Pluim's Tax Services

6281 Brockton Ave # 4, Riverside, CA 92506

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Budgeting

Whether you have a debt to pay off, or you are striving to reach a goal capital, our accountants are readily available to assist you with all of your budgeting needs so you can achieve your goal.  For more information on how our budgeting or accounting services

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Home buying process- Taxes and Duties

Stamp Duty

The most important fee to be paid to the state government is the stamp duty only after which the home buyer can attain full ownership of the immovable property. Without obtaining the stamp on the sale consideration and completing the registration process the transfer of the ownership of the immovable property is not legal in the court of law. The Stamp Duty is paid at the time of the transfer of property.

Only after paying off the complete stamp duty that ranges approximately 5% to 10% of the property value, the transfer of the ownership of property can take place. The amount of the stamp duty differs from state to state; in Uttarakhand, it is currently 5%. The females get a certain rebate on the stamp duty to purchase a property. This rebate is governed by the rules levied by the state government which are flexible and liable to changes.

Registration Fee

Another fee is the registration fee charged by the state government for creating a registration of the sale deed. It ensures the change of legal ownership from one party to another and the fee is paid by the buyer which changes as per the rules of the state government.

Goods and Service Tax (GST)

The most recent tax structure implemented by the Government of India is the GST which is payable to the central government and is the replacement of the previous taxes- Service tax and Value Added Tax (VAT). VAT was not charged in real estate sector and the home buyers were supposed to pay only the service tax which is now replaced with the Goods and Service Tax.

The GST is applicable to the sales consideration which is implemented by the central government. For the purchase of immovable under construction property, the GST has been fixed at 12%. In the case of the ready-to-move-in and completed projects that have received the Occupancy Certificate or the Completion Certificate (OC/CC), the GST is not applicable. However, if the Occupancy or the Completion is pending the buyer is obliged to pay the GST.

Tax Deduction at Source (TDS)

For the property the value of which exceeds Rs 50 lakh (excluding GST, Stamp Duty, and Registration Fee), the buyer needs to deduct 1% of the consideration as TDS and pay it to the Government of India. The remaining 99% of the property value is to be paid to the real estate developer.

The TDS should not be confused as an extra tax burden at the end of the buyer but is only a bifurcation of the total property value; the 1% is paid to the government and the remaining 99% is paid to the seller.

To sum up, every home buyer needs to pay a certain amount to the state or central government as taxes or fee; however, the Government of India has simplified the process of home buying by subsiding Service Tax and VAT in the form of GST. To provide comfort to the buyers the government has also created a smooth channel by implementing RERA, in accordance to which the real estate developers have to register themselves with the government to prove their authenticity and credibility.

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PAYROLL

We customize our Payroll Programs to meet your needs on a weekly, semi-monthly or monthly basis.  Our services are accurate and timely—no payroll issues or stress! Keep your employees happy and loyal with timely and accurate payroll services.

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IRS Insider: 3 Common Mistakes Businesses Make

During my time with the IRS, I saw my fair share of mistakes made by businesses that could have easily been avoided. These days, with a large number of taxpayers[1] using a tax return preparer, it is a bit surprising that there are opportunities still being overlooked by both companies and individuals alike.

We can generally agree that taxpayers would rather not have to engage with the IRS. For most owners and operators, a contact from the IRS is one of those annoyances that, while necessary from time to time, can be extremely unpleasant when unexpected issues occur.

So, what causes these issues to arise? There may be multiple reasons for this but one of the largest issues is communication (or a lack thereof) between the business owner and their tax advisor.

Communication is Key

Statistics from the IRS indicate that for 2014 tax returns, about 91% of individuals used some type of e-file or online filing, and 52% of taxpayers used some form of tax return preparer[2]. While many businesses use a trusted tax advisor for their filing needs, a problem can arise when there is a lack of productive communication between a business owner and their tax advisor. Simply put, conversations need to take place early and often – while most tax advisors have long-term clients whom they have worked with for years, a lot can change in a year for a business, such as:

Did a new product or service line launch?

Was there an acquisition or disposition during the year?

Did they expand to new markets?

Was there a change in the business that now qualifies them for a government incentive?

More often than not, a business owner is too busy running their business and doesn’t have the time to stay abreast of tax law changes or to consider whether they qualify for any government incentives. Things can change quickly, and if you aren’t taking the time to sit down with your tax advisor multiple times a year before the filing deadline, then a strategy needs to be put in place to ensure those conversations are happening.

