Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 3

Part 1: Getting Ready To File 5

Chapter 1: Understanding the U.S Tax System 7

Figuring Out the U.S Tax System 8

You can reduce your taxes 9

Beyond April 15: What you don’t know can cost you 10

Understanding Your Income Tax Rates 11

Adding up your total taxes 12

Following your marginal income tax rate 12

Noting the Forever Changing Tax Laws 20

The Tax Cuts and Jobs Act of 2017 21

The SECURE ACT of 2019 22

Possible upcoming changes 22

Chapter 2: Tax Return Preparation Options and Tools 25

Going it Alone: Preparing Your Own Return 26

Taking Advantage of IRS Publications 26

Perusing Tax-Preparation and Advice Guides 28

Using Software 28

Accessing Internet Tax Resources 29

Internal Revenue Service 29

Research 30

Tax preparation sites 31

Hiring Help 31

Deciding whether you really need a preparer 31

Unenrolled preparers 32

Enrolled agents (EAs) 32

Certified public accountants (CPAs) 33

Tax attorneys 34

Finding Tax Preparers and Advisors 35

Chapter 3: Getting and Staying Organized 37

Maintaining the Burden of Proof 38

Keeping Good Records 38

Ensuring a complete and accurate tax return 38

Setting up a record-keeping system 40

Tracking tax information on your computer 41

Deciding when to stash and when to trash 41

Reconstructing Missing Tax Records 42

Property received by inheritance or gift 42

Securities received by inheritance or gift 45

Improvements to a residence 45

Casualty losses 46

Business records 47

Using duplicate account statements 47

Understanding the Cohan Rule 47

Chapter 4: What Kind of Taxpayer Are You? 49

What Rendition of 1040 Shall We Play? 49

Form 1040 49

Form 1040-SR 51

Form 1040-NR 51

Choosing a Filing Status 52

Single 52

Married filing jointly 53

Married filing separately 54

Head of household 58

Qualifying widow(er) with dependent child 61

Counting your dependents 61

Deciding who is your dependent 62

Securing Social Security numbers for dependents 65

Filing for Children and Other Dependents 66

Defining Who Is a Qualifying Child 67

Age test 67

Relationship test 67

Residency test 67

Support test 68

Filing a Return for a Deceased Taxpayer 68

Must I File? 69

When to file 71

If you don’t file 71

Where to file 72

How to file 72

A Final Bit of Advice 73

Part 2: Tackling The Main Forms 75

Chapter 5: All The Form 1040s: Income Stuff 77

Starting at the Very Beginning: The Top of 1040 77

Choosing your filing status 78

Adding your name(s), address and Social Security number(s) 78

Electing to give to the next presidential campaign 79

Disclosing virtual currency transactions 79

Calculating your standard deduction 79

Listing your dependents 80

Lines 1-9: Income 80

Line 1: Wages, salaries, tips 81

What those W-2 boxes mean 82

Line 2a: Taxable interest income 85

Line 2b: Tax-exempt interest 85

Line 3a: Ordinary dividends income 86

Line 3b: Qualified dividends 86

Lines 4a and 4b: Total IRA distributions 87

Distributions before 59½ 90

Transfers pursuant to divorce 91

Inherited IRAs 92

Determining who is an eligible designated beneficiary 93

Designated beneficiaries and the ten-year rule under the SECURE Act of 2020 94

Non-designated beneficiaries 95

Withdrawal of nondeductible contributions 95

Loss on an IRA 96

Lines 5a and 5b: Total pensions and annuities 96

Lines 6a and 6b: Social Security benefits 105

Line 7: Capital gain (or loss) 109

Line 8: Other income from Schedule 1, line 26 110

Line 9: Your total income 112

Chapter 6: Form 1040, Schedule 1, Part I: Additional Income 113

Schedule 1, Part I, Line 1: Taxable Refunds, Credits, or Offsets 114

Schedule 1, Part I, Lines 2a and 2b: Alimony Received (by You) 116

Schedule 1, Part I, Line 3: Business Income (or Loss) 117

Schedule 1, Part I, Line 4: Other Gains (or Losses) 118

Schedule 1, Part I, Line 5: Rental Real Estate, Partnerships, and More 118

Schedule 1, Part I, Line 6: Farm Income (or Loss) 118

Schedule 1, Part I, Line 7: Unemployment Compensation 118

Schedule 1, Part I, Line 8: Other Income 119

Line 8a: Net operating losses (NOLs) 120

Line 8b: Gambling income 121

Line 8c: Cancellation of debt 121

Line 8d: Foreign earned income and housing exclusion 122

