IRS Tax Tips Capital Gains

Ten Important Facts About Capital Gains and Losses 

Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.

Here are ten facts from the IRS about gains and losses and how they can affect your Federal income tax return.

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis - which is usually what you paid for it - is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property held for personal use.
5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

Links:

• Publication 17, Your Federal Income Tax (PDF 2015.9K)
• Publication 550, Investment Income and Expenses (PDF 516K)

eBay Sales Can Be Taxable

IRS employee Andrea Orellana failed to report income from sales on eBay from 200-2005.  During those six years Orellana participated in over 7,000 transactions.  From those transactions Orellana had unreported income of over $36,000.  In 2005 alone she had unreported income of $21,062.  Orellana used many different user IDs during the years. 

Orellana’s defense was the transactions were like “online garage sales”, but the US Tax Court ruled that the sales from the designer clothing were taxable. 

Source: www.accountingtoday.com

There are a few items I find significantly important in this court case. 

First of all this woman was involved in over 7,000 transactions during a 6 year period.  That averages out to 3.2 transactions per day, every day, for 6 years.  Immediately my reaction is if you are that involved in eBay transactions it is not a general “online garage sale” and not a hobby. 

Second, when I see that she used multiple user IDs that makes me believe she may have been trying to avoid being noticed in the system. 

Online commerce is challenging when trying to decipher the difference between some “spring cleaning” and money making venture.  Starting for 2011 tax returns, taxpayers who sell more than $20,000 of merchandise or participate in more than 200 electronic transactions annually could receive a 1099. 

Credit Card Security Standards for Your Business

Does your company accept credit cards?

If the answer is yes, read this following information to make sure you are in compliance with the Payment Card Industry security standards. 

When you have any credit card numbers stored in QuickBooks, CRM database or online Web Store you need to comply with the following standards which are made of six principles and twelve requirements:

1.       Build and Maintain a Secure Network

a.       Requirement 1: Install and maintain a firewall configuration to protect cardholder data. 

b.      Requirement 2:  Do not use vendor-supplied defaults for system passwords and other security parameters. 

2.      Protect Cardholder Data

a.       Requirement 3:  Protect stored cardholder data.

b.      Requirement 4:  Encrypt transmission of cardholder data across open, public networks.

3.      Maintain a Vulnerability Management Program

a.       Requirement 5:  Use and regularly update anti-virus software.

b.      Requirement 6:  Develop and maintain secure systems and applications.

4.      Implement Strong Access Control Measures

a.       Requirement 7:  Restrict access to cardholder data by business need-to-know.

b.      Requirement 8:  Assign a unique ID to each person with computer access.

c.       Requirement 9:  Restrict physical access to cardholder data.

5.      Regularly monitor and Test Networks

a.       Requirement 10:  Track and monitor all access to network resources and cardholder data.

b.      Requirement 11:  Regularly test security systems and processes. 

6.      Maintain an Information Security Policy

a.       Requirement 12:  Maintain a policy that addresses information security. 

HSA & Montana Medical Savings Account

Health Savings Accounts                               Federal Tax Deduction
The 2010 HSA contribution maximums are $3,000 for an individual account and $6,150 for a family. 
(HSA holders 55 and older can contribute an extra $1,000 which means $4,000 max or $7,150)

To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP.  This High Deductible Health Plan must have a minimum deductible for an individual $1,200 and a family $2,400.  The insurance companies know all the details about these HDHP policies. 

For more information about HSA's go to: 

http://www.ustreas.gov/offices/public-affairs/hsa/faq_eligibility.shtml

Montana Medical Savings Account (MSA)    MT ONLY Tax Deduction
All resident taxpayers are eligible to establish a Montana MSA even if they have another health care plan provided by their employer or a Section 125 (Flexible Spending Account) or a Federal HSA. A taxpayer does not have to be in a high deductible plan at work to be eligible for an MSA.

A taxpayer may contribute any amount to a MSA; however each person may only deduct $3,000 plus any interest the account accumulates each year.  Money withdrawn is required to be used for eligible medical expense.  Any money withdrawn not used for eligible medical expenses is subject to a 10% penalty.

You may have a self-administered MSA.  The account must be kept separate from any other account, must be an individual account and you must file an annual report (Form MSA) with your individual Montana return.  
For further information contact Stephanie in our office or
read the following article:
http://msuextension.org/publications/familyfinancialmanagement/mt199817HR.pdf

Increase in IRS Audits

IRS audits have more than doubled in the past decade. Most of the time these are mail audits where an IRS computer mails you a confusingly written message stating there is a mismatch between what was reported on your tax return and what was otherwise reported to the IRS.

As I've mentioned in the past: DO NOT PANIC!!!!! Most of the time we simply have to print out a document and reply to the IRS. With the other audits we simply need to ask a few more questions, but again it does not take too much time to resolve the issue.

Never answer an IRS agent's questions. In the case you get a phone call from an IRS agent, you have a right to representation. If an IRS agent calls you, take the agents' ID number and phone number. Make a note of any questions the agent has and tell them your tax representative will be in touch.

Remember contact us immediately if you get any notice from the IRS. This is why you have a tax accountant, we are here to help you! The IRS has strict deadlines and if you miss a deadline it can be very difficult to challenge an IRS's position after the deadline has passed even if the IRS is in the wrong. 

At this time the IRS does not contact anyone via email.

2010 Standard Mileage Rate

The 2010 federal mileage reimbursement rate is 50¢ per mile.

This is down 8¢ from 2009, mostly due from lower fuel costs.

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