Timing is also extremely important, as there is a big difference between having an exploratory discussion with your tax advisor five months before the filing deadline, and having those discussions five weeks out when you may be completing a tax organizer or checklist for the return preparation. Allowing ample time for your tax advisor to thoroughly investigate legislative or regulatory changes as well as considering improvements or adjustments made to your business should be standard operating procedure, as each tax year presents its own unique issues, challenges and opportunities as to tax positions that are to be reported.

Self-Censoring

No one wants to be audited by the IRS. Period!

The anxiety of having to deal with an audit is a real issue for many business owners, but completely manageable when taking the necessary precautions. I like to use the term “audit readiness.” Being subject to an audit is quite rare ( for all taxpayers), but they can take up valuable time for a business owner and cause some serious headaches. The best thing a taxpayer can do to ensure a smooth process if an audit does occur is to have their financial and employment records in order and readily available.

The mission of the IRS is to help the majority of compliant taxpayers with the tax law, while ensuring the minority who are unwilling to comply, pay their fair share. The Internal Revenue Code is a complicated mass of law that most taxpayers are not that familiar with, which creates opportunities for adjustments in an IRS audit. The IRS is tasked with ensuring the correct amount of tax is being paid by a taxpayer. The IRS isn’t actively looking to audit your return, nor does it want to spend the time and resources to do the additional fact-finding that is associated with investigating a return position – but it is their job to do so.

An audit experience with the tax authority can lead to instances of self-censoring by business owners. Just because the claim wasn’t successful one tax year does not mean that you’re not entitled to it – whether it’s that year, the following or even previous years. Proper research and understanding of records needed to help the IRS validate incentive claims is critical to not wasting valuable time and resources by either party.

Information is Only as Good as the Provider

It’s not easy to keep up with changes in tax law and understanding how legislation can affect your company. However, business owners that fail to do so can find themselves behind the curve very quickly. Business owners should do their due diligence and engage with their tax advisor regarding tax law changes on a regular basis to ensure they don’t miss potential opportunities.

Many tax advisor/CPA firms use a tax organizer to gather the details of the business and understand recent modifications. However, that organizer/checklist can only be as good at the details from the taxpayer who is providing them.

When having these conversations with your tax advisor, it’s important you are asking questions about policy or tax law changes you have read or heard about, as well as come prepared with details regarding any adjustments in the business. Good questions to ask include:

Is there anything new in the tax code that I should know about?

What impact would this upcoming legislation have on my business?

Are there any government incentives that our company did not qualify for in the past, but could now because of my recent operation changes within my business?

Taking the time to develop a timely plan to meet with your tax advisor early and often, committing to being “audit ready,” avoiding self-censorship, doing your own research on legislative changes and providing clear and detailed information to your tax advisor are all key to avoiding costly mistakes when engaging with the IRS.

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4 reasons to keep business & personal separate

1. Track how your business is doing

Paying for office stationery from the same account as your groceries can make it harder to measure how your business is doing. “A lot of small business people don't use accounting systems so the only way they can really work out how their business is going is by how much is in the bank,” Anderson explains. She admits even she struggled to keep up before making a clean break between personal and business accounts. “I got stuck a few years ago saying, 'where's all my money going?'” Anderson recalls. “I didn't know whether it was me or my business sucking the money. And I'm an accountant. How is someone else supposed to work it out? “I ended up working out I just like champagne a little too much, but at least once I started separating everything out, I knew where the cash was going.”

2.    Doing your tax returns

One way of being prepared for tax time could be through two separate business accounts:   a.    A business transactional account with a linked debit or credit card for your expenses b.    Another transaction or savings account where you can set money aside for your tax and GST liability so you avoid any nasty shocks down the track1. Once these are set up, quit cash and try to do all your transactions electronically, Anderson advises. “If you're paying cash out of your wallet it's very easy to lose your receipt or forget about it but if you pay electronically out of your business account you can always go back and find the transaction,” she explains. “That means you're not missing out on claiming GST if you've registered for it and you're not missing out on claiming tax deductions. “Whether it's $3.50 for coffee or $5 for parking, over a year it really adds up.” “Until you lodge your first tax return you're not paying any tax on your earnings then, usually in year two, you get a tax bill for year one plus all of a sudden you also get hit with provisional tax,” Anderson explains. “It's often one of the most painful points for small business if they're not prepared.” However, do check if the additional account will cost you any additional fees.

