Tax Free Capital Gains
Can a taxpayer earn tens of thousands of dollars in capital gains and pay zero taxes? Surprisingly, Yes. Capital gains tax rates differ from ordinary income rates. Ordinary income tax rates range from 10% to 37% and apply to wages, tips, bonuses, rents, interest and short-term capital gains. However, long-term capital gains rates, which are applied to investments held for over a year, are more favorable. These rates start at 0% and cap at 20%. If a single taxpayer’s total taxable income is $44,625 or less ($89,250 for married couples), their long-term capital gains are taxed at 0%. With careful financial planning, a taxpayer could arrange their investment sales to pay no income tax. However, it’s crucial that total taxable income remains at or below the threshold. Earning more will push the taxpayer into the 15% rate, where some tax on gains will be owed.
Extension Period is Almost Over
For businesses and individuals who filed extensions for their tax returns earlier this year, keep in mind the end of the extended period is close. For partnerships and corporations, the extended deadline is September 16th. For individuals, the extended deadline is October 15th. Many people are forced to file extensions on their returns if they cannot get hold of relevant financial data by the earlier filing date, while others choose to file extensions because it gives them more time to organize and compile their tax records.
Business Travel
If you own your own business, or are a self-employed contractor, you may be aware that you can use travel expenses to offset your income and reduce your tax bill. It’s important to know the rules regarding what expenditures can be deducted. Commuting to or from your place of business is not a deductible expense, even if you are paying for public or private transportation. A legal travel expense needs to be one that is ordinary and necessary for your business, not lavish or extravagant, not for personal purposes, and cannot be within your tax home. What is a tax home? The IRS describes your tax home as the location in which you primarily operate your business, regardless of where you live. That means you cannot typically deduct travel, lodging or meal expenses incurred within the area you spend most of your time. However, if the purpose of these expenditures is to conduct a business event, or acquire new business, the reasonable expenses may be deducted. The best practice for business owners is to keep all receipts from business related travel, lodging and meals and to write yourself a brief memo with details about the purpose, date and location of the expenses. Then at the end of the year, you can review the expenses with your tax advisor to determine the deductibility of the costs.
