Some of these items may surprise you. There are a number of areas in the tax code that cause confusion as to the taxability of money received. Here are some of the most common areas of confusion.
Unemployment compensation. Unemployment compensation is typically required to be reported as taxable income. So you could be facing a tax surprise if you received unemployment income this year. There are historic cases where federal and state taxing authorities are authorized to exempt unemployment income from taxation, so this is an area worth watching for possible future legislation. Free services. Receiving free services is almost always taxable as ordinary income under IRS barter regulations. You should report the fair market value of services received as income on your tax return. If you exchange services, you can deduct allowable business expenses against the value of the services provided. So if you are trading goods or services, now is the time to be tracking this information. Illegal activities. Even income received from illegal activities is considered taxable income and must be reported on your tax return. The IRS even states that stolen items should be reported at their fair market value on the date the thief stole the item! Jury duty pay. This is taxable as ordinary income. Yes, even doing your civic duty can be a taxable event. Legal settlements. A general rule of thumb with legal settlements is to consider what the settlement replaces. If the settlement replaces a taxable item, like lost wages, the settlement often creates taxable income. This area is complex and often requires a detailed review. Life insurance proceeds. Life insurance proceeds paid to you because of the death of an insured are generally not taxable. There are, however, a number of exceptions to this general rule. For example, you could have taxable income if you receive benefits in installments above the value of the life insurance policy at the time of death or if you receive a cash payout of a policy. Prizes. Most prizes received should be reported as ordinary income using the fair market value of the item received. This area has been a major surprise to contestants on game shows, along with celebrities who receive large gifts at events like the Academy Awards. Alimony. Alimony is taxable to the person who receives it and deductible to the person who pays it for divorce decrees prior to 2019. For all divorces finalized in 2019 and later, alimony is neither deductible by the person who paid it nor deemed additional income by the person receiving it. So be aware of these new rules if you are considering a change to old divorce decrees. Make sure you have proper documentation as part of a divorce decree to support your tax position. Child support. Child support is not taxable to the person who receives it on behalf of the dependent. It is also not deductible by the person who pays it. Some of these areas can be complicated, so please call to discuss if any of these situations apply to you. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA
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 At the end of each year there are a number of things to consider that may have a positive impact on your tax obligation. Here is a list of fifteen ideas that may be worth a quick review.
1. Make last minute charitable donations. Pay attention to your itemized deduction limit to ensure your deduction will count. 2. Review and maximize use of the $18,000 annual gift giving limit. 3. Review your investment portfolio for capital gain and loss planning. 4. Use your annual $3,000 net capital loss limit to lower ordinary income if appropriate. 5. Maximize the kiddie tax threshold rules ($2,600 of unearned income taxed at your child’s lower tax rate). 6. Consider fully funding retirement accounts with your annual contributions. 7. Identify any potential household employees. 8. Consider donating appreciated stock owned one year or longer. 9. Review retirement accounts for required minimum distributions (RMD). 10. Review medical and dependent care funding accounts to ensure you do not lose contributions that do not roll over into the new year. 11. Consider retirement plan rollover options into Roth IRAs. 12. Estimate your tax liability and make any final estimated tax payments. 13. Create a list of expected 1099 and other tax forms you will be receiving. 14. Review your W-2 withholdings and file any changes with your employer for the upcoming year. 15. Begin organizing your tax records. Should you have any questions on these ideas, ask for help prior to taking action. In many cases, the requirements and documentation needed are important to ensure you receive the full tax savings benefit. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA Tax savings can be found in the elections you make! Every year is an election year when it comes to making decisions on your annual income tax return. Here are four common examples that can create tax savings opportunities if you elect the correct option.
1. Tax filing status. Typically, filing a joint tax return instead of filing separately is beneficial to a married couple, but not always! For instance, if one spouse has a high amount of medical expenses and the other doesn’t, your total medical deduction may be greater by filing separately due to the 7.5% of adjusted gross income (AGI) threshold before you can deduct these expenses. 2. Higher education expenses. Many parents of college students face a decision: Whether to take one of the two credits for higher education expenses or the tuition and fees deduction. To complicate matters, the credits and the deduction are all phased out based on different modified adjusted gross income (AGI) levels. Before you elect which tax benefit makes the most sense, you will need to evaluate all options. 3. Investment interest. Investment interest expenses can be deducted up to the amount of net investment income for the year. This income does not usually include capital gains, because of favorable tax treatment of this type of gain. However, you can elect to include capital gains to help you deduct your interest expense. You can even cherry-pick which capital gains to use for this deduction. If you take this election, you could forego the favorable tax rate for long-term gains. 4. Installment sales. If you sell real estate or other assets in installments over two or more years, the tax liability is spread over the years that payments are received. Thus, you may be able to postpone the tax due. This technique can reduce the total tax paid depending on your effective tax rate each year. However, you can also elect out of installment sale treatment by paying the entire tax in the year of the sale. You may wish to take this election if your income is lower in the year of the sale. Thankfully there is help navigating these key tax elections. Simply call with any questions. "Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs. We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com. Mia Verc, CPA; Janice Papais, CPA |
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