A Tip to Avoid Late Payment Penalties

A Tip to Avoid Late Payment Penalties

Many clients like to keep their Federal Tax withholdings as low as possible to avoid the IRS having their funds interest-free throughout the year. Other taxpayers, especially those with non-payroll income, must make quarterly payments to the IRS. As long as these quarterly payments are made timely and the amount of the payments is sufficient in the eyes of the IRS you will not be subjected to underpayment penalties. However, if under paid, the IRS applies late payment penalties in addition to the income tax owed. This penalty applies even if you file your 1040 tax return on or before April 15th.

Understanding the Gift Giving Tax Excess gift giving could cause a tax surprise

Understanding the Gift Giving Tax Excess gift giving could cause a tax surprise

In an effort to keep taxpayers from transferring wealth from one generation to the next tax-free, there are specific limits to the amount of gifts one may give to any one person each year. Amounts in excess of this limit are subject to filing an annual gift tax form. For most of us, this is not something we need to worry about, but if handled incorrectly it can create quite a surprise when the tax bill is due.

Inflation Spikes Social Security for 2023

Inflation Spikes Social Security for 2023

The Social Security Administration announced a whopping 8.7% boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2023. This is on the heels of a 5.9% increase last year. The increase is based on the rise in the Consumer Price Index over the past 12 months ending in September 2022.

Postpone Taxes with a Like-Kind Exchange

The tax law provides a valuable tax-saving opportunity to business owners and real estate investors who want to sell property and acquire similar property at about the same time. This tax break is known as a like-kind or tax-deferred exchange. By following certain rules, you can postpone some or all of the tax that would otherwise be due when you sell property at a gain.

The like-kind exchange rule

A like-kind exchange involves swapping assets that are similar in nature. Since the passage of the Tax Cuts and Jobs Act in December 2017, like-kind exchanges are now generally limited to exchanges of property. Typically, an equal swap of property is rare. Some amount of cash or debt must change hands between two parties to complete an exchange. Cash or other dissimilar property received in an exchange may be taxable.

Real estate exchanges

By using a like-kind exchange you can effectively leverage money you would need to pay for capital gains taxes and depreciation recapture tax into the next property. And with a real estate exchange, it is unusual to find two parties whose properties are suitable to each other. This isn’t a problem because the rules allow for three-party exchanges. Three-party exchanges require the use of an intermediary. The intermediary coordinates the paperwork and holds your sale proceeds until you find a replacement property. Then he forwards the money to your closing agent to complete the exchange.

Not for the faint of heart

The like-kind exchange rules are very strict. For this reason, it is always best to hire an expert to advise you prior to exploring this tax saving technique. But when done properly, exchanges let you trade up in value without owing tax on a sale. Even better, there’s no limit on the number of times you can exchange a piece of property.