3.    Easier accounting

While separating your business and personal accounts is a great way to make sure you don't miss out on tax deductions, it also helps to guard against mistakenly claiming personal expenses. And if the ATO audits you three years down the track it will be much easier to recall your transactions. “This one always scares people,” Anderson says. “If you've kept everything in the one account the ATO is going to say 'What's this? What's that? How do I know this is business and that is personal?' They're going to have to look through all your transactions.” Keeping things clear cut is also likely to save you accounting fees while giving your accountant time to complete tasks that are more valuable to your business.

4.    Saves you time

Opening an account that's tailored specifically for business needs can help make life a little easier.  Online banking means your business banking and personal banking information are available at your fingertips - so there's no excuse for mixing your business and personal lives. It could also save time when applying for other banking products, for example, when you start taking payments you may need a business bank account to do this.

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Fall!

Kids back in school, the days getting shorter, pumpkin spice everything! It must be fall! For businesses, that means it’s time to begin year-end tax planning. Time to think about the fourth quarter 2018 filing deadlines.

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5 Tax Tips for 2018 -- and Beyond

1. Max out your retirement plan contributions

Any time you fund a traditional IRA or 401(k), the money you put in is exempt from taxation for the year you make that contribution. In other words, if you put $1,000 into your 401(k) this year, you won't pay taxes on that $1,000 of income when you file your 2018 return. Better yet, if you manage to max out your IRA or 401(k) for the year, you'll shield that much more money from the IRS.

IMAGE SOURCE: GETTY IMAGES.

Right now, you can contribute up to $5,500 a year to an IRA and $18,500 to a 401(k) if you're under 50. If you're 50 or older, these limits increase to $6,500 and $24,500, respectively. There's also a good chance these limits will continue to rise over time.

How much savings might you reap from maxing out? Imagine your effective tax rate is 25% and you sock away $18,500 this year in your 401(k). That would bring your actual tax savings to $4,625, which is hardly a bad deal.

2. Report all of your income

These days, side hustles are growing increasingly popular, with an estimated 44 million Americans holding down a second job. But if you're going to do work on the side, don't make the mistake of thinking you'll get to pocket your earnings in their entirety. The reality is that the IRS is entitled to a piece of all of your income, whether it comes in the form of a paycheck at work or a personal check you get from the family you babysit for. And if you fail to report your earnings, the consequences could be significant.

Any time you earn $600 or more from a given employer, you'll receive a 1099 form summarizing those payments. Don't throw those forms away -- what you may not realize is that for each one you get, the IRS also is sent a copy. If your tax return doesn't show income the agency has on file, you could land in hot water.

3. Keep accurate records

Though the recent tax overhaul did away with some deductions, there are plenty of remaining ones still in play. But don't just guess at those deductions, because if you do and you're audited, you might get caught in a dangerous lie.

The best way to avoid problems with the IRS, aside from reporting all of your income, is to list your deductions accurately, so retain all pertinent records and receipts throughout the year for the things you're likely to claim. For example, if you're a freelancer who works with various clients, you should keep a file of things like computer equipment, office supplies, and mileage to and from customer sites.

4. Hold investments for at least a year and a day

The IRS wants a piece of any money you make, and that includes profits from investments. But while you generally can't get out of capital gains taxes, you can keep them to a minimum by holding investments for at least a year and a day before selling them. Doing so will propel you into the long-term gains category where you'll be subject to a far more favorable tax rate than with short-term gains. These are taxed as ordinary income, which means you'll pay the same rate as you would on your typical paycheck.

5. When in doubt, ask a professional

A big driver of tax reform was simplifying the tax code -- or so we were all told. But if you look at the new set of rules, you'll see that they're still fairly complex.

That's why it always pays to consult a professional when you have questions about anything tax-related, whether it's filing your estimated taxes or claiming deductions on a return. Though the IRS won't generally press charges for making an innocent mistake, underpaying your taxes can result in some pretty substantial penalties, so if you're confused about a tax matter, ask someone who really knows.

Like it or not, taxes will always be a part of life. Follow these tips and you'll be more likely to save money, avoid mistakes, and make the process of dealing with taxes far less painful, on the whole.

