s ability to accurately budget, forecast and understand the financial performance of the business,” says Paul Becht, principal at Baker Tilly in Uniondale. “A strong accounting department possessing the right technology with the help from an experienced and robust outside accounting firm can help the business owner properly convey the company’s financial performance to banks, investors and other interested third parties.”

PAUL BECHT: ‘If a business has inadequate accounting staff or software which cannot provide the reporting needed, it can negatively impact the entrepreneur’s ability to accurately budget, forecast and understand the financial performance of the business.’

Recently, more owners have decoupled components of their business for more accounting leverage. “Business owners are increasingly creating multi-entity structures to separate operations, real estate and other activities in order to take advantage of pass-through entity credits and other tax benefits,” says Brittany Mayoka, CPA and chief operating officer at Harbor Accounting Group in Syosset.

This is due to the provisions of the 2017 Tax Cuts and Jobs Act being made permanent earlier this year, as well as New York State’s tax code revisions that offer alternatives to more traditional state and local tax deductions. “One of the most notable changes was the introduction of the 20-percent qualified business income deduction (QBID) for eligible pass-through entities,” Mayoka says. “At the state level, New York implemented the Pass-Through Entity Tax (PTET) in 2021, which allowed for a state and local tax (SALT) deduction work-around.”

The qualified business income deduction offers tax benefits to owners of limited liability companies (LLCs), specifically partnerships, which have become increasingly popular designations for startups. “Over the past decade, the use of the limited liability company structure has grown substantially,” Becht says. “This entity type provides tax flexibility, as business owners can elect to be taxed as a sole proprietor, partnership or corporation. At the same time, LLCs offer legal protection with less complexity than incorporated entities.”

However, forming a partnership may not always be the best choice for entrepreneurs. “C corporations may be an advantageous option for startup founders seeking to benefit from qualified small business stock provisions, which offer substantial tax savings on gains from the sale of eligible stock,” Singal suggests. But several other factors may influence a startup’s incorporation strategy. “Despite the lower corporate tax rate, many small businesses continue to favor pass-through structures to avoid double taxation and reduce administrative complexity,” she says.

Given the often complex parts of a small business, deciding which type of structure is best involves detailed planning. “Ultimately, the decision on how to structure a business is shaped by a complex mix of tax rates, deductions and long-term strategic goals,” says Singal. “Business owners must carefully evaluate these factors to select the most tax-efficient structure for their unique circumstances.”

BRITTANY MAYOKA: ‘Business owners are increasingly creating multi-entity structures to separate operations, real estate and other activities in order to take advantage of pass-through entity credits and other tax benefits.’

While carefully curated data can provide a clearer choice for startup founders that are deciding on a structure, the optimal structure for any business may change with time. “I always recommend running comparative tax models for each entity type before making a decision,” Mayoka says. “The analysis often reveals that a structure that seems simpler may actually cost more in the long run. Entity choice isn’t a one-time decision—it should be revisited as the business evolves.”

Accountants can often provide valuable advice to startups, but maintaining a close relationship with a trusted CPA has helped established businesses optimize their accounting practices as they expand as well. “A few years ago, an entrepreneur operating a successful retail and distribution business wanted to branch out into real estate investment,” says Becht. “Due to the real estate venture being an entirely different line of business, it required a distinct accounting approach, as revenue would be generated from leases rather than product sales.”

The strategy paid off, according to Becht. “Years later, the client now owns several LLCs structured to efficiently hold real estate assets and maximize favorable tax treatment.”
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JARED SCOT, LIBN CONTRIBUTING WRITER

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November 26, 2025
Can you move income back and forth between spouses? – MoneySense

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Let’s look at reporting investment income and capital gains, and which spouse should report the capital gain on a rental property.

Reporting investment income

When you earn investment income like interest or dividends in a taxable investment account, or rental income from a rental property, you need to report it on your tax return.

Taxpayers sometimes mistakenly think they can minimize the tax payable by choosing which spouse’s tax return to report the income on, and in some cases, changing the allocation from year to year. Unfortunately, it does not work that way. The income must be reported by the spouse who earned it. If the asset is truly joint, each taxpayer would report their proportionate share of the income on their tax return.

