Tax Services and Consulting for Fort Collins and Northern Colorado

Federal Tax credits

Adoption Tax Credit

The adoption tax credit reimburses adopting parents for up to $14,080 in qualifying expenses for 2019. This includes adoption fees, attorney and court costs, and travel expenses. You can only use this nonrefundable credit against the tax you owe. This credit phases out beginning with incomes of $211,160 or more.

American Opportunity Tax Credit

The American Opportunity tax credit allows eligible students or parents to deduct the first $2,000 in tuition and required fees and course materials each year during their four years of undergraduate study, as well as 25% of the next $2,000.  This credit phases out beginning with incomes of $80,000 or more.

Lifetime Learning Tax Credit

The lifetime learning tax credit also offers money back for educational expenses. This credit allows you to claim 20% for the first $10,000 in eligible costs each year with an annual maximum of $2,000. You cannot use this tax credit if you are already using the American Opportunity Tax Credit for the same student. However, the lifetime learning credit is more flexible, allowing you to use it on graduate school and even certain continuing education programs. This credit phases out beginning with incomes of $58,000 or more.

Child Tax Credit

With the child tax credit you can claim $2,000 per child. Low-income taxpayers can get up to $1,400 of the credit back even if they have no other tax liability. The credit phases out beginning with incomes of $200,000 or more.

Childcare and Dependent Tax Credit

The childcare and dependent care tax credit offers a credit on up to $3,000 in care-related expenses for one child, or $6,000 for two or more children under the age of 13 or if they are disabled. The amount of the credit will be a minimum of $600 and depends on income.

Gift Tax and Estate Planning

Any transfer to an individual, either directly or indirectly, where nothing is received in return, is a gift. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. The following gifts are generally not taxable gifts:

  1. Gifts that are not more than the annual exclusion of $15,000 for 2019.
  2. Tuition or medical expenses you pay for someone.
  3. Gifts to your spouse.
  4. Gifts to a political organization.

In addition, gifts to qualifying charities are deductible from the value of the gifts made.

Most relatively simple estates (principal residence, cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts of $11,400,000 in 2019. Estates of decedents survived by a spouse may elect to pass any of the decedent’s unused exemption of $11,400,000 to the surviving spouse.

Capital Gain Taxes

Capital gains taxes apply on investments, such as stocks or bonds, real estate (though usually not your principal residence), cars, jewelry and other tangible items. The money you make on the sale of any of these items is your capital gain. The money you lose is your capital loss. Short-term capital gains tax rates are taxed as ordinary income rates. Long-term capital gains tax rates vary typically from 0% to 20% depending on your income.

You can use capital losses to offset capital gains. For example, if you sold a stock for a $10,000 gain and sold another at a $8,000 loss, you will be taxed on capital gains of $2,000. If your losses exceed your gains, you can deduct the difference on your tax return, up to $3,000 per year.

Investment Expense Deductions

You generally cannot deduct the following expenses:

  1. Investment fees and expenses.
  1. Legal fees related to producing or collecting taxable income or getting tax advice
  2. Fees to collect interest and dividends.
  3. Service charges on dividend reinvestment plans.
  4. Tax advice fees.
  5. Trustee’s fees for your IRA.
  6. Safe deposit box rental fees. 

Passive Activity Deductions

The passive activity loss rules are applied at the individual level. They restrict your ability to take a loss deduction in the year.  Although Internal Revenue (IRS) Code Section 469 was enacted to discourage abusive tax shelters, its impact extends far beyond shelters to virtually every business or rental activity reported directly on Form 1040 Schedules C, E, or F, or indirectly on flow-through activity from Form 1065 K-1 partnerships and limited liability companies, Form 1120S K-1 S-Corporations, and Form 1041 K-1 trusts. The rules also apply to closely held C-corporations.

A passive activity is any rental activity or any business in which the taxpayer does not materially participate.

There are 2 types of passive income:

  1. Rentals which include both equipment and rental real estate, regardless of the level of participation.
  2. Businesses in which the taxpayer does not materially participate on a regular, continuous, and substantial basis.

Tax Deferral Transactions

A deferred tax liability comes from the difference in timing between when the tax is accrued or due and when the tax is paid. A deferred tax liability records the fact that you, or the company,, in the future, will pay more income tax because of a transaction that took place during the current period.

Like-kind Exchanges. 

Like-kind exchanges occur when you exchange real property used for business or held as an investment for other real property that is the same type or “like-kind”. The gain is not recognized as income.

Special Rules for Capital Gains Invested in Qualified Opportunity Funds.

The Internal Revenue Code provides a temporary deferral of inclusion in gross income for capital gains invested in Qualified Opportunity Funds, and permanent exclusion of capital gains from the sale or exchange of an investment in the Qualified Opportunity Fund if the investment is held for at least 10 years.

Installment Sale

An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method. You can choose to report all of your gain in the year of sale.

Tax–deferred Plans

The most common types of tax-deferred investments include 401(k) pension plans, IRAs and deferred annuities. Investment earnings such as interest, dividends, or capital gains accumulate tax-free until you take distributions of the income from the plans.

Bonus Depreciation Deduction

A bonus depreciation deduction is 100% of the cost of qualified property acquired and placed in service before 2023.

It generally applies to depreciable business assets with a recovery period of 20 years or less, and certain other property such as machinery, equipment, computers, appliances and furniture.

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