Business Strategies, business taxes, Family Tax Issues, General Information, Self Employed, TAXES

$5,000 Chicago Microbusiness Recovery Grant program. Lottery disbursement.

money
Source: Copied & Pasted Email Received from The Chicago BACP
“The Chicago Microbusiness Recovery Grant Program will provide $5 million in grants to businesses with four or fewer employees in low- and moderate-income areas of the city. Grants of $5,000 will be disbursed via a lottery, with winners equitably distributed across eligible Community Areas based on population. Applications are available now and will be open until Monday, May 4th at 5:00 pm.
BACP will be holding a series of webinars in multiple languages this week to inform prospective applicants about the Recovery Grant program and to answer questions. To register, please visit chicago.gov/businessworkshops.
You can find details on the grant below. To apply and learn more, please visit chicago.gov/recoverygrant.
Eligibility Requirements
To be eligible for a grant, businesses must meet the following requirements:
  • Four or fewer employees
  • Less than $250,000 annual revenue
  • Located in the City of Chicago
  • In business for one year
  • 25% decrease in revenue due to COVID-19
  • Located in a low-income Community Area (view map)
  • Search for your Community Area
Required Documentation
Applicants must upload the following documents:
  • A business bank statement from 2020 that includes the business address and business name
  • A valid business license dated 05/01/19 or earlier
  • A valid identification card (driver’s license, CityKey, etc.)
  • A completed W9 form (access a fillable form here)
Grant Details
  • One-time grant of $5,000
  • Grant funds must be used for working capital (rent, payroll, utilities, taxes, insurance, operations)
Timeline
  • 04/28: Grant application is available
  • 05/04: Grant application closes at 5:00pm CDT
  • 05/11: Grant recipients are chosen via lottery and notified of their acceptance. ACH payments are initiated – funds should be received within 2 business days.
Applications are available in Spanish and questions can be submitted to the Recovery Grant Team via these webforms in English or Spanish.
Please note that funds available through the Recovery Grant Program and the Chicago Small Business Resiliency Loan Fund are intended to complement the federal financing available through the U.S. Small Business Administration (SBA). The SBA resumed accepting Paycheck Protection Program applications from participating lenders on Monday, April 27 at 9:30am CDT. Click here to find an eligible Paycheck Protection Program lender. If you need assistance navigating the funding and resource landscape during the COVID-19 outbreak, please reach out to a Small Business Resource Navigator for individualized 1:1 support.
I want to thank all of you for your persistence and dedication during this incredibly difficult time. Your City government will continue to fight for our small businesses and we will continue providing information and resources to navigate this crisis.
Sincerely,
Rosa Escareno
BACP Commissioner”

 

business taxes, Family Tax Issues, General Information, Self Employed, TAXES

Economic impact payments: What you need to know.

stimulus

Check IRS.gov for the latest information:

No action needed by most people at this time

THE INFORMATION HAS BEEN COPIED AND PASTED FROM IRS NEWSWIRE. ISSUE NUMBER:IR-2020-61, March 30, 2020

“WASHINGTON – The Treasury Department and the Internal Revenue Service today announced that distribution of economic impact payments will begin in the next three weeks and will be distributed automatically, with no action required for most people. However, some seniors and others who typically do not file returns will need to submit a simple tax return to receive the stimulus payment.

Who is eligible for the economic impact payment?
Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns will receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

How will the IRS know where to send my payment?
The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.

For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

The IRS does not have my direct deposit information. What can I do?
In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.

I am not typically required to file a tax return. Can I still receive my payment?
Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

How can I file the tax return needed to receive my economic impact payment?
IRS.gov/coronavirus will soon provide information instructing people in these groups on how to file a 2019 tax return with simple, but necessary, information including their filing status, number of dependents and direct deposit bank account information.

I have not filed my tax return for 2018 or 2019. Can I still receive an economic impact payment?
Yes. The IRS urges anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return.

I need to file a tax return. How long are the economic impact payments available?
For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020.

Where can I get more information?
The IRS will post all key information on IRS.gov/coronavirus as soon as it becomes available.

The IRS has a reduced staff in many of its offices but remains committed to helping eligible individuals receive their payments expeditiously. Check for updated information on IRS.gov/coronavirus rather than calling IRS assistors who are helping process 2019 returns.”

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Business Strategies, business taxes, Family Tax Issues, General Information, REAL ESTATE, Retirement Income, Self Employed, Tax Reduction, TAXES

Congress Reinstates Expired Tax Provisions—Some Back to 2018

congress 3

Congress let many tax provisions expire on December 31, 2017, making them dead for your already- filed 2018 tax returns.