Reporting capital gains

Like other sources of income, capital gains have to be reported by the person who earned the income. If the capital gain is on a property held in your name only, Zlatko, you cannot report half the capital gain on your spouse’s tax return to reduce tax, nor can you use their registered retirement savings plan (RRSP) room to reduce the taxable income.

Presumably, you have been reporting 100% of the rental income on your tax return annually, so to change that reporting suddenly when there is a big income inclusion from the capital gain is not an option. If you were reporting the income incorrectly all along, and it should always have been reported jointly, you should go back and adjust your tax return and your spouse’s tax return. Interest would apply on your spouse’s balance owing, and you would receive a refund. But you should have a good reason for the oversight, as the Canada Revenue Agency (CRA) does not like this sort of “convenient” retroactive tax planning.

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Legal versus beneficial ownership

You mentioned that the property is in your name. For tax purposes, there is always a distinction between legal ownership and beneficial ownership.

An asset can be legally owned by one spouse but beneficially belong in part or in whole by the other. If you both contributed equally to the down payment for the property, for example, you should report the capital gain equally, despite the property being held in your name alone, Zlatko.

However, if this was inconsistent with the past reporting of the rental income, that means you may have been reporting the property incorrectly all along. It does not sound like this is the case for you.

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Spousal attribution

On the other hand, if your spouse gave you the money for the down payment, so that the property technically belongs to them beneficially, the income may be subject to attribution. If both spouses have contributed differing amounts at different times, it can be more complicated to determine beneficial ownership for tax purposes. It bears mentioning that spouses can own an asset in a proportion other than 50/50 as a result.

Spousal attribution is when income is earned by one spouse, but because of the source of the funds that generated the income, that income gets taxed back to the contributing spouse.

If your spouse actually bought this rental property in your name to try to reduce tax, it may be that the capital gain and all the past rental income should technically be taxed to them, Zlatko.

Transferring assets between spouses

Sometimes, people ask me about transferring an asset to their spouse, or adding their spouse’s name to the property prior to selling it. A transaction like this runs into the same spousal attribution issue, where an asset you own, transferred to your spouse, will have resulting income taxed back to you.

As a result, you cannot transfer partial ownership to your spouse in an attempt at last-minute tax planning.

Tax reduction options

You brought up contributing to your and your spouse’s RRSPs, Zlatko. This is definitely one way to reduce your taxable income in the year you sell the property. If the capital gain is large, or your income is relatively high besides the capital gain, you may be able to offset about $2 of capital gains with every dollar contributed to your RRSP.

This is because only half of a capital gain is taxable. So, you would only need a $50,000 RRSP contribution to fully offset a $100,000 capital gain.

If you can control your income in the year of the capital gain by reducing or avoiding other sources of income, you may be able to mitigate some of the tax payable on the capital gain, as well. For example, if you are a business owner who can lower your salary or dividends, or you can defer other capital gains or registered account withdrawals, or you can claim or accelerate other tax deductions.

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Jason Heath, CFP

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August 18, 2025
Harris calls for expanded child tax credit of up to $6,000 for families with newborns

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U.S. Vice President Kamala Harris speaks at an event with U.S. President Joe Biden (not pictured) in Prince George’s County, Maryland, U.S., August 15, 2024.

Elizabeth Frantz | Reuters

Vice President Kamala Harris on Friday unveiled an economic plan, including an expanded child tax credit worth up to $6,000 in total tax relief for families with newborn children.

The Democratic presidential nominee’s plan aims to restore the higher child tax credit enacted via the American Rescue Plan in 2021, which provided a maximum credit of up to $3,600 per child, according to a fact sheet from the campaign.

The 2021 credit was up to $3,000 or $3,600, depending on the child’s age and family’s income. Harris’ proposed tax break would increase for middle- to lower-income families for one year after a child is born.

“We will provide $6,000 in tax relief to families during the first year of a child’s life,” said Harris during a policy speech in Raleigh, North Carolina.

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The plan comes less than one week after Sen. JD Vance of Ohio, former President Donald Trump‘s GOP running mate, floated a $5,000 child tax credit.

A Trump campaign official told CNBC: “Trump will consider a significant expansion of the child tax credit that applies to American families.”