Line 8e: Taxable Health Savings Account distribution 123

Line 8f: Alaska Permanent Fund dividends 123

Line 8g: Jury duty pay 123

Line 8h: Prizes and awards 124

Line 8i: Activity not engaged in for profit income 124

Line 8j: Stock options 124

Line 8k: Income from the rental of personal property 125

Line 8l: Olympic and Paralympic medals and USOC prize money 125

Lines 8m and 8n: Section 951(a) inclusion and Section 951A(a) inclusion 126

Line 8o: Section 461(l) excess business loss adjustment 126

Line 8p: Taxable distributions from an ABLE account 126

Line 8z: Other income 127

Schedule 1, Part I, Line 9: Total Other Income 128

Schedule 1, Part I, Line 10: Combine Lines 1 through 7 and 9 128

Chapter 7: Form 1040, Schedule 1, Part II: Adjustments to Income Stuff 131

Figuring Out Your Adjusted Gross Income (AGI) 132

Line 11: Educator expenses 132

Line 12: Certain business expenses of certain types of workers 133

Line 13: Health Savings Account deduction (Form 8889) 134

Line 14: Moving expenses for members of the Armed Forces (Form 3903) 135

Line 15: One-half of self-employment tax 135

Line 16: Self-employed SEP, SIMPLE, and qualified plans 136

Line 17: Self-employed health insurance deduction 139

Line 18: Penalty for early withdrawal of savings 139

Lines 19a, b, and c: Alimony paid 139

Line 20: Your and your spouse’s IRA deduction 142

Line 21: Student loan interest deduction 149

Line 22: Reserved for future use 152

Line 23: Archer MSA deduction 152

Lines 24a - z: Other adjustments 152

Other adjustments 156

Form 1040, Line 11: Adjusted Gross Income 156

Chapter 8: Form 1040, Schedule 2: Additional Taxes 157

Schedule 2, Part I: Tax 158

Line 1: Alternative Minimum Tax (Form 6251) 158

Line 2: Excess advance premium tax repayment (Form 8962) 160

Line 3: Add lines 1 and 2 163

Schedule 2, Part II: Other Taxes 163

Line 4: Self-employment tax (Schedule SE) 164

Line 5: Unreported Social Security and Medicare tax on unreported tip income 165

Line 6: Uncollected social security and Medicare tax on wages (Form 8919) 165

Line 7: Total additional Social Security and Medicare tax 165

Line 8: Additional tax on IRAs or other tax-favored accounts (Form 5329) 166

Line 9: Household employment taxes (Schedule H) 166

Line 10: Repayment of first-time homebuyer credit (Form 5405) 166

Line 11: Additional Medicare Tax (Form 8959) 167

Line 12: Net investment income tax (Form 8960) 167

Line 13: Uncollected Social Security and Medicare or RRTA tax on tips 168

Line 14: Interest on tax due on installment income from certain residential sales 168

Line 15: Interest on the deferred tax on gain from certain installment sales 168

Line 16: Recapture of low-income housing credit (Form 8611) 169

Line 17: Other additional taxes 169

Line 19: Excess advance child tax credit repayment (Form 8812) 169

Line 20: Section 965 net tax liability installment from Form 965-A 170

Bringing Us to Line 21 171

Chapter 9: Form 1040, Schedule 3: Adding Up Your Credits and Payments 173

Schedule 3, Part I: Nonrefundable Credits 174

Line 1: Foreign tax credit (Form 1116) 174

Line 2: Credit for child and dependent care expenses (Form 2441) 176

Line 3: Education credits (Form 8863) 176

Line 4: Retirement savings contribution credit (Form 8880) 178

Line 5: Residential energy credits (Form 5695) 179

Line 6: Other nonrefundable credits 180

Lines 7 and 8: It’s time to add! 181

Schedule 3, Part II: Other Payments and Refundable Credits 182

Line 9: Net premium tax credit (Form 8962) 182

Line 10: Amount paid with request for extension to file (Form 4868) 183

Line 11: Excess Social Security and RRTA tax withheld 184

Line 12: Credit for Federal Tax Paid on Fuels (Form 4136) 184

Line 13: Other payments or refundable credits 184

Lines 14 and 15: And even more math 185

Chapter 10: Finishing Up the 1040 187

Arriving at Taxable Income 187

Form 1040, line 10: Adjustments to income 187

Form 1040, line 11: Arriving at adjusted gross income 188

Form 1040, line 12a: Standard deduction or itemized deductions (Schedule A) 188

Form 1040, line 12b: Charitable contributions for non-itemizers 189

Form 1040, line 12c: Add lines 12a and 12b 189

Form 1040, Line 13: Qualified business income deduction (Forms 8995 or 8995-A) 189