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Does Lowest Mortgage Rate always mean the Best Mortgage deal?

The interest rate is a proportion of the total amount loaned, customarily expressed in percentage of the sum. As the duration of most mortgage loans run for many years, even a minor reduction in the interest can correspond to significant savings in the overall repayable amount of the loan over its lifetime. However, it’s not the interest rate that can increase the projected monthly mortgage payment.

There are other factors such as the term of the loan, Private Mortgage Insurance (PMI), loan-to-value (LTV) and any fees charged by the lender and the government in the form of taxes that make up the overall amount of the monthly payments.

A PMI is designed to protect the lenders from losses if borrowers default, and is imposed on the borrowers if the equity is less than 20%, which is applicable both during the refinancing and purchasing of property. It’s a cost that gets added to the principal, interest and tax components and can run into hundreds of dollars, resulting in an increase in the monthly payments.

The LTV is the ratio of a loan to the value of the property being purchased. Expressed in percentage points, it is determined by dividing the amount of the lien by the appraised value of the estate. For example, if an amount of $90,000 is borrowed to purchase a home appraised at $100,000, then the LTV is said to be 90%. There is a cost for a loan with higher LTV, which reduces if the borrower pays a significant as the down payment. So, the higher the LTV, higher is the monthly mortgage payment.

The mortgage term is total time taken to pay off the mortgage in full.

It starts as soon as the loan is approved and funds get used up till the payoff. A longer term such as the 30-year term is characterized by lower payments, even though the borrowers end up paying much more in the form of interest over the total span of the loan.

Besides, even if the borrower can bag the best rate, it may not always turn out to be the best deal if pre-payments during the term are disallowed by the lender. The loan agreement could curtail the borrowers who wish to make extra payments to pay off the loan quickly, instead of compelling them to keep the loan going on for much more time.

If borrowers would like to grab a deal with a low-interest rate that could help them save on early repayment penalties on their existing mortgage, it is important to check how the penalty gets calculated. Otherwise, the borrowers could end up paying much more in early repayment penalties even if the rate is much lower.

Although the period for a change in the interest rate can vary between six months to six years, there isn’t much difference in the rates between a fixed and a variable rate mortgage if the borrowers’ aim is to get a preapproval.

This makes portability another important feature to consider when shopping for a mortgage, irrespective of the rate. Due to various circumstances, most people end up breaking their mortgage term for various reasons such as a refinance or to switch lenders, or perhaps just because of a split up between the co-borrowers.

Breaking a mortgage loan before the current term expires is sure to attract penalties, which could be much higher than the benefits of switching to a low rate, which eventually makes it an insignificant component.

As mortgages come in numerous varieties, each with varying differences in the features, deciding on the mortgage with simply the lowest interest rate is not always advisable. Choosing the services of a professional mortgage consultant can be a good idea. However, the home buyers still need to give the consultants a complete idea of their exact needs, which includes the type of property they wish to buy and the duration they wish to keep it. Consequently, the professionals can advise them on the best possible option from the best possible lender.

Key Takeaways

Even though the interest rate is an essential component of the mortgage loan, various other factors contribute to making the overall deal favorable for the borrowers.

The home buyers should consider all the options available to them before making a choice while hiring a professional consultant can also be helpful.

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Our Services

We specialize in providing a superior tax preparation service that can handle your taxes and so much more, including individual tax preparation, business tax preparation, property management, and real estate sales. Our services are by appointment only, and we are available all year round. If you prefer, you may make your payment out of your tax refund. We always offer the most affordable options for our services. Trust the professionals that have been in the same location for over 30 years, giving you the best options for tax preparation and complicated matters of sales and property management.

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What You Should Know About IRS Audits

Your chance of an audit

It’s tempting to think only your current year’s return can be audited, but the IRS can audit your past three years of returns. If returns look especially suspicious, the agency could go back as far as six years.

The IRS uses the Discriminant Information Function system to determine which returns get audit-level attention. This system compares your return with others filed by people with similar professions and incomes and assigns it a DIF score. If the financial information in your return varies significantly from the information provided by your peers, your return gets a high DIF score, which increases the chances you’ll be audited.

The DIF is more likely to trigger audits on the returns of high-income earners. Because the IRS has endured budget cuts over the past few years, it must focus its resources where it gets the most lucrative results. But while the returns reporting high income levels incur the greatest percentage of audits, taxpayers with more modest means still see their fair share.

