Answers to Common Challenges

FAQs

Welcome to our Frequently Asked Questions (FAQs). At the time of writing the below information was accurate and the most up to date. The information is checked frequently and updated as needed. If you have any questions, please contact our office to discuss.

Submitting and Storing Your Information:

How do I know what information you will need to prepare my return?

For returning clients, in early January we will provide tax organizers to help you gather the information needed to prepare your return. This organizer is tailored to each client and includes prior year information to assist with gathering your current year information. At the client’s request, we can also upload tax organizers into our secure portal system which can be accessed by clicking on the “Client Portal” in the menu bar at the top right of this screen. There are also various checklists that can be found by clicking on “Resources” in the menu bar at the top right of this screen.

If you are not a current client and are interested in a free blank tax organizer and/or checklist, please contact our office.

When should I provide my income tax information to you?

It is best to provide us with your information as soon as possible so that we may prepare your return in a timely manner. Our typical turnaround time is 14 business days from the time we receive your information. All returns go through an extensive review process before being finalized, we need this time to prepare the return and perform our due diligence to ensure the return is complete. Providing complete information and answering questions or requests for additional information timely will help prevent delays in the process.

Even if you expect to receive additional information closer to April 15th, or even after, please send us what you have so that we can work on your return and provide you with an estimate of your refund or taxes owed (see important note below).

Due dates for calendar year end returns can be found below. If you have a year-end other than a December 31st calendar year end, please ask us what your due date is. The dates below do not include extensions. Please look at our section titled Extensions, Refunds, and Payments for extended due dates.

March 15th - Partnerships (Form 1065) and S-Corporations (Form 1120S)

April 15th - Gift Tax (Form 709), Individual (Form 1040), Estates or Trusts (Form 1041), and C Corporations (Form 1120)

May 15th - Exempt Organizations (Form 990)

July 31st - Retirement Plans (Form 5500)

Other - Estate returns filing Form 706 must be filed within 9 months after the date of the decedent’s death.

IMPORTANT NOTE - An extension is only an extension of time to file the return. There are no extensions for the payment of tax due. Payments must be made by the original due date of the return or late payment penalties and interest will apply.

How long should I keep tax related records?

The answer is, it depends. The length of time you should keep records depends on the item in question. The IRS generally recommends keeping records that support income, deductions, or credits shown on your return until the period of limitations for that tax return runs out. Generally, you are required to keep records for at least 3 years from the date you filed your original or amended return. In the case of filing a claim for a loss from worthless securities or a bad debt deduction the time increases to 7 years. In the case where a fraudulent return is filed the time to keep those records is indefinite. Our office recommends keeping your tax returns and supporting information for 7 years from the date you filed your original or amended return. More information can be found by clicking the link below.

https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records

Children’s Returns:

My daughter/son has some investment income and has received Form 1099. Do they have to file a return?

Whether a dependent child must file a tax return depends on several factors, mainly the amount of gross income they receive. The IRS website has a helpful article titled, “Tax Rules for Children Who Have Investment Income,” which can be accessed here:

https://www.irs.gov/newsroom/tax-rules-for-children-who-have-investment-income

IRS rules and articles can be confusing. Please always contact our office if you have any questions.

Other Income and Investments:

I was laid off during the year and received unemployment benefits. Do I have to report this as income?

If you meet the requirements of having to file a return then yes, you must include this as income. Your state department of labor will issue you a Form 1099-G. You have the option of having federal and state income taxes withheld.

I received Jury Duty pay do I have to report this as income?

If you meet the requirements of having to file a tax return the answer is, it depends.

Did your employer continue to pay you while you were on jury duty? Were you required to give your jury duty pay to your employer because they continued to pay you?

The answers to the above questions determine whether the income is taxable or not. The IRS has a handy interview you can use to determine if the jury duty pay is taxable.

https://www.irs.gov/help/ita/is-the-payment-i-received-for-jury-duty-taxable

If you have any questions, please contact our office.

I received income from an auto accident for injuries is this income taxable?

The IRS sees a settlement as reimbursing you for something that you’ve lost or will likely lose because of an injury, rather than income. Therefore, most of it won’t be taxed. However, some components are taxable, and those components tend to resemble income: Lost wages or lost profits. The IRS has an informative article that can be accessed using the link below.

https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments

I received money from my friends for their part of a girl’s vacation. Is this taxable?

No, this is considered reimbursement and is not taxable. If you received a 1099K or another Form 1099 from a third-party payment service such as PayPal, Zelle, Cash App, etc. please contact them and have this form corrected to show zero. If they will not correct the form, please provide the form to our office and we will take the necessary steps to show this properly on the return, so it is not taxed.