Form 1040, line 14: Add lines 12c and 13 190

Line 15: Taxable income 190

Calculating Your Tax Liability 190

Form 1040, line 16: Tax 190

Form 1040, line 17: Amount from Schedule 2, line 3 195

Form 1040, line 18: Add lines 16 and 17 195

Form 1040, line 19: Nonrefundable child tax credit or credit for other dependents 195

Line 20: Amount from Schedule 3, line 8 195

Form 1040, line 21: Add lines 19 and 20 196

Form 1040, line 22: Subtract line 21 from line 18 196

Form 1040, line 23: Other taxes, including self-employment tax 196

Form 1040, line 24: Add lines 22 and 23 This is your total tax 196

Calculating Your Payments and Refundable Credits 196

Form 1040, line 25: Federal income tax withheld 196

Form 1040, line 26: 2021 estimated tax payments and amount from 2020 return 197

Form 1040, line 27a, 27b, and 27c: EIC and non-taxable combat pay election 198

Form 1040, line 28: Refundable child tax credit or additional child tax credit 199

Form 1040, line 29: American Opportunity Credit (Form 8863, line 8) 199

Form 1040, line 30: Recovery rebate credit 199

Form 1040, line 31: Amount from Schedule 3, line 15 199

Form 1040, line 32: Total other payments and refundable credits 200

Form 1040, line 33: Total payments 200

Refund or Amount You Owe 200

Form 1040, line 34: The amount that you overpaid 200

Form 1040, lines 35a, b, c, and d: Amount that you want refunded to you 200

Form 1040, line 36: Amount of line 34 you want applied to your 2022 estimated tax 201

Form 1040, line 37: The AMOUNT YOU OWE line 201

Line 36: Estimated tax penalty (Form 2210) 202

Finishing Up 203

Part 3: Filling Out Schedules And Other Forms 205

Chapter 11: Itemized Deductions: Schedule A 207

Claiming the Standard Deduction 208

Older than 65 or blind 208

Additional charitable deduction for standard deduction filers 208

Standard deduction for dependents 210

Locating Your Itemized Deductions 212

Separate returns and limits on deductions 212

But if you change your mind 213

Lines 1–4: Medical and Dental Costs 213

Medical and dental expense checklist 214

Deductible travel costs 217

Special medical expense situations 217

Meals and lodging 218

Insurance premiums 218

Reimbursements and damages 219

Special schooling 219

Nursing home 220

Improvements to your home 220

Figuring your medical and dental deduction 220

Lines 5–7: Taxes You Paid 221

Line 5: State and local taxes 221

When you buy or sell real estate 223

The downside of property tax refunds and rebates 223

Line 5c: Personal property taxes 224

Line 5d: Add lines 5a through 5c 224

Line 5e: Enter the smaller of line 5d or $10,000 ($5,000 if married filing separately 224