In what has become much too common practice, Congress resurrected the dead provisions retroactively to January 1, 2018. That’s good news. The bad news is that we have to amend your tax returns in our Chicago south loop tax preparation office to make this work for you.

And you can relax when filing your 2019 and 2020 tax returns, because lawmakers extended the “extender” tax laws for both years. Thus, no worries until 2021—and even longer for a few extenders that received special treatment.

Back from the Dead

The big five tax breaks that most likely impact your Form 1040 are as follows:

  1. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
  2. Deduction for mortgage insurance premiums as residence interest
  3. 7.5 percent floor to deduct medical expenses (instead of 10 percent)
  4. Above-the-line tuition and fees deduction
  5. Nonbusiness energy property credit for energy-efficient improvements to your residence

Congress extended these five tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020, so you’re good for both 2019 and 2020.
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Other Provisions Revived

Congress also extended the following tax breaks retroactively to January 1, 2018, and they now expire on December 31, 2020 (unless otherwise noted):

  • Black lung disability trust fund tax
  • Indian employment credit
  • Railroad track maintenance credit (December 31, 2022)
  • Mine rescue team training credit
  • Certain racehorses as three-year depreciable property
  • Seven-year recovery period for motorsports entertainment complexes
  • Accelerated depreciation for business property on Indian reservations
  • Expensing rules for certain film, television, and theater productions
  • Empowerment zone tax incentives
  • American Samoa economic development credit
  • Biodiesel and renewable diesel credit (December 31, 2022)
  • Second-generation biofuel producer credit
  • Qualified fuel-cell motor vehicles
  • Alternative fuel-refueling property credit
  • Two-wheeled plug-in electric vehicle credit (December 31, 2021)
  • Credit for electricity produced from specific renewable resources
  • Production credit for Indian coal facilities
  • Energy-efficient homes credit
  • Special depreciation allowance for second-generation biofuel plant property
  • Energy-efficient commercial buildings deduction

Temporary Provisions Extended

Congress originally scheduled these provisions to end in 2019 and now extended them through 2020:

  • New markets tax credit
  • Paid family and medical leave credit
  • Work opportunity credit
  • Beer, wine, and distilled spirits reductions in certain excise taxes
  • Look-through rule for certain controlled foreign corporations
  • Health insurance coverage credit

If you have questions about the extenders, please call us at 855-743-5765. Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Unlock Tax Deductions with a Rental Property Home Office

 

unlock 2

With the start of a new tax year, you’re probably looking for new tax savings opportunities, like our Chicago South Loop Tax Preparation clients.

As you probably know, establishing a home office for your Schedule C or corporate business creates valuable tax deductions.

But it’s not available only for your proprietorship,partnership, or corporate business. If you have rental properties, you can establish a home office to manage your rental properties and deduct the cost on your Schedule E.
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Rentals as a Business

The first hurdle is that your rental activities have to qualify as a “trade or business” under the tax law.

Luckily for you, that’s relatively simple—you’ll need regular and continuous involvement with your rental activities to meet this requirement.

Whether or not your rental activities are a trade or business depends on the facts and circumstances of your particular situation, and tax court cases give us guidance on that.

Qualifying Area

Your second hurdle is setting aside space in your home that qualifies for the home-office deduction.

For this to work, you need to use that space in your residence regularly and exclusively as the principal place of business for your rental activities.
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This sounds hard, and it was hard—before lawmakers changed the rules to include, as a principal place of business, the space you use for administrative or management activities, provided there is no other fixed location where you conduct substantial administrative or management activities.

Home-Office Deduction

Establishing a rental property home office does two things to your household expenses:

  1. Turns non-deductible household expenses into tax deductions.
  2. Moves household expenses normally deductible on Schedule A to your rental properties on Schedule E.

The latter is especially important after passage of the Tax Cuts and Jobs Act

  • put a $10,000 limit on your Schedule A state and local tax deductions, and
  • lowered the amount of your mortgage on which you deduct mortgage interest from $1 million to $750,000.

Eliminate Commuting

Without a qualifying home office, your mileage from home to your first business stop and then from your last business stop back home is non-deductible commuting mileage.

But here is what happens with the rental property’s principal office in your home:

  1. You have no commuting mileage from your home to and from your rentals, if the rentals are in the area of your tax home (say, within 50 miles).
  2. You establish your rental property tax home, and if your rentals are outside the area of your tax home, then the mileage from your home to and from the rentals is deductible business mileage because you are traveling outside the area of your tax home.