I sold stock this year for a gain, how much federal tax will I pay?

If the gain is short-term (the stock was held for less than one year), the gain is taxed at your ordinary income rate. If the gain is long-term (the stock was held more than one year), the capital gains tax rate depends on your ordinary income tax bracket. 10% to 15% ordinary bracket = 0% capital gains tax rate; 25% to 35% ordinary bracket = 15% capital gains tax rate; 39.6 ordinary bracket = 20% capital gains tax rate. You may also owe an additional 3.8% Net Investment Income Tax (NIIT) if your net investment income is above statutory threshold amounts.

IMPORTANT NOTE – A tax loss will be disallowed if you buy the same security, a contract or option to buy the same security, or a “substantially identical” security, within 30 days before or after the date you sold the loss-generating investment. (it’s a 61-day window). This is called a wash sale. The IRS will disallow this loss, and you won’t be able to claim a write-off on your tax return. You’ll end up owing taxes on any income that you tried to offset with your wash sale.

More information on wash sales can be found by clicking the link below. If you have any questions, please contact our office.

https://www.irs.gov/pub/irs-drop/rr-08-05.pdf

What is Net Investment Income Tax?

The Net Investment Income Tax (NIIT) is a 3.08% tax that applies to certain net investment income that is above statutory threshold amounts. Among the threshold amounts are $250,000 for married filing jointly, and $200,000 for sing. In general, net investment income includes dividends, interest, capital gains, rent and royalty income. This is not an all-inclusive list, but these are the most common investment income components that we see with our clients.

I have capital losses from a prior year; can I use those to offset capital gains this year?

Yes, capital losses can offset capital gains. Any excess losses can be deducted up to $1,500 per year for single or married filing separate taxpayers or $3,000 for married filing joint taxpayers. Any remaining losses can generally be carried forward to future years indefinitely until used. The only caveat to this is disallowed wash sales discussed in FAQ #5.

Dependents:

My son/daughter is 22 years old and is in a community college; but still lives with me. Can I still claim him/her as a dependent?

In general, a full-time college student living at home can still be claimed as your dependent. However, the rules on dependency exemptions are complex. There are many factors that are considered to determine whether someone is eligible to be claimed as a dependent on your tax return. The IRS website has a helpful tutorial which walks you through the tests for dependents. This tutorial can be accessed by clicking the link below. Please contact our office if you have questions or need additional information.

https://apps.irs.gov/app/understandingTaxes/hows/tax_tutorials/mod04/tt_mod04_01.jsp

Itemized Deductions and Charitable Contributions:

Should I itemize or use the standard deduction?

Normally you would use the method that yields the lowest total tax; however, there could be certain circumstances in which you are forced to choose one or the other. One example of this would be if you are married as of the last day of the year, but you and your spouse file separate tax returns instead of filing jointly. In this case you both must either itemize or take the standard deduction.

Can I deduct my out-of-pocket medical expenses?

If you itemize your deductions, you can deduct your unreimbursed medical and dental expenses that exceed 7.5% of your adjusted gross income for the year ended December 31, 2023.

The IRS has a handy explanation that can be accessed by clicking on the link below. As always, please contact our office if you have any questions or need clarification.

https://www.irs.gov/taxtopics/tc502

Can I deduct real estate taxes on my principal residence and second home?

Yes, you can deduct real estate taxes on every home you own. Bear in mind taxes are limited to $10,000 in the aggregate so you may not deduct any more than $10,000 of income, real estate, or personal property tax as it relates to itemized deductions.

Can I deduct my travel trailer, RV, motorhome, or boat as a second home?

Yes, if it has a kitchen, toilet, and sleeping area the interest on the loan and the property taxes can be deducted as itemized deductions.

Can I deduct ad valorem taxes assessed on my vehicles?

Yes, but only the ad valorem tax. Fees for mailing, plate renewal, etc. cannot be deducted. Please send us the tax bill or only provide the amount of ad valorem tax paid. The $10,000 limit applies to real estate tax, personal property tax, income tax, and sales tax. Only $10,000 can be deducted on Schedule A regardless of how much tax you were assessed and paid during the year.

I wrote a check to a charitable organization on 12/31. Since this didn’t clear my bank until the following year, can I still deduct it this year?

The tax year to deduct a charitable gift is set by the date you deliver the gift. If you mailed the check or delivered it personally to the organization by December 31st then you should be able to deduct it even though it did not clear your December 31st bank statement.

I attended a fundraiser, paid for my ticket, participated in the silent auction, and also made cash donations. Can I deduct everything as a charitable contribution?