While Harris has followed President Joe Biden’s footsteps with her proposed child tax credit expansion, the $2,400 bonus for newborns is “different and somewhat surprising,” said Kyle Pomerleau, senior fellow and federal tax expert with the American Enterprise Institute. “That, to me, sounds very much like a response to JD Vance.”

The Harris campaign did not immediately respond to CNBC’s request for comment.

‘Bipartisan momentum’ for the child tax credit

Senate Republicans earlier in August blocked an expanded child tax credit that passed in the House with broad support. However, Republican lawmakers are expected to revisit the measure after the election.

“There is bipartisan momentum behind expanding the [child tax credit],” said Andrew Lautz, associate director for the Bipartisan Policy Center’s economic policy program.

There is bipartisan momentum behind expanding the [child tax credit].

Andrew Lautz

Associate director for the Bipartisan Policy Center’s economic policy program

The size of the expansion and future credit design will hinge on which party controls the White House and Congress. But the House-passed bill and Senate negotiations could be a starting point, Lautz said.

Future child tax credit expiration

Without action from Congress, the maximum child tax credit will drop from $2,000 to $1,000 once Trump’s 2017 tax cuts expire after 2025.

The American Rescue Plan temporarily increased the maximum child tax credit from $2,000 to either $3,000 or $3,600, depending on the child’s age. Families received up to half via monthly payments for 2021.

The child poverty rate fell to a historic low of 5.2% in 2021, largely due to the credit’s expansion, according to a Columbia University analysis.

If there’s a future child tax credit expansion, Pomerleau doesn’t expect it to be as large as the tax break that Harris or Vance have proposed.

Amid the federal budget deficit, lawmakers are already wrestling with trillions in expiring tax cuts that are “prohibitively expensive,” he said.

Expanding the child tax credit to $3,000 or $3,600 could cost an estimated $1.1 trillion over a decade, according to the Committee for a Responsible Federal Budget. Meanwhile, the expansion to $6,000 for newborns could cost $100 billion.

The Harris campaign’s economic plan fact sheet said she would fulfill her “commitment to fiscal responsibility,” including calls for higher taxes on wealthy Americans and large corporations.

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August 16, 2024
Your home sale could trigger capital gains taxes. Here’s how to calculate your bill

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Westend61 | Westend61 | Getty Images

As home values climb, more Americans owe capital gains taxes when selling property. But knowing how to calculate your home’s profit could reduce your bill, experts say.

Most Americans do not owe taxes for selling a primary residence because of a special tax break — known as the Section 121 exclusion — that shields up to $250,000 of profits for single filers and $500,000 for married couples filing together.

However, more U.S. home sales profits now exceed these thresholds, according to an April report from real estate data firm CoreLogic. Nearly 8% of sales exceeded the $500,000 limit in 2023, up from roughly 3% in 2019, the report found.

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There are strict IRS rules to qualify for the $250,000 or $500,000 exemptions. Any profit above those limits is subject to capital gains taxes, levied at 0%, 15% or 20%, based on your earnings.

Capital gains brackets use “taxable income,” which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

Reduce capital gains by increasing ‘basis’

“It is important to track your cost basis of the home,” which is your original purchase price plus closing costs from the purchase, according to Thomas Scanlon, a certified financial planner at Raymond James in Manchester, Connecticut.

You can reduce your home sale profit by adding often-forgotten costs and fees to your basis, which minimizes your capital gains tax liability.

For example, you can start by tacking on fees and closing costs from the purchase and sale of the home, according to the IRS. These may include:

Title fees

Charges for utility installation

Legal and recording fees

Surveys

Transfer taxes

Title insurance

Balances owed by the seller

These could be small amounts individually but have a significant effect on the basis when tallied.

The average closing cost nationwide is $4,243, according to a report from Assurance, but fees vary widely. In the priciest state, New York, the average is $8,039, while California is a close second at $8,028.

“You also get credit for the expenses for the sale of the property,” added Scanlon, who is also a certified public accountant. That includes your real estate commissions and closing costs.

However, there are some fees and closing costs you cannot add to your basis, such as home insurance premiums or rent or utilities paid before your closing date, according to the IRS.

Similarly, loan charges such as points, mortgage insurance premiums, the cost to pull your credit report or appraisals required by your lender will not count.