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Real Estate Professional

If you qualify as a real estate professional under the tax law, then you can deduct 100 percent of your rental losses in the year you incur them.

But there’s a big hurdle to the tax law classification as a real estate professional. You must show that you spend

  • more than 50 percent of your personal service work time in real property trades or businesses in which you materially participate, and
  • more than 750 hours of service during the tax year in real property trades or business in which you materially participate.

Having a rental property home office that qualifies as a tax-code-defined principal place of business makes it easier to qualify as a real estate professional, because your time spent on deductible travel to and from your rental properties counts toward the time requirements.

Claiming Your Deduction

The Schedule E instructions not only fail to provide any explanation about where to put your home-office deduction, but they also do not even mention a home office.

But the instructions do say that you can deduct ordinary and necessary business expenses, and the home office meets that rule. Also, as established in Curphey (a precedent-setting case), the home office is allowable as an expense against income from a rental business.

If you would like to discuss your rental properties with me, please call us directly at 855-743-5765. Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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How Serious Is your IRS Letter?

race
Has the IRS sent you a collections letter? How serious is that letter? Can you stroll to the phones, or do you need to break and run to the phones and call for help?

Listed below are the most common IRS collection letters that one may receive when they have tax debt. I’ve listed them in order from stroll to the phones (low detection on the IRS radar) to break and run to the phone lines & get help (requires immediate action).

CP14 – Casually stroll (No sense of real urgency).

CP501 – Put a little pep in your step (Take notice).

CP503 – Speed walk (Decide to do something).

CP504 – Start Jogging (things are getting very serious).
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Letter 1058/LT11 – (Final Levy Notice)—Run like you’re trying to lose weight. —act now or lose your collection due process rights (your right to a hearing and a stop of collection).

CP90/CP91 – Run like you’re trying to lose weight. Another form of Final Notice of Intent to Levy.

CP71 – 10 Day Final Notice of Intent to Levy. RUN LIKE YOU’RE BEING CHASED IN A HORROR MOVIE. Act now, you are out of time.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, need help with tax debt, business tax preparation, business entity creation, business insurance, or business compliance
assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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401k For The Self Employed

solo 401k

You Don’t Have To Work For Others To Have A 401k Plan

In our Chicago South Loop tax preparation office, we often meet people that are ready to leave their jobs & start a new business.  If you’re new to entrepreneurship, or even a veteran (seasoned) business owner, you may not realize that you can start an IRS qualified retirement plan for your business. The best thing about a small business owners solo 401k is that if you’re leaving your old an employer, you can transfer your current 401k plan to your own company’s 401k!

Transferring your 401k to a traditional solo 401k will help you avoid LOSING YOUR INVESTMENT TO TAXES & PENALTIES! Don’t want to leave your employer? No problem! You can still have a traditional or roth 401k plan with your own company, as long as you don’t defer more than the IRS yearly contribution limit.

WHAT DOES IT DO? A traditional solo 401k allows you to exclude income from currents years’ taxes,and defer the income for taxation at a later time. Build your retirement income, and maintain access of up to 50% of the funds’ assets through loans.

WHAT WILL IT SAVE ME? With the traditional solo 401k, you will be able to defer up to $56,000 of taxable income in 2019, and $57,000 in 2020. For example, if you generate $100,000 in business revenue, expenses, you would be taxed on the remaining $60,000. With a solo 401k, you can defer $19,000 as an employee of your company, and $15,000 for the employer contributions giving you a total deduction of $34,00 (leaving you with a taxable income of $26,000). By using this method you would remove yourself from the 22% tax bracket, and place yourself into the 12% tax bracket giving yourself a tax bill (including self employment taxes) of $4,650 instead of a $13,509 tax bill!

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WHAT CAN I INVEST IN? If you choose the traditional 401k plan, you will be able to invest in securities such as stocks, bonds, ETFs, commodities, and more. Should you choose a self directed Solo 401k, you can invest in things such as real estate, businesses, antiques, and more.

WHAT IF I HAVE OTHER RETIREMENT PLANS? Any contributions you make to other types of retirement accounts, such as IRAs, do not affect your 401(k) contribution limit.

WHY DO I NEED IT? Retirement plans are an important element of a tax reduction plan. While an IRA is a good plan, if you need to access your money, you will have to pay a penalty. Those that can, should have a mix of 401k and traditional and Roth IRA’s.

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Solo 401k Contribution Calculator: What is the maximum amount you can contribute?

