Textbook Tax

People love to gamble.  During the past NFL Super Bowl (2019),  gamblers wagered approximately $146 million in Nevada’s sports books, which fell short of the record set the year before of $159 million. The gambling industry continues to grow as U.S. legislation becomes less restrictive relating to the gambling industry.  Because of the size of the gambling market, the IRS set forth guidance to control the tax treatment of gambling winnings and losses. I will discuss income and losses, record keeping, reporting forms, and special rules. If you participate in gambling activities, it is important to know the unique personal tax rules. The term 'gambling' applies to a wide range of activities, including: sports betting, casino games, lotteries, etc. You will need to follow the established gambling tax rules when reporting winnings and losses from gambling activities. Related Posts IRA Income: Must know tax rules relating to your IRA Are your income items taxable?...

Do you own a home or vacation home in a desirable location? Is the location of your home(s) near a large event or significant tourist attraction? If so, you can make some extra income by renting out your home. Because of services like Airbnb and Vrbo, it is easier than ever to make extra income via short-term rentals. Ordinarily, rental income is fully taxable. However, an advantageous exception to this rule exists for taxpayers participating in short-term rentals. If you take advantage of this exception, you can benefit from a large amount of tax-free income. I will discuss the rules and requirements below. Learn how to rent your home tax-free! Related Posts -  Recession Tax Planning: Take advantage of a declining market by saving on taxes -  Five easy steps to lower expenses and decrease spending -  IRA Income: Must know tax rules relating to your IRA How to rent your home tax-free? The general rule: Rental income earned from a personal residence rented for ...

We should all be saving for retirement. An individual retirement arrangement (IRA) can be a great method to do so. IRAs allow you to save for retirement while also providing tax benefits. In order to fully take advantage of the retirement account, you should know the important tax rules surrounding your IRA. Knowing the rules will help you in your IRA decision-making, including how to take advantage of the tax benefits, and how to avoid the tax penalties. In general, you cannot make withdrawals from your IRA until you reach the age of 59 1/2 . The mandatory age to start withdrawals is 70  1/2 . By following the age requirements, you will avoid the tax penalty on early withdrawals. The tax rules relating to IRA distributions (withdrawals) vary based on several factors. Related Posts -  Dividend Income: How is dividend income taxed? -  State Tax Refunds: Are state tax refunds taxable?  -  Recession Tax Planning: Take advantage of a declining market by s...

The good news is you received a state income tax return refund. The bad news is you may be liable to pay federal taxes for the state tax refund. The IRS informs U.S. taxpayers that a state income tax return may sometimes be considered taxable income. The taxability of a state income tax refund is dependent upon if you benefited from the state taxes on your federal tax return. Let me explain. Related Posts -  Are your income items taxable? -  Dividend Income: How is dividend income taxed? - Do you qualify for the Sec. 199A QBI deduction? State Tax Refunds The receipt of a state income tax refund is taxable if the state income taxes paid in the tax year resulted in a tax benefit. The receipt of a state income tax refund is not taxable if the state income taxes paid in the tax year resulted in no tax benefit. This rule exists to prevent a double benefit. The IRS does not want you to claim a deduction for state income taxes and then receive a tax-free refund in the subsequ...

Stock ownership results in dividend income. U.S. tax code defines a dividend as a distribution of property (cash or property) by a corporation to a stock owner. The tax code specifies that the distribution comes from the company's earnings and profits (E&P). The specification is important because the source of the distribution determines the taxability of the dividend income [ side note: taxability should definitely be a word ]. The company should alert you of the source of the dividend income. Additionally, the company will take care of the dividend distribution accounting. So, it is not necessary for you to understand dividend tax accounting. However, in my opinion, it is always helpful to have a basic understanding of tax-related topics. So, I will briefly discuss the tax accounting rules relating to dividend distributions. Related Posts The Guide to Taxable Income versus Nontaxable Income How to determine your tax filing status? How to Pay Taxes as an Independent Con...

In a previous post, I detailed the individual taxable income formula . I described the major components in the calculation. Additionally, I provided general examples for each component. The first step in determining your individuals taxable income amount is to calculate gross income. Below I will provide a more detailed guide to taxable income versus nontaxable income. The guide should help you determine which income items to include in your gross income total. Lets begin! Related Posts -  How to calculate your taxable income amount? -  How to determine your tax filing status? -  How to take advantage of a declining stock market? By searching in the U.S. tax code, you will discover that the tax code defines gross income as all income from whatever source derived, unless specifically excluded. Well, that is not very helpful. Because of the ambiguous language, I thought I could help taxpayers by creating a guide to taxable income items and nontaxable income items. ...

The first step in filing your taxes is to determine your tax filing status. While this initial step may seem simple, several tax filing options exist. The selected filing status will have an impact on your tax return; therefore, it is helpful to have a basic understanding about the filing statuses available to U.S. taxpayers. Related Posts -  Guide to Taxable Income -  Paying taxes as an independent contractor or business owner -  Save on taxes by taking advantage of a declining market -  Guide on how to file a tax return for a dependent child Tax Filing Status Five unique tax filing statuses exist for U.S. taxpayers, which include: single, married filing jointly (MFJ), married filing separately (MFS), qualifying widower, and head of household (HOH). U.S. tax law categorizes taxpayers into the five categories based on the taxpayers' current situation. I will detail each filing status below to help you determine your tax filing status. Single You shoul...

You are preparing your tax return when faced with the question about if you have any dependents. You think of your children but may fail to think about other relatives you are supporting. In general, people tend to think of their young son or daughter when they hear the word dependent. However, the IRS has a broader definition of dependency, which includes both qualifying children and qualifying relatives. It is important to understand how the IRS defines dependents because claiming a dependent entitles taxpayers to certain tax benefits, including an advantageous filing status, tax credits, and other beneficial tax breaks. I will detail the requirements for each dependency category below. Lets get started! Related Posts -  How to file a tax return for your dependent kids -  How to determine your tax filing status -  How to calculate your taxable income -  How to save on future taxes during a recession Qualifying Child What is a qualifying chil...

When you file your individual income tax return (Form 1040), you must report your income items. The income amount reported determines your federal and state income tax liability; therefore, it is essential to understand how the tax laws affect your income items. Additionally, even if you utilize a tax return software, it is helpful to have a basic understanding of the income concepts in order to optimize the tax return preparation process. Below, I detail the major components of the individual income tax formula. I also provide examples of items for each major taxable income formula component. Lets begin. Guide to Taxable Income for Individuals As you can see from the table above, the major components of the taxable income formula are gross income, adjustments, AGI, standard deduction/itemized deductions, QBI deduction, taxable income, income tax liability, tax credits, and tax payments. It is important to understand each component, including examples of the items that make up ...

The market experienced a crazy summer. We saw the market plummet at record rates, followed by continuous volatility caused by further market declines, an inverted yield curve, and ongoing trade war discussions. Talks of recession started during the summer and will continue into the fall. I cannot speak to when the recession will come, but I can speak to what actions to take when we experience an economic recession. For those panicking about the decline in the markets, I have a positive spin on the potential economic downturn. During a recession, taxpayers should take advantage of a declining market by saving on taxes by converting retirement savings accounts. Related Posts -  Five easy steps to decrease spending -  How to file a tax return for your child? -  How to file taxes as an independent contractor? Recession Tax Planning: Roth IRA Conversion As stated, taxpayers can save on taxes by converting a traditional individual retirement arrangement (...