The ‘best way’ to reduce capital gains taxes

You can further increase your home’s basis by tacking on the cost of eligible upgrades, experts say.

“The best way to minimize the tax owed from selling a house is to maintain an accurate record of home improvements,” said CFP and enrolled agent Paul Fenner, founder and president of Tamma Capital in Commerce Township, Michigan.

An improvement must “add to the value of your home, prolong its useful life or adopt it to new uses,” according to the IRS.

For example, you can increase your basis with additions, outdoor or exterior upgrades, adding new systems, plumbing or built-in appliances.

However, you cannot tack on repairs or maintenance needed to “keep your home in good condition,” such as fixing leaks, holes or cracks or replacing broken hardware, according to the IRS.

Of course, you will need documentation for any improvements used to increase your home’s basis in case of a future IRS audit.

If you do not have receipts, “at the very least, take pictures,” and gather any permits pulled for home projects, Scanlon from Raymond James said.

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May 13, 2024
Buyers of newly built homes can face a property tax surprise. Here’s why

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It’s not unusual for new homeowners to face financial surprises, but people buying a newly built home may be more likely to encounter sticker shock on a key expense.

Almost 75% of recent homebuyers had regrets about their purchase, according to a 2023 survey from Real Estate Witch. Property taxes were the most common gripe, surprising 33% of new owners.

With new builds, property taxes can change dramatically after purchase because initial rates are often based on estimates. That can be jarring for homeowners who already stretched their budgets to afford a home in the current market.

As part of its National Financial Literacy Month efforts, CNBC will be featuring stories throughout the month dedicated to helping people manage, grow and protect their money so they can truly live ambitiously.

Newly built homes comprise 30% of the current market, up from the typical 10% to 20%, according to a recent report by the National Association of Realtors. As more buyers turn to builders, potential owners need to be aware of how costs might increase after even just a year, experts say.

“Buyers need to understand that real estate taxes … are not static. They can change on an annual basis,” said Melissa Cohn, regional vice president at William Raveis Mortgage. “People don’t really have any control.”

Why property taxes can jump for new builds

When lenders qualify someone for a home purchase, they factor in the principal, the interest payment on the mortgage, homeowner’s insurance and property taxes.

But unlike previously owned homes, new builds lack a tax bill because there’s no house to assess yet, experts say. Instead, mortgage lenders will often use an older tax rate from the area or an estimated tax rate to calculate the owner’s monthly payment.

The calculation is going to vary by lender, said Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender. Some take 1% to 2% of the sales price of the home for the property taxes, while others multiply one-third of the sales price by the local tax rate to determine estimated taxes.

Initially, the homeowner will typically pay the estimated property tax rate into escrow. Depending on the local tax assessment cycle, the county office will eventually assess the value of the new house to determine the actual property tax rate.

“All counties reassess a property’s taxes — it depends on when,” Cohn said.

While some places may differ on frequency, “if it’s new construction, they always reassess,” she explained.

And at that point, if the homeowner has an escrow account, they may learn they have a shortage, meaning they owe more property taxes than expected.

If the homeowner cannot pay the owed taxes in a lump sum, the lender usually pays what’s owed. In that case, the owner pays back the lender through an increased mortgage payment to make up the difference.

Tricks to gauge how property tax may change

“People who buy today with the assumption that they qualify based on the current real estate taxes or current insurance need to really do more homework to understand where they could really be in a year,” Cohn said.

If you’re looking to buy in an area you’re unfamiliar with, find out how often the county reassesses property taxes and what the reassessment formula is based on, Cohn said.

Additionally, you may want to consult with a local loan officer who understands the landscape of the area you’re buying into, Nevins said.

If some newly built homes in your neighborhood with similar square footage have been around for a year, you could check the property address on a real estate site and get a ballpark estimate of what your taxes might be, said Veronica Fuentes, a certified financial planner at Northwestern Mutual.

However, tread with caution: When you look at real estate taxes listed online, those are the taxes the current owner pays, not what you will pay, Cohn said.

Correction: This story has been updated to reflect that some lenders estimate initial property tax rates for new builds based on one-third of the sales price multiplied by the local tax rate. An earlier version of this story misstated that formula.