The audit process

If the IRS decides to audit you, it will notify you by letter or telephone. The agency will never contact you by email.

While an IRS audit is certainly not a welcome outcome for any taxpayer, the reality may be less dramatic than most taxpayers imagine. Many audits consist of only a letter from the IRS, asking the taxpayer for verification or correction of specific information. This is called a correspondence audit. If you’ve made a math error on your return, you’ll have to pay any additional tax you owe. That’s it. Case closed.

But if the IRS has serious questions about your return, you’ll get a request for a more daunting in-person audit. An in-person audit can be triggered by relatively minor issues that are easy to resolve, but reporting all of your income and following the rules around deductions and credits is the best way to avoid an audit altogether.

Either way, an audit is a serious matter. If you are audited, consider consulting a tax professional. Some online tax programs offer an audit-protection service to help you navigate the process. If you prepared your taxes without audit protection, it’s a good idea to hire a tax attorney or an accountant to represent you to the IRS.

Using tax software or hiring a pro doesn’t necessarily reduce your chances of an audit. Either of these options likely reduces your chance of filing a return with math errors, but the accuracy of deduction and credit information falls on you.

Your legal rights

If you receive an audit notice, you should know your rights. These include:

Your right to professional and courteous treatment by IRS employees.

Your right to privacy regarding your tax matters.

Your right to know why the IRS is asking for information, the purpose of the information and the consequences of not providing the information.

Your right to representation.

Your right to appeal disagreements within the IRS and before the courts.

The IRS lays out details about your rights during an audit in Publication 1, Your Rights as a Taxpayer.

Audit outcomes

Your IRS audit will conclude in one of three ways. If the agency determines that your return is accurate, you won’t need to make any changes. If it determines that your review is inaccurate, you can either agree with the changes and pay any resulting back taxes or penalties, or you can disagree and pursue the process legally.

If you haven’t already hired an attorney or an accountant, an audit appeal is a great time to do so. A tax professional who understands how the IRS works can bring about a better outcome than you can as an outsider operating on a high-emotion curve.

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Tax Aspects of Home Ownership: Selling a Home

Do I have to pay taxes on the profit I made selling my home?

It depends on how long you owned and lived in the home before the sale and how much profit you made. If you owned and lived in the place for two of the five years before the sale, then up to $250,000 of profit is tax-free.

If you are married and file a joint return, the tax-free amount doubles to $500,000. The law lets you "exclude" this much otherwise taxable profit from your taxable income. (If you sold for a loss, though, you can't take a deduction for that loss.)

You can use this exclusion every time you sell a primary residence, as long as you owned and lived in it for two of the five years leading up to the sale, and haven't claimed the exclusion on another home in the last two years.

If your profit exceeds the $250,000 or $500,000 limit, the excess is reported as a capital gain on Schedule D.

How do I qualify for this tax break?

There are three tests you must meet in order to treat the gain from the sale of your main home as tax-free:

Ownership: You must have owned the home for at least two years (730 days or 24 full months) during the five years prior to the date of your sale. It doesn't have to be continuous, nor does it have to be the two years immediately preceding the sale. If you lived in a house for a decade as your primary residence, then rented it out for two years prior to the sale, for example, you would still qualify under this test.

Use: You must have used the home you are selling as your principal residence for at least two of the five years prior to the date of sale.

Timing: You have not excluded the gain on the sale of another home within two years prior to this sale.

If you're married and want to use the $500,000 exclusion:

You must file a joint return.

At least one spouse must meet the ownership requirement, and both you and your spouse must have lived in the house for two of the five years leading up to the sale.

Special circumstances

Even if you don't meet all of these requirements, there are special rules that may allow you to claim either the full exclusion or a partial exclusion:

If you acquire ownership of a home as part of a divorce settlement, you can count the time the place was owned by your former spouse as time you owned the home for purposes of passing the two-out-of-five-years test.

To meet the use requirement, you are allowed to count short temporary absences as time lived in the home, even if you rented the home to others during these absences. If you or your spouse is granted use of a home as part of a divorce or separation agreement, the spouse who doesn't live in the home can still count the days of use that the other spouse lives in that home. This can come into play if one spouse moves out of the house, but continues to own part or all of it until it is sold.

If either spouse dies and the surviving spouse has not remarried prior to the date the home is sold, the surviving spouse can count the period the deceased spouse owned and used the property toward the ownership-and-use test.

