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In Taxes For Dummies, 2022 Edition, you'll get line-by-line advice and plan ahead strategies that take the fear and anxiety out of tax season and save you money now and in the months and years ahead. This completely updated edition includes detailed coverage of the numerous tax bills have passed in recent years. You'll learn everything you need to know to file your own taxes with confidence and intelligently plan year-round tax strategies.
In this book, you'll:
Taxes For Dummies, 2022 Edition is the perfect resource for any United States taxpayer planning to file their own 2021 taxes. Whether you're a first-time taxpayer, an expat filing from outside the US, or a seasoned veteran of tax season looking for the latest deductions and strategies to reduce your tax bill, this book is a must-read resource that'll transform how you think about taxes.
Eric Tyson, MBA, is a critically acclaimed personal finance writer, counselor, and speaker. He is the best-selling author of For Dummies guides on personal finance, investing, home buying, and real estate.
Margaret Atkins Munro is an Enrolled Agent with decades of practical experience as CEO of TaxPanacea Associates LLC. She has published extensively on tax and tax-related issues, including 529 & Other College Savings Plans For Dummies and Taxes For Dummies.
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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