Line 6: Other taxes (foreign income taxes) 225

Line 7: Add lines 5e and 6 225

Lines 8–10: Interest You Paid 225

Lines 8a through 8e: Home mortgage interest and points 226

Line 9: Investment interest 230

Lines 11–14: Gifts to Charity 231

Qualifying charities 231

Nonqualifying charities 233

Contributions of property 234

Charitable deduction limits 236

Line 15: Casualty and Theft Losses (Form 4684) 238

Do you have a deductible loss? 240

Figuring the loss 240

Line 16: Other Itemized Deductions 241

Line 17: Total Itemized Deductions 242

Line 18: Check the Box 243

Chapter 12: Interest and Dividend Income: Form 1040, Schedule B 245

Part I, Lines 1–4: Interest Income 247

Understanding Forms 1099-INT and 1099-OID 248

Completing lines 1–4 249

Interest-free loans 255

Part II, Lines 5–6: Dividend Income 256

Line 5: Name, payer, and amount 257

Line 6: Total dividends 257

Your 1099-DIV: Decoding those boxes 258

Reduced tax rates on dividends 260

Part III, Lines 7–8: Foreign Accounts and Trusts 261

Chapter 13: Business Tax Schedules: C and F 263

Schedule C 264

Basic Information (A–E) 265

Accounting Method Stuff (Boxes F–H) 265

Information Returns (Boxes I and J) 267

Part I, Lines 1–7: Income 267

Line 1: Gross receipts or sales 267

Line 2: Returns and allowances 268

Line 3: Subtraction quiz 268

Line 4: Cost of goods sold 268

Line 5: Gross profit 269

Line 6: Other income 269

Line 7: Gross income 270

Part II, Lines 8–27b: Expenses 270

Line 8: Advertising 270

Line 9: Car and truck expenses 270

Line 10: Commissions and fees 273

Line 11: Contract labor 273

Line 12: Depletion 273

Line 13: Depreciation 274

Line 14: Employee benefit programs 285

Line 15: Insurance (other than health) 285

Line 16a: Mortgage interest 285

Line 16b: Other interest 285

Line 17: Legal and professional services 286

Line 18: Office expense 286

Line 19: Pension and profit-sharing plans 286

Lines 20a and b: Rent or lease 286

Line 21: Repairs and maintenance 287

Line 22: Supplies 288

Line 23: Taxes and licenses 288

Lines 24a–b: Travel and meals 288

Line 25: Utilities 291

Line 26: Wages 291

Line 27: Other expenses 292

Line 28: Total expenses 292

Line 29: Tentative profit (loss) 292

Line 30: Form 8829 292

Line 31: Net profit (or loss) 292

Lines 32a and b: At-risk rules 292

Start-up expenses 293

Operating Loss 293

Schedule F: Profit or Loss from Farming 294

Figuring out Schedule F 296

Identifying tax issues specific to farmers 299

Chapter 14: Capital Gains and Losses: Schedule D and Form 8949 303

Claiming Capital Sales: Collectibles and Real Estate 304

Noting the Different Parts of Schedule D 304

Form 8949: Sales and other dispositions of capital assets 306

Calculating Your Adjusted Basis 309

What’s the starting point? 309

Dealing with purchased property 309

Looking at property received via inheritance, gift, divorce, or for services 309

Making adjustments to your basis 310

Part I, Lines 1–7: Short-Term Capital Gains and Losses 311

Line 4: Form 6252 short-term gain, and Forms 4684, 6781,and 8824 short-term gain or <loss> 312

Line 5: Net short-term gain or <loss> from Schedules K-1: Partnerships, S Corps, and estates/trusts 312