Members of the uniformed services, foreign service and intelligence agencies

You can choose to have the five-year-test period for ownership and use suspended for up to ten years during any period you or your spouse serve on "qualified official extended duty" as a member of the uniformed services, Foreign Service or the federal intelligence agencies. You are on qualified extended duty when, for more than 90 days or for an indefinite period, you are:

At a duty station that is at least 50 miles from your main home, or

Residing under government orders in government housing

This means that you may be able to meet the two-year use test even if, because of your service, you did not actually live in your home for at least the required two years during the five years prior to the sale.

How can I qualify for a reduced exclusion?

In certain cases, you can treat part of your profit as tax-free even if you don't pass the two-out-of-five-years tests. A reduced exclusion is available if you sell your house before passing those tests because of a change of employment, or a change of health, or because of other unforeseen circumstances, such as a divorce or multiple births from a single pregnancy. So if you need to move to a bigger place to find room for the triplets, the law won't hold it against you.

Note: A reduced exclusion does NOT mean you can exclude only a portion of your profit. It means you get less than the full $250,000/$500,000 exclusion. For example, if a married couple owned and lived in their home for one year before selling it, they could exclude up to $250,000 of profit (one-half of the $500,000 because they owned and lived in the home for only one-half of the required two years).

Deciding whether to take the exclusion

Would it ever make sense to turn down the government's generosity and not claim the exclusion?

Although it's very unlikely, paying tax on a home sale can make sense if it preserves the exclusion to protect more profit on another home that you plan to sell within two years. Remember, although you can use the exclusion any number of times during your life, you can't use it more than once every two years.

Do I have to report the home sale on my return?

You generally need to report the sale of your home on your tax return if you received a Form 1099-S or if you do not meet the requirements for excluding the gain on the sale of your home. See: Do I have to pay taxes on the profit I made selling my home? above.

Form 1099-S: Proceeds from Real Estate Transactions is generally issued by the real estate closing agent—a title company, real estate broker or mortgage company.

To avoid getting this form (and having a copy sent to the IRS), you must give the agent some assurances at any time before February 15 of the year after the sale that all the profit on the sale is tax-free. To do so, you must assure the agent that:

You owned and used the residence as your principal residence for periods totaling at least two years during the five-year period ending on the date of the sale of the residence.

You have not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.

No portion of the residence was used for business or rental purposes by you or your spouse.

At least one of the following three statements applies:

The sale price is $250,000 or less

You are married, the sale price is $500,000 or less, and the gain on the sale is $250,000 or less

You are married, the sale price is $500,000 or less, and:

You intend to file a joint return for the year of the sale or exchange.

Your spouse also used the residence as his or her principal residence for periods totaling two years or more during the five years ending on the date of the sale.

Your spouse also has not sold or exchanged another principal residence during the two-year period ending on the date of the sale or exchange of the residence.

Essentially, the IRS does not require the real estate agent who closes the deal to use Form 1099-S to report a home sale amounting to $250,000 or less ($500,000 or less for married couples filing jointly).

You should not receive a Form 1099-S from the real estate closing agent if you made these assurances. If you don't receive the form, you don't need to report your home sale at all on your income tax return.

If you did receive a Form 1099-S, that means the IRS got a copy as well. That doesn't necessarily mean you owe tax on the sale, though. It could be a mistake, or the closing agent might not have had the proper paperwork. If you qualify for the exclusion to make all of your profit tax-free, don't report the home sale. But make sure all your paperwork is in order to show the IRS if it asks.

Figuring gain on the sale of a home

You have a gain if you sell your house for more than it cost. Ah, but how do you calculate the real cost? For tax purposes, you need to pinpoint your adjusted basis to figure out whether or not you have gained or lost in the sale.

The adjusted basis is essentially what you've invested in the home; the original cost plus the cost of capital improvements you've made. Capital improvements add value to your home, prolong its life, or give it a new or different use. They don't include expenses for routine maintenance and minor repairs, such as painting. Examples of improvements are a new roof, a remodeled kitchen, a swimming pool, or central air conditioning. You add these expenses to your original cost to increase your adjusted basis (which in turn decreases the amount of gain on a sale).

