Tax Facts & Other Helpful Tips
Quick Reference - Click below to read further on that topic:
1. CAPITAL GAINS & LOSSES - Unfortunately for stock market investors, net* losses are limited to $3,000. Extraordinary stock market gains coupled with the changes in capital gains law make for increased tax-time headaches.
First tip, keep detailed records of your stock trades on a ledger pad, a spreadsheet program (first choice) such as Microsoft Excel, or a personal financial program/electronic checkbook like Quicken (last choice). Many online brokers provide the capability to download your transactions into reporting software such as Trade Accountant, GainsKeeper or TradeLog. (Follow the link for my comments on these)
* Net losses are the combination of long-term capital gains and long-term capital losses coupled with short-term capital gains and short-term capital losses.
Another detail to watch for are wash sales. A wash sale is the sale of a stock or security for a loss (it does not apply to gains) that is accompanied by the purchase of similar stock or security within 30 days before or after the sale that triggered the loss. These are difficult to spot and are NOT properly recognized or treated by most popular do-it-yourself tax preparation software packages, ie, TurboTax.
2. BUNCHING DEDUCTIONS -
Do you seem barely to miss itemizing deductions each year?
Do you have significant medical or dental expenses planned for the upcoming year?
Try bunching your deductions. Pay your medical expenses, two years of property taxes (limited to $10,000 - see below) and make your year-end charitable contributions in January (for the prior December) and December of the same year. You may qualify to itemize in that year. The next year, when your itemized expenses are low, take the standard deduction. What about mortgage interest? You can only deduct what would normally be payable in that year ... monthly mortgage ... twelve months of mortgage interest.
3. SECTION 179 INCREASE - The election to expense capital acquisitions has increased to $1.16 million in 2023 with a maximum investment limit of $2.89 million. However, only certain types of assets qualify for this election.
It must be tangible personal property and not assets such as buildings or luxury autos (which still fall under the luxury auto limit rules).
Also, for Section 179 expensing to apply the property must be used in an active trade or business (not rental or investment property) AND the Section 179 expense cannot create a loss for that business.
First year 100% bonus depreciation has been extended through 2022 but decreases after that until 2026.
The list of qualified assets placed into service has also been expanded to include identified improvements to non-residential real property.
4. STATE TUITION PROGRAMS - The earnings on contributions from state tuition programs for educational purposes are taxable when distributed even if used for education, unlike educational IRAs or Coverdells which are not taxable when distributed if used for educational purposes.
Each distribution is taxable pro-rata as return of basis (no tax) and earnings (taxable) thus preventing the contributor from waiting until retirement ... when the last child's education is paid for ... and then taking all the earnings in that year.
5. SALES TAX EXEMPTIONS (TEXAS) - There is much confusion at retail establishments when attempting to purchase "sales taxable" items for a tax-exempt entity.
Most check-out clerks are looking for a tax-exempt certificate with your company's tax-exempt number. In the state of Texas there is no tax-exempt number. All that is necessary is to present the clerk with a Texas Sales Tax Exemption Certificate.
The form must be completely filled-out and signed by the appropriate authority and presented at the time of purchase or mailed with payment less sales tax. You can also find a fill-in-the-blank copy of this form on the Forms page of this website along with other helpful forms.
6. HOME SCHOOL EDUCATOR DEDUCTION - Although the deduction is not that large and available through the 2025 tax year (thanks to the Tax Cuts and Jobs Act of 2017), home school teachers ARE eligible for educator deduction if they meet the criteria described in the Internal Revenue Code.
I have written an detailed treatment of this issue and it is available here. [However, be aware that the IRS says it will not grant home-schoolers this deduction] It is $250 and any excess is not deductible now that Miscellaneous Itemized Deductions are no longer available on Schedule A.
7. AUTO MILEAGE RATES - The following are the mileage rates for 2022 through 2023:
* See IRS Publication 463 or Rev Proc 2009-54 if disposing of an automobile for which you have used the standard mileage rate
** Moving mileage allowance for members of the armed forces only
8. NON-CASH CHARITABLE CONTRIBUTIONS - As of August 17, 2006, the IRS will deny any claimed charitable contribution of clothing or household items unless it is in "good" or better used condition. Obviously this is a subjective assessment and typically made by the contributor who has a vested interest in the deduction. Further, the drivers of the company truck or volunteers at a donation site are probably not qualified to determine the quality of a used household item.
So, with that said, how do you set a value on used goods? The typical value is termed "thrift shop value" or the price that your item would sell for at a thrift shop, ie, Goodwill or Salvation Army Thrift Stores. I have researched the Internet and, with the help of my wife, canvassed local (Dallas-Garland, TX) thrift shops to determine some valuation ranges for a number of items. Click here for those guidelines.
9. FREE CREDIT REPORT - This is not a "tax" tip per se, but it is helpful. Did you know that according to the Fair and Accurate Credit Transaction Act of 2003 (FACTA) you are entitled to an annual FREE credit report from EACH of the three major credit reporting bureaus - Equifax, TransUnion and Experian. Simply go to www.annualcreditreport.com and complete the personal information request.
10. THRESHOLD/MAXIMUM AMOUNTS - Various maximums and contribution thresholds for tax-favored investments:
* Subject to taxable income limitation and participation in other qualified plans by participant and/or spouse.
11. BROKERAGE COMMISSION COMPARISON - Below is a comparison of some of the most popular option trading brokerage's commission structures:
12. PAYING YOUR PROPERTY TAX - Many tax jurisdictions allow you to pay your property tax in installments and online. Here are a couple "gotchas":
The limit to deductible property tax is incorporated into other taxes, such as, state and local income tax and sales tax for states not subject to income tax as a result of the Tax Cuts and Jobs Act of 2017. This state and local tax (SALT) is limited to $10,000 for all property, state and local income tax and sales tax. However, this does NOT include property tax on a qualified trade or business property and property tax on residential rental property.
Make sure you pay your property tax in the year in which you want to deduct it - If you pay your 2021 assessed property tax in 2022 it is only deductible in 2022
Those convenience fees charged are not deductible as 'Property Tax' but are Miscellaneous Itemized Deductions and subject to the 2% of AGI threshold and eliminated beginning in 2018 (they will re-appear in 2026)
If you pay late typically you will be charged Penalty and Interest - Penalty and Interest are not deductible as Property Tax and the interest is non-deductible personal interest