Personal vs Investment Asset

The distinction between personal and investment property is important in tax law. A loss on investment property can be deducted as a capital loss. A personal loss cannot. Expenses on investment property are deductible as itemized deductions subject to 2% of adjusted gross income. Expenses on personal use property such as your home, car, or furniture are not deductible. The key point to make a property investment property is whether the property was held for the production of income which is a facts and circumstances test. For example, a house purchased for your child to live in while in college is personal use property. However, if the same house is later rented to other students, then it is investment or rental property.

Final Form 1040

Any income received prior to death is reported on the decedent's final form 1040. Income earned on assets in the estate until distributed to the beneficiaries is taxed on form 1041 the estate income tax return. You need to apply for a Federal ID # for the estate because you can't use the decedent's social security number. You can also use a fiscal year other than the calendar year for the estate.

Estate and Gift Tax Exclusion for 2012

The estate and gift tax exclusion for 2012 is $5,120,000 the highest amount it has ever been. Now is the time to make that gift to your children or grandchildren. In 2013, the exclusion could drop back to $1,000,000.

Is your child living at home still a dependent?

If your child is over 23 and making under $3,700 and you provide more than half of their support, you can claim them as a dependent. The $3,700 rule is the one that usually disqualifies most dependents over 23.

Don't File Sub S and Partnership Returns Late!

Late returns are hit with a $195 penalty per shareholder or partner for every month late up to 12 months.

Self-Employed and on Medicare

You can deduct as self-employed health insurance the medicare premium you pay each month. You can't deduct your spouse's medicare too though.

Gambling Winnings

Gambling winnings are taxable but you can offset them with documented gambling losses. A great way to document your losses is to get a casino player's card which tracks all of your bets. At the end of the year you can request a report of all of your losses from the casino. The losses to the extent of winnings are deducted on schedule A (itemized deductions) of the the tax return.