Line 6: Short-term capital loss carry-over 312

Line 7: Net short-term gain or <loss> 312

Part II, Lines 8–15: Long-Term Capital Gains and Losses 313

Line 8: Columns (a), (b), (c), (d), (e), and (f) 313

Line 11: Long-term gains and losses carried from other forms 313

Line 12: Net long-term gain or <loss> from different entities 316

Line 13: Capital gain distributions 316

Line 14: Long-term capital loss carry-over 317

Line 15: Combine lines 8–14 in column (f) 317

Part III, Lines 16-22: Summary of Parts I and II 317

Line 16: Combine lines 7 and 15 317

Line 17: Comparing lines 15 and 16 317

Line 18: 28 percent gains 317

Line 19: 25 percent gains 318

Line 20 318

Line 21: Capital losses 318

Line 22: Qualified dividends 318

Using Schedule D for Home Sales 319

Computing your profit 322

Reporting a profit that exceeds the exclusion 323

Following the home office and rental rules 324

Using Form 8949 and Schedule D for Other Stock Matters 325

Worthless securities 325

Wash sales 326

Small business stock 326

Stock options 326

Short sales 328

Stock for services 329

Appreciated employer securities 330

Reporting Nonbusiness Bad Debts 330

Day traders 331

Mark-to-market traders 331

Checking On Cryptocurrency 332

Chapter 15: Supplemental Income and Loss: Schedule E 335

Part I: Income or Loss from Rental Real Estate and Royalties 336

Questions A and B 336

Line 1: Physical address and type of each property 336

Line 2: Vacation home questions 337

Lines 3–4: Income 338

Lines 5–19: Expenses 338

Lines 20–21: Calculating your income or loss per property 342

Line 22: Deductible rental real estate loss after limitation,

if any, on Form 8582 343

The tax shelter rules 345

Lines 23–26: IRS math quiz 346

Part II: Income or Loss from Partnerships and S Corporations 347

Line 27: The at-risk and other tax shelter rules 348

Lines 28–32: Name and so on! 349

Part III: Income or Loss from Estates and Trusts 350

Passive income and loss 351

Nonpassive income and loss 351

Part IV: Income or Loss from Real Estate Mortgage Investment Conduits 351

Part V: Summary 351

Chapter 16: Giving Credits Where Credits Are Due 353

Child- and Dependent-Care Expenses: Form 2441 (1040) 354

Parts I and II 356

Part III 357

Credit for the Elderly or the Disabled: Schedule R (1040) 358

Education Credits (Form 8863) 359

Child Tax Credit and Credit for Other Dependents 360

Retirement Savings Contributions Credit (Form 8880) 362

Residential Energy Credits (Form 5695) 362

Adoption Credit (Form 8839) 363

Understanding the adoption credit and exclusion rules 363

Figuring out Form 8839 365

Motor Vehicle Credits (Form 8910 and Form 8936) 365

Earned Income Credit (EIC) 366

Chapter 17: Other Schedules and Forms to File 369

Estimated Tax for Individuals (Form 1040-ES) 369

Calculating your Safe Harbor estimated tax payments 370

Completing and filing your Form 1040-ES 370

Moving Expenses (Form 3903) 372

Nondeductible IRAs (Form 8606) 374

Part I: Traditional IRAs 374

Part II: Conversions from traditional IRAs, SEPs, or SIMPLE IRAs to Roth IRAs 376

