Basis

If you sell an asset, how do you determine whether you had a taxable gain or loss? It seems simple but it's not. You first have to determine the basis of the asset which is cost plus acquisition and installation charges if you purchased the asset. If you received the asset as a gift, then your basis is the donor's basis or the fair market value (FMV) at time of gift  determined when you sell the gift property. If you sell at a gain it is the donor's basis, and if you sell at a loss it is the lesser of the donor's basis or the FMV at time of gift. Inherited property basis is the FMV at date of death. Does any of this matter if you sell the family car for much less than you paid for it? No because a loss on the sale of property used for personal purposes is not deductible.

Foreign Charities

In general, donations to foreign charitable organizations are not tax deductible. However certain Canadian, Mexican, and Israeli charities qualify for US tax deduction per their income tax treaty with our country.

Taxability of Insurance Claims and Lawsuits

If you receive money from a lawsuit or insurance claim, is it taxable?  It isn't if it is paid on account of physical injury or illness. Even if you receive damages for emotional distress relating to an injury it still isn't taxable. The following damages are taxable: punitive damages, interest on awards, discrimination, slander, defamation, libel, and harassment. Payment for property damages less than basis is also not taxable.

IRAs and Roths Differences and Similarities

The regular annual contribution limit for both is $5,000 and they both grow tax free. You have to have earned income up to $5,000 to make the maximum contribution. You have to start taking money out of your IRA at age 70 1/2 but you aren't forced to with a Roth. When you take money out of an IRA it is generally subject to income tax. Qualified distributions from a Roth are nontaxable. The Roth contribution is not tax deductible but an IRA contribution is if you are not covered by an employer retirement plan. If you are covered by an employer plan, the deduction is subject to a phase out based on adjusted gross income.

Feeding Your Employees

You can provide the following items to employees without adding to their W-2s:
1.Coffee, doughnuts, soft drinks or similar items.
2. Occasional meals provided to an employee working overtime.
3. Occasional parties or picnics for employees and their guests like the office Christmas party.
The IRS calls these items a de minimis benefit and allows you to deduct their full cost instead of the normal 50% for business meals and entertainment. It is the best of both worlds, a full tax deduction for you and no compensation for the employee.

Are Inheritances Taxable?

Suppose you get two million dollars from your deceased Aunt Sally per her will. Do you have to give the IRS a portion of that? No you don't as long as none of the money came from retirement accounts such as IRAs or 401ks.

US Treasury Bonds and State and Local Bonds

US Treasury bond interest is subject to Federal tax but not state tax. State and local bond interest is exempt from Federal tax and state tax if the bond is from your state of residency. For example, a bond for Fulton County GA is exempt from Federal and Georgia tax if you are a Georgia resident. This can be a nice way to receive totally tax free income. If you are a Georgia resident and you have bond interest from a California city bond, the interest is not subject to Federal tax but  is subject to Georgia tax.