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April 9, 2024
Your home sale may leave you in a tax shock. Here’s how to reduce your capital gains tax bill

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Witthaya Prasongsin | Moment | Getty Images

Despite a slump in U.S. home sales, many homeowners made a profit selling property in 2023. Those gains could trigger a tax bill this season, depending on the size of the windfall, experts say.

In 2023, home sellers made a $121,000 profit on the typical median-priced single-family home, according to ATTOM, a nationwide property database. That’s down from $122,600 in 2022.Â Â

But sometimes profits exceed the IRS limits for tax-free gains and “it’s a shock” for sellers, said certified public accountant Miklos Ringbauer, founder of MiklosCPA in Los Angeles.Â

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Here’s a look at more tax-planning news.

Still, “the tax laws were written to encourage homeownership,” and many sellers qualify for a tax break, Ringbauer said. Â

Single homeowners can shield up to $250,000 of home sales profit from capital gains taxes and married couples filing jointly can exclude up to $500,000, provided they meet IRS eligibility.

If you’ve owned the property for more than one year, profits above $250,000 and $500,000 are subject to long-term capital gains taxes, levied at 0%, 15% or 20%, depending on your 2023 taxable income.Â (You calculate “taxable income” by subtracting the greater of the standard or itemized deductions from your adjusted gross income.)

Who qualifies for the capital gains exemptions

There are strict rules to qualify for the $250,000 or $500,000 capital gains exclusions, Ringbauer warned.Â

The “ownership test” says you must own the home for at least two of the past five years before your home sale â but that’s only required for one spouse if you’re married and filing jointly.

There’s also a “residence test,” which requires the home to be your primary residence for any 24 months of the five years before sale, with some exceptions. (The 24 months of residence can fall anywhere within the five year period, and it doesn’t have to be a single block of time.)

Both spouses must meet the residence requirement for the full exclusion.

A partial exclusion may also be possible if you sold your home because of a workplace location change, for health reasons or for “unforeseeable events,” according to the IRS.

Generally, you can’t get the tax break if you received the exclusion for the sale of another home within two years of your closing date.

How to reduce your home sale profits

If your capital gain exceeds the IRS exclusions, it’s possible to reduce your profits by increasing your home’s original purchase price or “basis,” according to certified financial planner Assunta McLane, managing director of Summit Place Financial Advisors in Summit, New Jersey.

You can increase your home’s basis by adding certain improvements you’ve made to the property to “prolong its useful life,” according to the IRS.

For example, you could tack on the cost of home additions, updated systems, landscaping or new appliances.Â But the cost of repairs and maintenance generally don’t count.

Of course, you’ll need detailed records to show proof of capital improvements, because “estimates don’t work when it comes to an audit,” Ringbauer said.

After a home sale, the IRS receives a copy of Form 1099-S, which shows your closing date and gross proceeds. But you need paperwork to prove any changes to your home’s basis.

Failing to keep home improvement records throughout ownership is a “common mistake,” McLane said.

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February 24, 2024
Op-ed: Thinking of moving your primary residence to a tax-advantaged state? Take these steps
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Mireya Acierto | Photodisc | Getty Images

It’s not unusual for wealthy taxpayers to relocate from high-tax states to low-tax states. There’s evidence in population trends: Texas and Florida — neither of which have a state income tax — were the states with the biggest population increases from 2020 to 2021, according to the latest U.S. Census Bureau data. Much of that growth is coming at the expense of higher-tax states such as California, New York and Illinois.

These days, it is very common for wealthy families to own residences in more than one state, making relocation even easier. However, the reality is that any state that does have an income tax, and in which an individual owns a home, will have a vested interest in asserting that the residence in their state is that person’s domicile.

In practical terms, having domicile in a state means that state can impose its respective income tax on all the income reflected on the individual’s federal income tax return, regardless of the source of that income. This is one of the principal reasons that many people consider relocating.

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Here’s a look at more tax-planning news.

Potentially adding to the trend of such moves is a wave of states’ efforts to find new ways to tax the rich. These bills range from imposing a “wealth tax” on the intrinsic gains from stocks and securities and creating special income tax brackets targeting the rich to reducing exemptions on inheritance taxes.