Part III: Distributions from Roth IRAs 376

Forms 8615 and 8814, the Kiddie Tax 377

Form 8829, Expenses for Business Use of Your Home 379

Considering the “simplified” home office deduction 380

Measuring your home office 381

Figuring your allowable home office deduction 381

Determining your home office’s depreciation allowance 382

Deducting what’s left 383

Form W-4, Employee Withholding 384

Household Employment Taxes: Schedule H 384

Schedule SE: Self-Employment Tax Form 386

Part 4: Audits And Errors: Dealing With The Irs 389

Chapter 18: Dreaded Envelopes: IRS Notices, Assessments, and Audits 391

Understanding the IRS Notice Process 392

Receiving your typical notice 392

Deciphering a notice 393

Assessing Assessment Notices 395

General assessment notices — the CP series forms and other notices 395

Income verification notice — Form CP-2501 396

Request for tax return — Forms CP-515 and CP-518 396

We are proposing changes to your tax return — CP-2000 397

Backup withholding notice 397

Federal tax lien notice — Form 668(F) 398

Requesting a Collection Due Process Hearing 399

Property levy notice — Form 668-A(c) 399

Wage levy notice — Form 668-W(c) 400

Handling Non-Assessment Notices 401

Paying interest on additional tax 401

Receiving a delinquent tax return notice 401

What You Must Know about Audits 402

Surviving the Four Types of Audits 403

Office audits 403

Field audits 404

Correspondence audits 406

Random statistical audits 406

Questioning Repetitive Audits 407

Getting Ready for an Audit 407

Winning Your Audit 409

Understanding the Statute of Limitations on Audits 409

Extending the statute of limitations 410

The statute of limitations on tax collection is 410

Appealing the results of an audit 411

Receiving a Statutory Notice of Deficiency 412

Chapter 19: Fixing Mistakes the IRS Makes 413

Seeing the Types of Mistakes the IRS Makes 414

Corresponding with the IRS: The Basics 415

Sending a Simple Response to a Balance Due Notice 416

Sending Generic Responses to Generic Notices 417

Misapplied payments 418

Misunderstood due date 418

Wrong income 419

Exempt income 419

Double-counted income 420

Lost return 420

Lost check 421

Tax assessed after statute of limitations 421

Partially corrected error 421

Erroneous refund 421

Data-processing error 422

Incorrect 1099 422

Wrong year 423

Never received prior notices 423

Getting Attention When the IRS Appears to Be Ignoring You 423

Getting to know your local Taxpayer Advocate 423

Meeting the criteria for a Taxpayer Advocate case 424

Contacting the local Taxpayer Advocate 425

Finding Your Refund When It Doesn’t Find You 425

How to locate your refund 426

Uncashed refund checks 426

Interest on refunds 427

Refunds and estimated tax payments 427

Joint refunds 427

Joint estimated payments 427

Deceased taxpayer 427

Statute of limitations 427

Protective claims 428

Refund offset program 428

Chapter 20: Fixing Your Own Mistakes 429

Amending a Return 429

More expenses than income (net operating losses) 430

The tax benefit rule 431

Solving When You Can’t Pay Your Taxes 431

Requesting an installment agreement 432

Making an offer 434

Declaring bankruptcy 434

Planning ahead to avoid these problems 436

Abating a Penalty 436

The Internal Revenue Manual (IRM) 437

Court cases that define reasonable cause 437

Excuses that won’t fly 439

IRS rulings and announcements 439

Penalty appeals 442

Abating Interest 443

When interest is incorrectly charged 443

Erroneous refunds 444

IRS delays 444

When the IRS doesn’t send a bill 445

When the IRS sends a bill 445

The 36-month rule 445

Protecting Yourself with Innocent Spouse Relief 445

Determining if you’re eligible 446

Receiving relief by separation of liability 447

Obtaining equitable relief 447

Additional innocent spouse rules 448

Injured spouse relief 448

The Taxpayer Bill of Rights: In the Beginning 449

The Taxpayer Bill of Rights: Parts 2 and 3 450

Part 5: Year-Round Tax Planning 453

Chapter 21: Tax-Wise Personal Finance Decisions 455

Including Taxes in Your Financial Planning 455

Taxing Mistakes 456

Seeking advice after a major decision 456

Failing to withhold enough taxes 456

Overlooking legitimate deductions 457

Passing up retirement accounts 458

Ignoring tax considerations when investing 458

Not buying a home 458

Allowing your political views to distort your decision making 458

Ignoring the financial aid (tax) system 459

Neglecting the timing of events you can control 459

Not using tax advisors effectively 460

Comprehending the Causes of Bad Tax Decisions 461

“Financial planners” and brokers’ advice 461

Advertising 462

Advice from websites and publications 462

Overspending 462

Financial illiteracy 463

Chapter 22: Trimming Taxes with Retirement Accounts 465

Identifying Retirement Account Benefits 465

Contributions are (generally) tax-deductible 467

Special tax credit for lower-income earners 467

Tax-deferred compounding of investment earnings 468

Don’t go overboard 469

Naming the Types of Retirement Accounts 469

Employer-sponsored plans 470

Self-employed plans 472

Individual Retirement Accounts (IRAs) 473

Annuities 478

Taxing Retirement Account Decisions 478

Transferring existing retirement accounts 478

Taking money out of retirement accounts 480

Chapter 23: Small-Business Tax Planning 485

Organizing Your Business Accounting 486

Leave an “audit” trail 486

Separate business from personal finances 487

Keep current on income and payroll taxes 488

Minimizing Your Small-Business Taxes 490

Business tax reform – The Tax Cuts and Jobs Act 490