On the other hand, you need to subtract any depreciation, casualty losses or energy credits that you have claimed to reduce your tax bill while you've owned the house. Also, if you postponed paying taxes on the gains from selling a previous home (as was allowed prior to mid-1997 for homeowners who used the profits to buy a more expensive replacement house), then you must also subtract that gain from your adjusted basis.

Let's say you bought a house for $50,000 in 1993, sold it for $75,000 in 1996, and postponed the tax on the $25,000 profit by purchasing a new home for $110,000.

The basis of the new home would be $85,000 (the $110,000 cost minus the $25,000 of non-taxed profit on the first sale).

What is the original cost of my home?

The original cost of your home, for most people, is the amount you paid for it.

If you purchased your home from someone else, the price you paid is your purchase price (plus certain settlement and closing costs). Your closing statement should list all of these costs. Don't include items from your closing statement that are personal and routine expenses, such as insurance or homeowner association dues, and don't include the prorated amounts for property taxes and interest.

If you built your home, your original cost is the cost of the land, plus the amount it cost you to construct your home, including amounts paid to your contractor and subcontractors, your architect fees, if any, and connection charges you paid to utility providers.

If you inherited your home, your basis in the home will be the number you use for "original cost." For death’s in any year except 2010, your basis is the fair market value of your home on the date of the previous owner's death, or on the alternate valuation date if the executor of the estate elected to value the estate's assets as of six months after the owner's death. If the person died in 2010, special basis rules apply depending on your relationship to the deceased. Check with the executor of the estate, who should be able to provide you with information about the basis of your home.

What is the adjusted basis of my home?

The adjusted basis is simply the cost of your home adjusted for tax purposes by improvements you've made or deductions you've taken.

For example, if the original cost of the home was $100,000 and you added a $5,000 patio, your adjusted basis becomes $105,000. If you then took an $8,000 casualty loss deduction, your adjusted basis becomes $97,000.

Here's how you calculate the adjusted basis on a home:

Start with the purchase price of your home (as described above)

Or, if you filed Form 2119 when you originally acquired your old home to postpone gain on the sale of a previous home (back in 1997 or earlier), use the adjusted basis of the new home calculated on your Form 2119. (See Postponed Gains Under the Old "Rollover" Rules section.)

To that starting basis add:

The cost of any improvements that added value to your home, prolonged its useful life, or gave it a new or different use

Any special tax assessments you paid

Amounts spent after a casualty (a disaster such as a hurricane or tornado) to restore damaged property

From that upwardly adjusted basis subtract:

Certain settlement fees or closing costs

Depreciation allowed for any business use portion of your home

Residential energy credits claimed for capital improvements

Payments received for easements or right-of-ways

Insurance reimbursements for casualty losses

Casualty losses (from accidents and natural disasters) that you deducted on your tax return

Adoption credits or nontaxable adoption assistance payments for improvements added to the basis of your home

First-time homebuyer credit

Energy conservation subsidies excluded from your gross income

Any mortgage debt on your principal residence that was discharged after 2006 but before 2017, if you excluded this amount from your gross income. This can also apply to debt that is discharged in 2018 provided that there was a written agreement entered into in 2017.

The result of all these calculations is the adjusted basis that you will subtract from the selling price to determine your gain or loss. This adjusted basis is what's considered to be your cost of the home for tax purposes.

Basis when you inherit a home

If you inherited your home from your spouse in any year except 2010 and you lived in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin—your basis will generally be the fair market value of the home at the time of your spouse's death.

If you lived somewhere other than a community property state, your basis for the inherited portion of the home in any year except 2010 will be the fair market value at your spouse's death multiplied by the percentage of the home your spouse owned. If your spouse solely owned the home, for example, the entire basis would be "stepped up" to date-of-death value. If you and your spouse jointly owned the home, then half of the basis would rise to date-of-death value.

If you inherited your home from someone other than your spouse in any year except 2010, your basis will generally be the fair market value of the home at the time the previous owner died. If the person you inherited the home from died in 2010, special rules apply. Your basis generally is the same as the person you inherited the property from. However, the executor has the option to increase the basis of property passing to a non-spouse by $1.3 million and property passing to a spouse by $3 million. To find out the exact basis of any property you inherit, check with the estate’s executor.

Divorce and tax basis

If you received your home from your former spouse as part of a divorce after July 18, 1984, your tax basis generally will be the same as your basis as a couple at the time of the divorce. So if your former spouse was the sole owner of the home, his or her basis becomes your basis. If the place was jointly owned, you now claim the full basis.