But before you call the moving van, understand that state taxation, including state income tax as well as state estate and inheritance taxes and potential wealth taxes, is only one factor to consider as you assess changing your domicile.

Other areas to consider include rules that govern asset protection, trust administration, trustee selection and estate administration. Some who redomicile to a state with no income tax may find that they are paying the state in other ways, such as higher inheritance, property and/or fuel taxes.

That’s why the state you choose as your domicile is such an important decision. That decision is even more challenging considering that states often have different rules defining what they consider domicile.

Some use so-called “bright line” tests; for instance, a certain number of days in and out of the state. Others use a “preponderance of evidence” approach that considers where you vote, where your driver’s license is issued, where your advisors are located and numerous other factors.

Tips for redomiciling ‘the right way’

Since I personally redomiciled from Minnesota to Florida and have assisted many of my clients in doing the same, I am often asked about “the right way” to do it.

The most important thing is to ensure, upon inspection, that you can demonstrate that the move is real and not just on paper. Simply getting a driver’s license or registering to vote in the new state will likely not be enough. Not surprisingly, states with high income taxes do not like to lose tax revenue from wealthy families and will very often audit taxpayers who say they’ve redomiciled.

When I have a client who is serious about changing domiciles, we go through a checklist of the things they should do to prove they have severed the connection to their former state of residence. The more evidence you can produce to show that you are domiciled in, and not just a resident of, your new state, the better off you’ll be, even if it only seems to be supporting evidence. Items to consider include:

Buy or lease property. The first step in redomiciling should be to purchase or rent a residential home in the new domicile state. If the residence is a rental, the term of your lease should be for at least one year.

Log your travels. Make certain to spend at least 183 days per year outside your old home state. Limit return trips to your prior home and keep a record of where you spend your time when you are not in the new state.

Change your license and registration. Obtain a new driver’s license and register any automobiles or boats in the new state. If you keep any licenses from your prior home, make sure they reflect that you are a nonresident.

Register to vote. Register to vote in your new state. Write to the registrar of voters at your prior home, too. Mention your change of domicile and ask that you be removed from voting lists.

File a declaration of domicile. In some states, like Florida, it is possible and advisable to file a declaration of domicile in which you attest to the fact, under penalty of perjury, that your domicile is the new state.

Move bank accounts and safe deposit boxes. It’s hard to make the case for changing domiciles if all your financial holdings are in the old state.

Declare a change of address. Send notification of your change of address to family, friends, business associates, professional organizations, credit card companies, brokers, insurance companies and magazine subscription offices.

Establish a new home base. When you travel, try to return to the new state. When you make large purchases, make them in the new state. Keep your family heirlooms, furniture and keepsakes in the new state.

Change legal documents to reflect residency. Upon redomiciling, you must update your will and trust and estate documents. Make sure that these documents do not identify you as a resident of another state. Also make sure your federal tax returns indicate your new address.

Develop local affiliations. Join local organizations in the new state, such as clubs and religious groups, and participate in local charitable activities.

If it exists, apply for a homestead exemption. In some states, such as Florida, a homestead exemption will be counted against your real estate taxes.

Each person has a unique tax situation. Please consult with your financial and tax professionals when considering a change in domicile.

— By Paul J. Ayotte, founding partner and client advisor at Fidelis Capital
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March 25, 2023
Here’s how the IRS says you should handle 1099-K tax reporting mistakes on your return
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Over the past year, there’s been a wave of confusion around tax reporting for payment apps like Venmo and PayPal, along with e-commerce companies such as eBay, Etsy and Poshmark. But the IRS provided clarification in an update this week.

The 2022 threshold for Form 1099-K, which reports third-party business payments to the IRS, is still more than 200 transactions worth an aggregate above $20,000.

That’s slated to change for next tax season when the 2023 threshold drops to $600 for even a single transaction.

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

In the meantime, you still need to report business income, regardless of whether you receive Form 1099-K, the IRS said in a news release on Thursday. “All income must be reported unless it’s excluded by law,” according to the federal agency.

The problem with 1099-K reporting mistakes

While more taxpayers are expected to receive Form 1099-K next season, it’s possible some companies may have issued the 2022 form to certain filers by mistake for personal transfers, or reported incorrect amounts.

