Helpful Facts to Know about Capital Gains and Losses

When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are facts that you should know about capital gains and losses:

1. Capital Assets.  Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses.  A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax.  You must include all capital gains in your income and you may be subject to the Net Investment Income Tax if your income is above certain amounts. The rate of this tax is 3.8 percent.

4. Deductible Losses.  You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

6. Carryover Losses.  If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.

7. Long and Short Term.  Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you held it for one year or less, the gain or loss is short-term.

8. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.

9. Tax Rate.  The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain. 

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Things You Should Know about the Child Tax Credit

The Child Tax Credit is an important tax credit that may save you up to $1,000 for each eligible qualifying child. Be sure you qualify before you claim it. Here are five useful facts on the Child Tax Credit:

1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:

·         Age. The child must have been under age 17 at the end of 2015.

·         Relationship. The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, or half sister. The child may be a descendant of any of these individuals. A qualifying child could also include your grandchild, niece or nephew. You would always treat an adopted child as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

·         Support. The child must have not provided more than half of their own support for the year.

·         Dependent. The child must be a dependent that you claim on your federal tax return.

·         Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.

·         Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.

·         Residence. In most cases, the child must have lived with you for more than half of 2015.

2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate your credit depending on your filing status and income.

3. Additional Child Tax Credit. If you qualify and get less than the full Child Tax Credit, you could receive a refund even if you owe no tax with the Additional Child Tax Credit.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Change Your Name? It Can Affect Your Taxes

A name change can have an impact on your taxes. All the names on your tax return must match Social Security Administration records. A name mismatch can delay your refund.

Here’s what you should know if you changed your name:

• Report Name Changes.  Did you get married and are now using your new spouse’s last name or hyphenated your last name? Did you divorce and go back to using your former last name? In either case, you should notify the SSA of your name change. That way, your new name on your IRS records will match up with your SSA records.
• Make Dependent’s Name Change.  Notify the SSA if your dependent had a name change. For example, this could apply if you adopted a child and the child’s last name changed.  

If you adopted a child who does not have a Social Security number, you may use an Adoption Taxpayer Identification Number on your tax return. An ATIN is a temporary number. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS.

·         Get a New Card.  File Form SS-5, Application for a Social Security Card, to notify SSA of your name change. You can get the form on SSA.gov or call 800-772-1213 to order it. Your new card will show your new name with the same SSN you had before.

·         Report Changes in Circumstances when they happen. If you enrolled in health insurance coverage through the Health Insurance Marketplace you may receive the benefit of advance payments of the premium tax credit. These are paid directly to your insurance company to lower your monthly premium. Report changes in circumstances, such as a name change, a new address and a change in your income or family size to your Marketplace when they happen throughout the year. Reporting the changes will help you avoid getting too much or too little advance payment of the premium tax credit. 

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

Wondering to Itemize or Use the Standard Deduction

Income Tax Service For Individuals - Most people claim the standard deduction when they file their federal tax return, but you may be able to lower your tax bill if you itemize. You can find out which way saves you the most by figuring your taxes both ways.  

1. Figure Your Itemized Deductions. Add up deductible expenses you paid during the year. These may include expenses such as:

·         Home mortgage interest

·         State and local income taxes or sales taxes (but not both)

·         Real estate and personal property taxes

·         Gifts to charities

·         Casualty or theft losses

·         Unreimbursed medical expenses

·         Unreimbursed employee business expenses

Special rules and limits apply.

2. Know Your Standard Deduction. If you don’t itemize, your basic standard deduction for 2015 depends on your filing status:    

·         Single $6,300

·         Married Filing Jointly $12,600

·         Head of Household $9,250

·         Married Filing Separately $6,300

·         Qualifying Widow(er) $12,600     

If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

3. Check the Exceptions. There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if you are married filing a separate return and your spouse itemizes. In this case, you can’t claim a standard deduction. You usually will pay less tax if you itemize.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777

U.S. Citizens and Resident Aliens Abroad - Head of Household

Experienced Tax Accountant – If you are a U.S. citizen married to a nonresident alien you may qualify to use the head of household tax rates. You are considered unmarried for head of household purposes if your spouse was a nonresident alien at any time during the year

and you do not choose to treat your nonresident spouse as a resident alien. However, your spouse is not a qualifying person for head of household purposes. You must have another qualifying person and meet the other tests to be eligible to file as a head of household.

Although your nonresident alien spouse cannot qualify you as a head of household, you can qualify if (1) or (2) applies:

1.    You paid more than half the cost of keeping up a home that was the principal home for the whole year for your mother or father for whom you can claim an exemption (your parent does not have to have lived with you), or

2.    You paid more than half the cost of keeping up the home in which you lived and in which one of the following also lived for more than half the year:

·         Your unmarried child, grandchild, stepchild, foster child, or adopted child. A foster child will qualify you for this status only if you can claim an exemption for the child

·         Your married child, grandchild, stepchild, or adopted child for whom you can claim an exemption, or for whom you could claim an exemption except that you signed a statement allowing the noncustodial parent to claim the exemption, or the noncustodial parent provides at least $600 support and claims the exemption under a pre-1985 agreement

·         Any relative listed below for whom you can claim an exemption:

§  Parent Father-in-law

§  Grandparent or other direct ancestor Brother-in-law

§  Brother            Sister-in-law

§  Half-brother     Half-sister

§  Sister   Son-in-law

§  Stepbrother     Daughter-in-law

§  Stepsister        Mother-in-law

§  Stepmother     Eligible Foster Child or descendent

§  Stepfather       Son or daughter or their descendents

If related by blood:

·         Uncle               Aunt

·         Nephew           Niece

             

If your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien, then you are treated as unmarried for head of household purposes. You must have another qualifying relative and meet the other tests to be eligible to file as head of household.

It may be advantageous to choose to treat your nonresident alien spouse as a U.S. resident and file a joint income tax return. Once you make the choice, however, you must report the worldwide income of both yourself and your spouse.

If you would like any additional information please feel free to contact me.

Amare Berhie, Senior Tax Accountant

AB Tax Online

ABA Tax Accounting

amare@abataxaccounting.com

(651) 300-4777, (612)424-1540, (651) 621-5777