The Solo 401k Contribution Calculator allows you to calculate the maximum amount you can contribute to your plan. Click on the link below, enter requested info below and click the “Submit” button to see your results. A PDF document will be generated with the option for you to save or print it. It is very important that you select the correct business type; please note that Sole-Proprietor is selected by default (if your business is a single member LLC, select the Sole-Proprietor type). For an alternative calculator click HERE.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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5 LAST MINUTE YEAR END TAX SAVINGS TRICKS TO INCREASE YOUR BUSINESS DEDUCTIONS

tax planning
In our South Loop of Chicago tax preparation office, we often have small business owners looking to reduce their taxable income. In the spirit of the holiday’s we’ve written this article for small business owners with the purpose of you the reader getting the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.

Here are five powerful business tax deduction strategies that you can easily understand and implement before the end of 2019.

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2019 prepayments cannot go into 2021. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Tuesday, December 31, 2019, you mail a rent check for $36,000 to cover all of your 2020 rent. Your landlord does not receive the payment in the mail until Thursday, January 2, 2020. Here are the results:

• You deduct $36,000 in 2019 (the year you paid the money).
• The landlord reports $36,000 in 2020 (the year he received the money).
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You get what you want—the deduction this year. The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Don’t surprise your landlord: if he had received the $36,000 of rent paid in advance in 2019, he would have had to pay taxes on the rent money in tax year 2019.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2019. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)
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Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jim Schafback, a dentist, usually bills his patients and the insurance companies at the end of each week; however, in December, he sends no bills. Instead, he gathers up those bills and mails them the first week of January. Presto! He just postponed paying taxes on his December 2019 income by moving that income to 2020.

3. Buy Office Equipment

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2019.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.
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If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.
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Continue reading “5 LAST MINUTE YEAR END TAX SAVINGS TRICKS TO INCREASE YOUR BUSINESS DEDUCTIONS”

Business Strategies, business taxes, Family Tax Issues, General Information, RUNNING YOUR BUSINESS, Self Employed, TAX DEBT RELIEF, Tax Reduction, TAXES

How Corporations Reduce IRS Audits of Home-Office Deductions

calculator

In our south loop Chicago tax preparation office, we often work with clients that want to reduce their tax bill, without triggering an audit. If you filed your business income and expenses as a proprietor in 2017 and reported $100,000 or more in gross receipts, your chances of IRS audit were 2.4 percent (2017 returns are still open for audit, so the percentage could increase).

Had you reported this income as an S corporation, your chances of audit were only 0.20 percent.

You have probably read that the home-office deduction increases your chances of IRS audit. We’ve read that, too, but we don’t believe it.

Regardless, let’s assume that you’re a little paranoid about audits, and you want to claim the home-office deduction in a way that doesn’t attract the attention of the IRS.

If you operate as a corporation, your home-office deduction does not show on either your personal return or your corporate return if you have the corporation reimburse the office as an employee business expense.
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With reimbursement, the corporation claims the deduction for the expenses it reimburses to you. The corporation probably puts the reimbursement into a category called “office expenses” or something similar. Thus, the home-office deduction as a name or title does not appear in the corporate return.

You receive the reimbursement from the corporation as a reimbursed employee expense. You do not report employee-expense reimbursements as taxable income on your personal return. Thus, you do not identify the home office on your personal return.

Got it? The home-office deduction does not appear under a home-office label on either the corporate or personal tax return as a tax deduction.

If the corporate form of business appeals to you, please call us at 1-855-743-5765 so we can look at your options to see if we should spend some time on your tax planning.

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Are you a homeowner marrying a homeowner?

architecture building buy buyer

In our Chicago South Loop Tax Preparation office, we frequently meet with engaged couples for tax planning purposes. An issue that comes up often is the one of homeowners marrying each other. Engaged couples that each own a home have to decide which home to move into, & which home to rent out, or sell. Keep reading to see how you can sell your home and pay ZERO TAXES on up to $500,000!

1.) Don’t sell until AFTER THE WEDDING. If you sell your personal residence for a profit, you may be able to exclude up to $250,000 as a single person, and up to $500,000 if you’re married. In order to get the entire $500,000 both spouses must have used the home as their primary residence for at least 2 years out of the last 5 years. If only 1 spouse used the home as a residence, the maximum exclusion will be $250,000. 
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2.) File your taxes married filing jointly. Check with your tax professional to see if this is the best filing status for your situation. Tax debt, student loans, and child support obligations need to be taken into consideration before choosing this status.

3.) Sell the home that at least 1 of you have lived in for 24 months out of the last 5 years. In order to qualify for the personal residence capital gain exclusion you must meet the ownership and residency test. Per IRS.gov “If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.

