FAQ
Q1. When I sell my home do I need to invest in a more expensive home to defer the gain?
A1. No. In fact, you don't have to reinvest in another house at all. If you meet certain qualifications, you can use your sale proceeds for whatever purpose you choose - without having to pay tax on your profit in the sale.
Q2. Who can I claim as my dependent?
A2.The IRS recognizes two categories of dependents, each with its own set of tests:
- A qualifying child and a qualifying relative.
For a qualifying child (the most common situation — your own son, daughter, stepchild, foster child, or sibling), five tests must be met: relationship, age, residency, support, and joint return.
- A qualifying relative (a broader category that can include a parent, other relative, or even an unrelated person who lived with you all year), the tests are: not already a qualifying child of you or anyone else, member of household or relationship, gross income, support, and joint return.
It may not be a "tax minimization strategy" to claim someone as your dependent. Marlies Y. Hendricks CPA PLLC could discuss your particular situation as part of the TAX PLANNING for your corporate/personal review OR at the time of preparing your tax return.
Q3. I contributed money to a regular IRA and took a deduction last year. The IRS assessed me and disallowed the deduction. Can you explain what should I do since I have an employer pension plan at work already?
A3. You have 2 choices-leave your contribution in the IRA account as is OR "recharacterize" your contribution.
With the first choice-You can't deduct the contribution as you found out last year, however your investment will grow tax-deferred inside the IRA, and you won't have to pay on your nondeductible contribution when you withdraw it later.
With the second choice-You generally have until October 15 to get your contribution and earnings on it, "recharacterized" from a regular IRA contribution to a Roth contribution. With a Roth, your contribution is still non-deductible, however the entire amount that accumulates inside the Roth can be withdrawn tax-free when IRS rules are followed.
Q4. Should my corporation own our business building OR should I own it personally?
A4. If your business is incorporated, then it's usually a better "tax minimization strategy" to own it personally and avoid later double taxation if the building later sells for a profit and distributes this to you.
You could lease the building to your corporation and by claiming depreciation on the building owned personally, you could generate a tax loss on your personal tax return.
If you are an S-corporation and own the building, the double taxation does not apply, however there can be problems when an S-corporation later sells its operating business and its real estate.
It is best to discuss this with your attorney OR Marlies Y Hendricks CPA PLLC, prior to buying or changing real estate ownership title.
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