Here’s why it matters: If the IRS receives tax forms and you don’t include those on your return, it creates a “matching error” for the agency, explained certified financial planner Jim Guarino, a CPA and managing director at Baker Newman Noyes in Woburn, Massachusetts.

“In effect, the IRS compares the information it receives from third parties to the information included on a tax return,” he said. “To the extent the amounts do not match, it could potentially trigger a tax notice.”

How to handle 1099-K reporting errors

If you mistakenly received Form 1099-K or the amount was incorrect, the IRS updated guidance on how to handle it this week.

Some taxpayers may have incorrectly received Form 1099-K, the agency said. “In other cases, the form may have been issued in error — such as for transactions between friends and family, or expense sharing,” the IRS wrote.

The agency suggests contacting the issuer direct to correct 1099-K mistakes. But if you can’t get a timely update, the agency suggests addressing the error on your return by zeroing out the income on two lines of Schedule 1 with the description “Form 1099-K Received in Error” for both.

Part I – Line 8z – Other Income – (add income)

Part II – Line 24z – Other Adjustments – (offset income)

Alternatively, for tax year 2022, you can include both the gross proceeds and the offsetting negative amount on Line 8z, the IRS said in the FAQs page updated this week.

“Of course, providing an appropriate and clear explanation for the offsetting adjustment is also an important factor to reporting this information correctly,” said Guarino.

You can follow the same steps if you received Form 1099-K after selling personal items at a loss, the IRS said. You can use the description “Form 1099-K Personal Item Sold at a Loss” for both.

However, you need to report profits as a capital gain on Form 8949 and Schedule D.
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March 24, 2023
You can still score a 2022 tax break with pretax IRA contributions — here’s how to qualify

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There’s still time to make a pretax individual retirement account contribution for 2022 — and possibly trim your tax bill or boost your refund — if you qualify.

For 2022, the IRA contributions limit was $6,000, with an extra $1,000 for investors age 50 and older, and the tax deadline this year is April 18 for most Americans.

You can make your 2022 IRA contribution through the April tax deadline in 2023, as long as you designate the deposit for tax year 2022. But you need to know the IRA deductibility rules before making a contribution, experts say.

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

“The deductibility rules for pretax IRA contributions can be confusing,” said certified financial planner Kevin Brady, vice president at Wealthspire Advisors in New York.

That’s because eligibility depends on three factors: your filing status, modified adjusted gross income and workplace retirement plan participation, he said.

How to know if you qualify for the tax break

Eligibility is simplest for a married couple filing together when both spouses don’t participate in a workplace retirement plan, according to Julie Hall, a CFP at Vision Capital Partners in Ann Arbor, Michigan.

“They can both deduct and it doesn’t matter what their income is,” which may be appealing to higher earners, she said.

However, it gets more complicated if either partner has retirement plan coverage at work and participates in the plan. “Participation” may include employee contributions, company matches, profit-sharing or other employer deposits.

Depending on your filing status and income, you may be able to deduct all, part or none of your IRA contributions.

The 2022 income thresholds for IRA deductibility

“It’s important to understand there are deductibility limitations,” said Malcolm Ethridge, a CFP and executive vice president of CIC Wealth in Rockville, Maryland. With a workplace plan, some or all of your contributions may not be deductible, depending on earnings.

For 2022, single investors with a workplace retirement plan may claim a tax break for their entire IRA contribution if their modified adjusted gross income is $68,000 or less.

Although there’s a partial deduction before reaching $78,000, the tax break disappears after meeting that threshold.

Even if you maxed out the plan at your current company, your income could still be low enough to make a tax-deductible [IRA] contribution.

Malcolm Ethridge

Executive vice president of CIC Wealth

Married couples filing together can get the full benefit with $109,000 or less in income, and they can receive a partial tax break before hitting $129,000.

You can see the full IRS chart for 2022 on IRA deductibility here.

“Even if you maxed out the plan at your current company, your income could still be low enough to make a tax-deductible [IRA] contribution,” Ethridge said.

How to know if a pretax IRA contribution makes sense

Of course, just because you qualify for a deduction doesn’t mean you should make the pretax IRA contribution, Hall said.