HOWEVER, for the residence test, the IRS says: unlike the ownership requirement, each spouse must meet the residence requirement individually for a married couple filing jointly to get the full exclusion. If you owned the home and used it as your residence for at least 24 months of the previous 5 years, you meet the residence requirement. The 24 months of residence can fall anywhere within the 5-year period, and it doesn’t have to be a single block of time. All that is required is a total of 24 months (730 days) of residence during the 5-year period.

4.) If you’re going to rent the home, remember to account for any property improvements when figuring your basis for depreciation. For example, if you purchased the home for $100,000 & you’ve added a $10,000 porch, and a $20,000 roof, your basis (amount of money in the property) is now $130,000. There are other rules that need to be considered when figuring tax basis, so consult a tax professional.
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5.) If you rent to family, family includes only your spouse, brothers and sisters, half brothers and half sisters, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.). MAKE SURE TO CHARGE THEM FAIR MARKET VALUE FOR RENT so that you don’t lose out on valuable tax deductions!

Although we’ve given you the basics, this is not an all-inclusive article. Should you have tax debt help questions, need Chicago business tax preparation, business entity creation, business insurance, or business compliance assistance please contact us online, or call our office toll free at 1-855-743-5765 or locally in Chicago or Indiana at 1-708-529-6604. Make sure to join our newsletter for more tips on reducing taxes, and increasing your wealth.

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Is the Money on My Prepaid Card FDIC-Insured?

FDIC INSURED
To protect your funds, make sure your card is insurable and registered Banks insured by the FDIC offer a wide variety of financial products beyond traditional checking and savings accounts, including prepaid cards.

A prepaid card allows you to use a card to make purchases at stores, withdraw cash from ATMs, or to pay bills online without accessing a bank account or line of credit. Since these cards usually are not linked to a checking or savings account, consumers often ask, “Does the FDIC also insure the funds on my prepaid card?” The answer could be, “Yes,” but there are some important initial issues to understand.

If the FDIC-insured bank that issued the card was to fail, the funds available on your prepaid card may be insurable as long as:

  • your prepaid card is eligible for FDIC deposit insurance coverage,
  • you properly register the card, and
  • specific deposit insurance requirements are met (listed below).

The first step is to determine whether the prepaid card is eligible for FDIC deposit insurance coverage. The Consumer Financial Protection Bureau enacted new rules effective April 1, 2019 (to learn more visit New Protections for Prepaid Accounts), which require financial institutions to provide a disclosure as to whether or not your prepaid card is insurable for those cards linked to an FDIC-insured bank.

While the new disclosure rules make it easier to find information about FDIC insurance coverage for a specific prepaid card, you must also register your card with the card issuer if your card is designed to be insurable, so that the FDIC can identify you as the cardholder in the event the bank fails.

Sometimes a card is issued directly by an FDIC-insured bank and sometimes by a third-party that will simply use a bank to hold prepaid card funds. If the third-party is managing the record-keeping for the prepaid card, the third-party will have the responsibility to provide the FDIC with the information about the owners of the cards and the balance on each prepaid card at the time the bank fails.

The bank’s records for FDIC insurable prepaid cards must meet the following requirements:

The account must be appropriately titled (names the owner or owners of the account) in the bank’s records and indicate that the prepaid account provider is going to be acting as the cardholder’s agent, which could include duties such as transferring funds on your behalf when you make a purchase and keeping track of the balance on your prepaid card as you add or withdraw funds.

If the bank fails, the card issuer as your agent will need to provide the FDIC a list identifying each cardholder and the balance on each card at the time the bank fails.

The contractual agreement among the financial institution, the prepaid card issuer and the cardholders must indicate that the individual cardholders are the owners of the funds.

Assuming you properly register your prepaid card, if the FDIC-insured bank that issued the card was to fail, you as the consumer would be insurable for up to $250,000, subject to aggregation with other similarly owned deposits you may have in the failed bank (for more information visit FDIC deposit insurance).

In addition, having FDIC deposit insurance coverage does not cover certain events, such as if your prepaid card is lost or if someone gains access to your prepaid card and steals the funds. In these situations, there could be other legal options available for you to try to recover your funds, such as those that may be described in your account agreement or provided under state or federal law.

It’s important to note that this information does not apply to gift cards. For information on gift cards, visit Giving or receiving gift cards? Know the terms and avoid surprises.

For more information about prepaid cards and similar products, see the FDIC’s webpage on prepaid accounts at Prepaid Cards and Deposit Insurance Coverage.

For more help or information, go to FDIC.gov or call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342). Please send your story ideas or comments to consumeraffairs3@fdic.gov