capital

by Kristin P. Sinclair  – A Accu Tax  – June 19, 2022

William and his bride Sherry have been married for 47 years, are getting ready to retire and they plan to say goodbye to much of what they have had in the family home for decades they are opening up space in the home so that it is less crowded and they are also getting rid of much of what is in that 3 stall garage that they have decided they do not need anymore.  

They have an antique car that has been a lot of fun, they have enjoyed going to various antique car shows.  They have enjoyed the wonderful conversations that the antique car has been the topic of conversation.  William has kept excellent records of the purchase of the vehicle and each dollar that went into making that treasure of joy what it is today.

William has never deducted any of those neither initial purchase nor improvement expenses, that were incurred over the years, that car was a fun hobby, and many friendships were made with other hobby enthusiasts.  But now it is time to sell that car and it is time to make some money.

William and Sherry plan to travel much of next 2 years and that car is their ticket to travel and cover hotel expenses etc.  But they will have a capital gain to claim when that antique car is sold.

William is very glad that He kept such good records over the years on what has gone into that car.

Their cost basis ended up being quite significant so when they pay the estimated taxes on their capital gain it will not be based upon the amount they sold the antique car, it will be the based upon the difference between their cost basis and the sale price.  They will be making every penny back that they put into the antique car over all those years and, also quite a bit extra, so making the estimated tax payment will bring another smile to the faces.

And since they have the records to support their position, on the cost basis of the vehicle and the date of acquisition as well as the improvements made over the years, when the sale goes through, they know exactly where that sale document will be filed to have all the documents together. In the event those documents are needed again.

Additionally, they also know that all the documentation will also be on file with their tax return as well.

William and Sherry also are selling their 5-year-old vehicle, but with that separate transaction they are not going to be making a capital gain, nor are they going to have a capital loss.  They are simply selling a well-used commuting vehicle that served the family well for 5 years. And no profit is being made with this separate transaction.

by Kristin P. Sinclair: A Accu Tax

Rock Hill, SC

June 19, 2022

capital, capital gains, gains, losses

by Kristin P. Sinclair  – A Accu Tax  – May 24, 2022

You have some stock and you decide to sell and take your profits. Or limit your losses. Folks have various reasons to sell a capital asset at different times. Expect to receive a 1099-B for tax reporting purposes.  Well it is a bit more complicated than that. Is your sale short term, some capital asset, you have held for one year or less, or is your sale long term, some capital asset you have for a period at least a day greater than a year.

If you inherited the capital asset, it is treated as a long term asset to you the beneficiary of the capital asset.

Other things to consider, what is your income, the lower the income, the lower the tax rate on your sale of long term capital gains. The higher your income the higher the tax rates on your sale of your long term capital gains. And in certain income situations you could have a special circumstance higher rate on your capital asset gain.  So if you have a tax liability you need to plan accordingly. You are going to want to consider making estimated tax payments if you have not already paid enough into the system with your withholding from other sources.

If you are selling capital assets that have been held for a year or less you will have a significant tax rate on gains once you have any tax liability for your combined sources of income. So once again if you have not withheld enough from other sources of income, you are going to want to consider making estimated tax payments.

Now let’s look at some additional planning. You decide to sell a capital asset and you have a gain. And you decide to sell a capital asset that you have a loss. The two events could balance each other out financially. You have actually helped to lower the potential tax issue on the gain. If the loss exceeds the gain you can also actually lower your overall taxable income by up to $3000.00 in the tax year. And carry over losses into future years. There are various reasons folks take various approaches in any given annual period.

Many of you have noticed that when you have holdings in certain capital asset investments. You also receive a reporting document called 1099-div. You might be using those dividends as current income to enhance your retirement.  You might be using those dividends to purchase additional assets. Either way dividend income reporting is applicable. A tax issue can occur.  You might also have a 1099-int issued to you and yes a tax issue can occur.

If adequate taxes have not been withheld from various sources, paying the tax obligation via an estimated payment during the year can make your filing experience less stressful.

For the higher income situations an additional tax liability also needs to be factored into your estimated payment planning. Net investment Income Tax is a 3.8% additional tax once income exceeds the established threshold.

And then if the taxpayer(s) are medicare beneficiaries they also need to consider that your medicare premiums will also be impacted by your tax situation as well in what is by the number on the year applicable two years after the current tax filing. Each year stands on it’s own merits.  And resets on it’s own merits as well. But the Medicare Premium Income Adjustment will be a result of what happened from two annual periods prior.  Income from 2021 which is reported in year 2022 on the tax return will impact potential medicare premiums in 2023. So yes tax planning is something which needs to be top of mind for several reasons.

Kristin P Sinclair

A Accu Tax

803-329-0615

May 24, 2022

capital, capital gains, gains, losses