Before making the deposit, investors need to weigh their investment goals, along with their current tax brackets versus expected tax bracket in retirement, she said.

Plus, you may consider your other buckets of retirement savings — and the tax consequences upon withdrawal, such as capital gains, regular income taxes or tax-free income.

“Yes, you can benefit from the deduction today,” Hall said. But you may opt for further tax diversification by adding more to another type of account, she said.

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March 2, 2023
IRS says many state rebates aren’t taxable at the federal level. Some may face filing struggle, tax pros warn

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The IRS on Friday issued federal tax guidance for millions of Americans who received state rebates or payments in 2022.

The announcement came about a week after the agency had urged those taxpayers to hold off on filing while it determined if the funds are taxable on federal returns.

“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the agency said in a statement.

The agency said taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island won’t need to report these payments on their federal tax returns. Some Alaska taxpayers may also avoid federal levies on certain payments.

Taxpayers in Georgia, Massachusetts, South Carolina and Virginia may also skip federal tax reporting for some payments. But eligibility may hinge on factors from your previous tax filings.

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

Californians may still face filing challenges

“This is the right ruling by the IRS,” said Adam Markowitz, an enrolled agent and vice president at Luminary Tax Advisors in Windermere, Florida. “It’s unfair to punish taxpayers this late in the game if they were going to change anything.”

However, he said there may be challenges for California taxpayers because the state already issued them 1099-MISC forms for payments of more than $600, which reported the state’s “Middle Class Tax Refund” as a taxable payment to the IRS.

More than 16.5 million California taxpayers have received the payment, according to the state’s Franchise Tax Board. Overall, more than 31.6 million residents benefited including taxpayers and their dependents.

“The state of California really did everyone a disservice by issuing 1099-MISC [forms],” said Dan Herron, a San Luis Obispo, California-based certified financial planner at Elemental Wealth Advisors. He is also a certified public accountant.

If the state doesn’t amend and reissue those forms to the IRS, it may cause a mismatch when California taxpayers file their federal returns, he said.

Typically, a mismatch between tax forms and returns triggers automated notices, which may delay refunds or require taxpayers to contact the IRS to resolve.

“I don’t know how the IRS system is going to handle that,” Herron added.

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February 10, 2023
Joshua Davis, CFP®, Establishes Davis Private Wealth, LLC

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Press Release
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updated: Apr 6, 2017

Wellington, FL., April 6, 2017 (Newswire.com)
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Joshua Davis, a certified financial planner and investment management expert, is branching out in creating his own private establishment, Davis Private Wealth, LLC.

The firm is dedicated to putting his clients’ interests first and provides an array of financial services such as portfolio management, retirement planning, estate planning, college saving, budgeting, tax planning, cash flow analysis, and company retirement plans.

In his previous firm, Joshua had worked on a team that managed $200 million worth of investments which speaks to the level of expertise he holds in his rightful field. Personally, Joshua has successfully received his MBA from the University of Florida as well as a B.S. in Finance from Azusa Pacific University. Joshua has also achieved the professional designation of CFP® (CERTIFIED FINANCIAL PLANNER™).

Joshua works with many retired couples, business owners, and working professionals in order to assist them with their financial planning and future monetary achievements and goals. His focus lays on assessing client needs through comprehensive financial devising and implementing strategies in order to achieve client goals.

Joshua founded the firm with the hopes of providing exceptional client services that only come with a boutique independent company. He is a proud member of the Financial Planning Association and the Wellington Chamber of Commerce, and is continually serving clients throughout South Florida.

For anyone looking to make financial decisions for his or her future, and for anyone looking for industry expert advice, please call Joshua S. Davis at (561)-284-8999 for a free consultation.

About Joshua S. Davis, CFP®

Joshua Davis is a financial planner, providing clients with tailor and bespoke financial assistance. Davis’ wealth management strategies encompass a multidisciplinary approach to money management. Joshua is dedicated to helping clients gain control of their financial lives by providing professional investment management. Through comprehensive planning, Joshua provides professional and individualized financial assistance to you, your family, or your business.

For more information, please visit http://www.davisprivatewealth.com/ or e-mail Josh at josh@davisprivatewealth.com or call 561-284-8999.

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Source: Davis Private Wealth, LLC

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April 6, 2017