tax savings - Linkenheimer LLP CPAs & Advisors

A Tax-Smart Way to Develop and Sell Appreciated Land

Let’s say you own highly appreciated land that’s now ripe for development. If you subdivide it, develop the resulting parcels and sell them off for a hefty profit, it could trigger a large tax bill.

In this scenario, the tax rules generally treat you as a real estate dealer. That means your entire profit — including the portion from pre-development appreciation in the value of the land — will be treated as high-taxed ordinary income subject to a federal rate of up to 37%. You may also owe the 3.8% net investment income tax (NIIT) for a combined federal rate of up to 40.8%. And you may owe state income tax too.

It would be better if you could arrange to pay lower long-term capital gain (LTCG) tax rates on at least part of the profit. The current maximum federal income tax rate on LTCGs is 20% or 23.8% if you owe the NIIT.

Potential tax-saving solution

By Linkenheimer LLP|2023-08-21T18:24:54+00:00August 21st, 2023|real estate, tax planning|0 Comments

Adopting a Child? Bring Home Tax Savings with Your Bundle of Joy

If you’re adopting a child, or you adopted one this year, there may be significant tax benefits available to offset the expenses. For 2019, adoptive parents may be able to claim a nonrefundable credit against their federal tax for up to $14,080 of “qualified adoption expenses” for each adopted child. (This amount is increasing to $14,300 for 2020.) That’s a dollar-for-dollar reduction of tax — the equivalent, for someone in the 24% marginal tax bracket, of a deduction of over $50,000.

Adoptive parents may also be able to exclude from their gross income up to $14,080 for 2019 ($14,300 for 2020) of qualified adoption expenses paid by an employer under an adoption assistance program. Both the credit and the exclusion are phased out if the parents’ income exceeds certain limits, as explained below.

Adoptive parents may claim both a credit and an exclusion for expenses of adopting a child. But they can’t claim both a credit and an exclusion for the same expense.

By Linkenheimer LLP|2020-09-03T20:03:22+00:00January 13th, 2020|adoption credit|0 Comments

3 Big TCJA Changes Affecting 2018 Individual Tax Returns and Beyond

When you file your 2018 income tax return, you’ll likely find that some big tax law changes affect you — besides the much-discussed tax rate cuts and reduced itemized deductions. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) makes significant changes to personal exemptions, standard deductions and the child credit. The degree to which these changes will affect you depends on whether you have dependents and, if so, how many. It also depends on whether you typically itemize deductions.

1. No more personal exemptions

For 2017, taxpayers could claim a personal exemption of $4,050 each for themselves, their spouses and any dependents. For families with children and/or other dependents, such as elderly parents, these exemptions could really add up.

For 2018 through 2025, the TCJA suspends personal exemptions. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates and other changes, might mitigate […]

By Linkenheimer LLP|2020-09-03T20:04:17+00:00February 12th, 2019|New Tax Laws, tax planning|0 Comments

Putting Your Child on Your Business’s Payroll for the Summer May Make More Tax Sense Than Ever

If you own a business and have a child in high school or college, hiring him or her for the summer can provide a multitude of benefits, including tax savings. And hiring your child may make more sense than ever due to changes under the Tax Cuts and Jobs Act (TCJA).

How it works

By shifting some of your business earnings to a child as wages for services performed, you can turn some of your high-taxed income into tax-free or low-taxed income. For your business to deduct the wages as a business expense, the work done must be legitimate and the child’s wages must be reasonable.

Here’s an example: A sole proprietor is in the 37% tax bracket. He hires his 20-year-old daughter, who’s majoring in marketing, to work as a marketing coordinator full-time during the summer. She earns $12,000 and doesn’t have any other earnings.

The father saves $4,440 (37% […]

By Linkenheimer LLP|2020-09-03T20:04:40+00:00June 1st, 2018|act, business, child, ira, tax|0 Comments

Tax Savings Still Available for “Heavy” Trucks and Vans

As you know, unfavorable depreciation rules apply to most passenger autos and light trucks used in business. For a vehicle acquired in 2014, depreciation deductions are generally limited to the following amounts:

	Cars	Light Trucks and Vans
Year 1	$ 3,160	$ 3,460
Year 2	5,100	5,500
Year 3	3,050	3,350
Year 4 and thereafter	1,875	1,975

If the business use percentage is less than 100% (which is often the case), your deductions are even smaller. You must multiply the above numbers by the business percentage.

Exception for Certain Trucks and Vans. Certain trucks and vans qualify for much more favorable depreciation rules. The key here is finding a vehicle that is not considered a “passenger auto” under the tax rules. According to IRS regulations, a truck […]

By Linkenheimer LLP|2020-09-03T20:05:42+00:00November 10th, 2014|tax deductions, Uncategorized|0 Comments