No, only the portion that was a charitable contribution qualifies as a charitable deduction. The organization is required to provide you with a letter that states what portion is deductible. They must tell you what the value of the goods and services you received was (dinner, auction items, etc.). Only amounts over the value of the goods and services received are qualified as a charitable contribution.

I donated cash to someone through a Go Fund Me Campaign. Is my donation tax deductible?

Yes, if the organization receiving the funds is recognized by the IRS as a non-profit charitable organization. If you donated to an individual, business, etc. regardless of the purpose of the contribution, those contributions are not deductible as charitable contributions. If any donations made either in cash or non-cash are to political organizations, they are not tax deductible. Memberships are also not tax deductible. If you have questions or need additional information, please contact our office prior to making the donation.

How do I account for my non-cash charitable contributions?

If you itemize deductions on your tax return, you may be allowed a deduction for noncash charitable contributions you make to qualified charitable organizations. The deduction that is claimed should be equal to the fair market value of the item donated. Non-cash contributions over $500 require an additional form to be filed (Form 8283). Non-cash contributions over $5,000 require a qualified appraisal. As you donate clothing, household goods, and other noncash items to qualified charities throughout the year, keep a detailed record of the items donated. It is important to note there are limitations to the amount you can deduct each year, and not all items qualify for a deduction.

Goodwill provides helpful guides to help determine the value of your items. The guides can be accessed by clicking the links below. If you have questions or need additional clarification, please contact our office.

https://www.goodwill.org//www//www/wp-content/uploads/2020/03/donation_valuation_guide.pdf

https://dcgoodwill.org//www//www/wp-content/uploads/2023/03/dcgoodwill-irs-donation-value-guideweb.pdf

Estates and Trusts:

Can I deduct estate planning fees?

Generally, yes, if you itemize your deductions. These are combined with other miscellaneous itemized deductions, and a deduction is allowed for any amount that exceeds 2% of your adjusted gross income.

IMPORTANT NOTE – While yes, these generally fall under itemized deductions subject to the 2% of AGI floor, it is important to note that the TCJA (Tax Cuts and Jobs Act) made these items as well as employee business expenses, tax related expenses, and investment related expense non-deductible from 2018 through 2025.

Buying and Selling a Home:

Can I deduct the loss on the sale of my home?

Generally, the answer is no. Losses from the sale of personal-use property are not deductible. If you have used a portion of your home for business, you might be eligible to take a loss on the business portion of your home.

FAQ #2 Do I have to pay tax on the gain on the sale of my home?

If you sell your personal residence for a gain, you may be eligible to exclude up to $250,000 ($500,000 for married filing joint returns) of the gain from your taxable income. The IRS has a helpful article that can provide more detail. Please click on the link below to access the article.

https://www.irs.gov/taxtopics/tc701

Planning and Saving for Retirement:

I am covered by a pension at work, or I contribute to a 401K plan at work. Can I still contribute to an IRA?

Yes, you can still contribute to a Traditional IRA, but you might not be able to deduct your contributions. If your earned income is within contribution limits, you can contribute to a ROTH IRA. Further, if you contribute to a Traditional IRA, you may be able to convert some of those contributions to a ROTH IRA in the future. The IRS has an informative article that can be accessed by clicking on the link below. If you have any questions or need further clarification, please contact our office.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

What are the differences between a ROTH and a Traditional IRA? Are the contribution limits the same?

The fundamental difference between a ROTH and Traditional IRA is the timing of when the money is taxed. With a Traditional IRA, you may receive a tax benefit up-front, but must pay tax upon withdrawal. With a ROTH IRA, there is no up-front tax benefit, but withdrawals may be tax free. The IRS website has a useful chart which outlines the differences between a ROTH and Traditional IRA. Pleas click the link below to access the article. If you have any questions or need further information, please contact our office.

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

Where can I get information on social security benefits?

Please visit the Social Security Administration website for help on this topic

https://www.ssa.gov/benefits/retirement/planner/agereduction.html

Business Start-Up and Business Expenses:

I am working on a business plan and about ready to open a business and am not familiar with the necessary government filings that I am required to complete. Is there something that I can refer to make sure that I am compliant with the federal, state, and city governmental requirements for income taxes, sales taxes, payroll taxes, etc. as well as annual registrations, etc.?

Yes, most of these filings can be addressed at federal and state government websites. We would be happy to assist you with the various required federal and state filings. Please contact our office. We also have handy templates that can help you record income and expenses for your business. These templates can be found under resources.

What types of vehicle expenses are deductible for my business?