If you divorced before July 19, 1984, your basis will generally be the fair market value at the time you received it.

Postponed gains under the old "rollover" rules

In the past, you may have put off paying the tax on a gain from the sale of a home, usually because you used the proceeds from the sale to buy another home. Under the old rules, this was referred to as "rolling over" gain from one home to the next. This postponed gain will affect your adjusted basis if you are selling that new home. The tax on that original sale wasn't eliminated, just deferred to some future date.

You can no longer postpone gain on the sale of your personal residence. For sales after May 7, 1997, you normally must choose whether to exclude the gain on the sale of your personal residence or to report the gain as taxable income in the year it is sold. You no longer have the option to postpone paying taxes on the gain by purchasing a more expensive residence.

To see how a rollover of gain prior to the change in the law can affect your profit, consider this example: Let's say you bought a house for $50,000 in 1993, sold it for $75,000 in 1996 and postponed the tax on the $25,000 profit by purchasing a new home for $110,000. The basis of the new home would be $85,000 (the $110,000 cost minus the $25,000 on non-taxed profit on the first sale).

Converting a second home to a primary residence

Although the rule that allows homeowners to take up to $500,000 of profit tax-free applies only to the sale of your principal residence, it has been possible to extend the break to a second home by converting it to your principal residence before you sell. Once you live in that home for two years, you have been able to exclude up to $500,000 of profit again. That way, savvy taxpayers can claim the exclusion on multiple homes.

Note: Congress has clamped down on this break for taxpayers who convert a second home into a principal residence after 2008. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion, even if the seller meets the two-year ownership-and-use tests.

The portion of the profit subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit, to the total amount of time you owned it. So if you have owned a vacation home for 18 years and make it your main residence in 2013 for two years before selling it, only 10 percent of the gain (two years of nonqualified second home use divided by 20 years of total ownership) is taxed. The rest would qualify for the exclusion of up to $500,000.

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Tax-Saving Tips for Self-Employed Individuals

Basic Tax Rules

If you make $600 or more from a client, you will receive a 1099-MISC from them, and the IRS will be sent a copy as well. Self-Employment Tax also has to be paid if your net earnings for the year are more than $400. This money goes toward Social Security and Medicare, which is calculated on Schedule SE. A portion of that amount can also be deducted on Form 1040. You will also have file W-2’s and 1099’s for all employees and independent contractors.

Lowering Your Tax Bill

If you’re self-employed, there are some things you can do to lower your tax bill, and the obvious one is to keep track of your business expenses. This is because you can deduct them from your taxable income. You can also deduct any miles you have driven for business purposes. This can include meeting with clients or going to another work location.

You can claim 57.5 cents for every mile you have driven for your business, which includes the cost of parking and tolls. If you do a lot of driving for your business, you can lower your taxable income by keeping an accurate log of every trip you’ve taken.

You should also mix your business trips with any personal vacations because you can deduct some of these expenses from your taxes. If you go on a business trip, and you decide to stay an extra few days for a short vacation, you can deduct any expenses that were incurred during the trip. This includes the cost of airfare.

However, you can’t deduct any expenses that are associated with the personal days, unless you’re staying there longer to get a cheaper fare. And as long as your expenses don’t cost more than what you saved in airfare, you can deduct your hotel expenses and 50% of your dining costs.

Retirement accounts are also a good way to lower your tax bill, because any contributions are on a “tax-deferred” basis. You are able to put up to 20% of your net profit in a Simplified Employee Pension Plan (SEP) or a Keogh Plan, and no tax is paid on that money until it’s withdrawn.

Finding a Tax Professional

Being self-employed has its rewards, but you have to do your part if you want to lower your tax bill. Still, it pays to find a professional to help you put it all together at the end of the year, but there are many types of tax professionals. So, it’s important to find the right one.

It’s important to know what your specific problems are, which is why you need to find the right person for the job. Tax accountants can help you file your tax return, but they won’t be able to help you if a legal issue should arise. A qualified tax attorney would be better suited for this role, and they will be able to represent you in court.

Tax Law Tampa has a team of expert tax attorneys who can help you prepare your tax return, and we will make sure you’re complying with current tax regulations. We can also help you if a legal issue should come up later on. Our attorneys will be able to sit down with you, and they can come up with a solution that will put your tax problems behind you.

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