Twenty percent deduction for pass-through entities 491

Depreciation versus deduction 492

Car costs 492

Travel, meal, and entertainment expenses 493

Home alone or outside office space? 494

Independent contractors versus employees 494

Insurance and other benefits 495

Retirement plans 496

Know your interest deduction and net operating loss limitations 497

Deciding to Incorporate or Not to Incorporate 497

Liability protection 497

Corporate taxes 498

Limited liability companies (LLCs) 499

S Corporations 500

Where to get advice 500

Investing in Someone Else’s Business 501

Buying or Selling a Business 501

Chapter 24: Your Investments and Taxes 503

Tax-Reducing Investment Techniques 504

Buy and hold for “long-term” capital gains 505

Pay off high-interest debt 505

Fund your retirement accounts 506

Use tax-free money market and bond funds 506

Invest in tax-friendly stock funds 507

Tax-Favored Investments to Avoid 510

Limited partnerships 510

Cash-value life insurance 512

Analyzing Annuities 512

Selling Decisions 513

Selling selected shares 513

Selling securities with (large) capital gains 514

Selling securities at a loss 515

Mutual funds and the average cost method 516

Stock options and taxes 516

Selling securities whose costs are unknown 517

Chapter 25: Real Estate and Taxes 519

Surveying Real Estate Tax Breaks 519

Mortgage interest and property tax write-offs 520

Home ownership capital gains exclusion 521

Home office deductions 522

Purchasing Your Humble Home 522

Exploring the tax savings in home ownership 523

Deciding how much to spend on a home 524

Tracking your home expenditures 525

Reporting revenue if you sometimes rent 527

Making Tax-Wise Mortgage Decisions 527

15-year or 30-year mortgage? 527

How large a down payment? 529

Refinancing decisions and taxes 530

Selling Your House 531

Not wanting to sell at a loss 531

Converting a home into rental property 532

House sales, taxes, and divorce 532

Investing in Real Estate 533

Deciding whether real estate investing is for you 533

Enjoying rental property tax breaks 533

Chapter 26: Children and Taxes 537

Bringing Up Baby 537

Getting Junior a Social Security number 537

Childcare tax goodies 538

Costs and benefits of a second income 540

Navigating Education Tax Breaks and Pitfalls 540

The (hidden) financial aid tax system 541

College cost tax deductions 541

Section 529 plans — state tuition plans 542

Education Savings Accounts 543

American Opportunity and Lifetime Learning Credits 545

Minimizing your taxes and paying for college 545

Being Aware of Taxes on Your Kids’ Investments 548

Taxes for kids under 18 and dependent college students 548

Tax-wise and not-so-wise investments for educational funds 549

Chapter 27: Estate Planning 551

Figuring Whether You May Owe Estate Taxes 551

Understanding the federal estate tax exemption and rate 552

State estate and inheritance taxes 552

Determining your taxable federal estate 553

Reducing Expected Estate Taxes 554

Giving it away 555

Leaving all your assets to your spouse 557

Establishing a bypass trust 557

Buying cash-value life insurance 558

Setting up trusts 560

Getting advice and help 562

Part 6: The Part Of Tens 565

Chapter 28: Ten Tips for Reducing Your Chances of Being Audited 567

Double-Check Your Return for Accuracy 567

Declare All Your Income 568

Don’t Itemize 568

Earn Less Money 569

Don’t Cheat and Put Down Your Protest Sign 569

Stay Away from Back-Street Refund Mills 569

Be Careful with Hobby Losses 570

Don’t Be a Nonfiler 570

Don’t Cut Corners if You’re Self-Employed 570

Carry a Rabbit’s Foot 571

Chapter 29: Ten Overlooked Opportunities to Trim Your Taxes 573

Make Your Savings Work for You 573

Invest in Wealth-Building Assets 574

Fund “Tax-Reduction” Accounts 574

Make Use of a “Back-Door” Roth IRA 575

Work Overseas 575

Check Whether You Can Itemize 575

Trade Consumer Debt for Mortgage Debt 576

Consider Charitable Contributions and Expenses 577

Scour for Self-Employment Expenses 577

Read This Book, Use Tax Software, Hire a Tax Advisor 578

Chapter 30: Ten (Plus One) Tax Tips for Military Families 579

Some Military Wages May Be Tax-Exempt 579

Rule Adjustments to Home Sales 580

Tax Benefits for Your Family if You’re Killed in Action 580

Deadlines Extended During Combat and Qualifying Service 581

Income Tax Payment Deferment Due to Military Service 581

Travel Expense Deductions for National Guard and Reserves Members 582

No Early Retirement Distribution Penalty for Called Reservists 582

No Education Account Distribution Penalty for Military Academy Students 582

Military Base Realignment and Closure Benefits Are Excludable from Income 583

State Income Tax Flexibility for Spouses 583

Deductibility of Some Expenses When Returning to Civilian Life 583

Chapter 31: Ten Interview Questions for Tax Advisors 585

What Tax Services Do You Offer? 586

Do You Have Areas that You Focus On? 586

What Other Services Do You Offer? 586

Who Will Prepare My Return? 587

How Aggressive or Conservative Are You Regarding the Tax Law? 587

What’s Your Experience with Audits? 587

How Does Your Fee Structure Work? 588

What Qualifies You to Be a Tax Advisor? 588

Do You Carry Liability Insurance? 588

Can You Provide References of Clients Similar to Me? 589

Appendix: Glossary 591

Index 605

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Taxes For Dummies 2022 Edition

9781119858454

1119858453

Supplemental Materials

Summary

Author Biography

Table of Contents

Supplemental Materials

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