If you use your vehicle for business purposes, you may be eligible to deduct a portion, or all, of the costs of operating the vehicle. There are generally two methods that are used to figure the amount of the deduction. Those are the standard mileage rate method and the actual expense method. If the actual expense method is used, the expenses eligible for deduction include depreciation, fuel, oil, repairs, tires, car washes, maintenance, insurance, registration fees, and taxes. The method used is decided by the taxpayer.

What deduction(s) can I take for my home office?

Beginning with the tax year 2013 there is a new simplified method that allows you to deduct $5.00 per square foot up to 300 square feet for a total deduction of $1,500. This assumes the home office is in service for the entire year. Under the regular method you can deduct a portion of your home mortgage interest, real estate taxes, repairs, maintenance, insurance, utilities, and depreciation on the portion of your home used exclusively as your home office. We have a handy worksheet that can be found under resources. Please contact our office if you have any questions or need further clarification.

Rental Properties:

I have a rental property, which expenses can I take as deductions?

If you have a rental property, the expenses incurred in renting the property are generally deductible, within limits. Examples of expenses that are deductible from the rental income include depreciation, repairs, cleaning and maintenance, travel, advertising, insurance, legal and professional fees, management fees, mortgage interest, taxes, utilities, lawn maintenance, security, homeowner’s association fees, and any other expenses directly related to the renting of the property.

Can I deduct all my losses from my rental properties?

It depends, there are many rules related to deducting rental property losses. Rental properties are considered passive activities unless you meet certain qualifications therefore, your losses will be limited to passive activity income unless the following applies.

You materially participated in the rental real estate activities (material participation is participating in the activity for more than 500 hours, your participation in the activity for the tax year was substantially all of the participation in the activity of all individuals for the year), your total losses from rental real estate activities were $25,000 or less ($12,500 if married filing separately), your modified adjusted gross income was not more than $100,000 (not more than $50,000 married filing separately), you don’t hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or trust, and you have basis to take the loss. If all conditions are met your loss is limited to $25,000.

If you are a real estate professional your losses are not limited unless you lack the basis to take the losses. To be considered a real estate professional you must meet all the following tests.

More than half of the personal services you performed in trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated. A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

It is highly recommended to keep a diary of activity and document the hours spent on rental real estate activities for each rental property. Rental real estate activities and the IRS rules surrounding them can be very confusing. It is best to contact our office to determine the rules related to your specific circumstances.

Extensions, Refunds, and Payments:

I’ve never had to get an extension before – What does it mean?

A Federal income tax extension extends your filing deadline from April 15th to October 15th. Anyone can get an extension, but there is a form which must be filed to get the extension. IRS Form 4868 must be electronically filed or postmarked by April 15th to be considered timely filed and granted. The extension is only for the filing of the return and does not extend the deadline to pay any taxes that might be owed with the return. If you have filing requirements in a state with personal income tax, you might also need to file an extension with that state. Each state has its own requirements for extensions. Like a federal extension, a state extension only extends the time to file, and not the time to pay. If you have questions or would like us to file an extension on your behalf, please contact our office well in advance of April 15th.

I have heard filing an extension means you will not be audited, is that true?

No, there is never any guarantee you will not be audited by the IRS or State Department of Revenue. Audits happen for several reasons and most of the time it is completely random as to who gets audited in a particular year.

When will I receive my Federal Refund?

The IRS has a helpful tool, please click on the link below. You will need the taxpayer’s social security number, filing status, and exact refund amount. Many state websites also have this feature.

https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

I owe taxes and cannot afford to pay, what should I do?

If you have a balance due with your return and cannot afford to pay it, you have a few options.

Pay as much as you can now and the balance within 180 days. You will incur late payment penalties and interest which will add to your balance, so it is in your best interest to pay the full balance as soon as possible.
Enter into a payment agreement with the IRS. This will allow you to break up the balance due into more affordable payments. You will still incur late payment penalties and interest which will add to your balance. The IRS offers payment plans that are short-term (total amount owed is less than $100,000 combined tax, penalties, and interest and payment period is 120 days or less) and long-term (total amount owed is less than $50,000 combined tax, penalties, and interest and the payment period is longer than 120 days).

The IRS offers a tool to apply online. Please click the link below.

https://www.irs.gov/newsroom/what-if-i-cant-pay-my-taxes

If you do not qualify for an online payment plan, you may also request an installment agreement by submitting Form 9465 Installment Agreement Request. If the IRS approves your Installment Agreement Request, a setup fee may apply depending on your income. If you have questions, need additional information, or help with these requests please contact our office.