Selling Your Home During summer months many people sell their home and move to a new location.  Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax to the IRS.   Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home.  That profit, considered a capital gain, is subject to income tax.  However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit.  This exclusion—up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns—is not a once in a lifetime event.  The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years. To qualify, you must meet both the ownership and use tests. Ownership Test: You must have owned the home for at least 2 years in the 5-year period ending on the date of the sale. Use Test: You must have lived in the home as your main home at least 2 years during the 5-year period ending on the date of the sale. If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if the ownership test is met by only one of you. If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home.  But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.  If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax. Tax tip provided by the Internal Revenue Service. For more information, please contact one of our accountants. Moving Expenses Related to a New Job   May Be Tax Deductible Did you recently move to another city for a new job or because your old job is now at a new location?  A tax break may be coming your way. How far you moved and the amount of time you spend on the job will have a major impact on whether you qualify for the tax break.  Moves that are only short hops and jobs that are short-term or part-time generally do not qualify. However, if you can satisfy the distance and time tests then job-related moving expenses that you incur may be tax deductible. You will meet the distance test if your new workplace is at least 50 miles further from your former home than your previous workplace was from that home.  For example, if your old job was 5 miles from your former home, your new job must be at least 55 miles from that home. The time test requires you work full-time for at least 39 weeks during the 12 months immediately after your move. If you are self-employed, the time test requires you to work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after your move.  You can deduct your moving expenses on your tax return even though you have not met the time test by the date your return is due if you expect to meet the 39-week or the 78-week test as required.  Members of the armed forces do not have to meet these tests if the move was due to a permanent change of station. Reasonable moving expenses are deductible and include the costs of moving your household goods and personal effects to your new home. You can also deduct the expenses of traveling to your new home, including lodging costs. Meals eaten while in transit between your old and new homes are not deductible as moving expenses.  No part of the purchase price of your new home may be deducted as a moving expense.  You cannot claim a moving expense deduction for expenses covered by reimbursements excluded from income.   Tax Tip provided by Internal Revenue Service. For more information, please contact one of our accountants.  Business or Hobby?  Answer Has Tax Implications Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc. The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you. What is a hobby?  Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit.  What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.  If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider: Do you run the activity in a businesslike manner? Does the time and effort you put into the activity indicate an intention to make a profit? Do you depend on income from the activity? If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Have you changed methods of operation to improve profitability? Do you or your advisors have the knowledge needed to carry on the activity as a successful business? Have you made a profit in similar activities in the past? Does the activity make a profit in some years? Can you expect to make a profit in the future from the appreciation of assets used in the activity? An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year. An exception is breeding, showing, training or racing horses.  Such activity is presumed to be a business if it makes a profit during at least two of the last seven years. If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business. Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return.  However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby. Tax Tip provided by Internal Revenue Service. For more information, please contact one of our accountants.  PAY YOUR TAXES ELECTRONICALLY - USE EFTPS If you owe federal taxes, consider paying through EFTPS, the Electronic Federal Tax Payment System. EFTPS is a fast, easy, convenient and secure service provided free by the Department of Treasury. EFTPS is available to both individual and business taxpayers. With EFTPS, you can pay all your federal tax payments through the internet or by telephone. These payments include corporate, excise and employment taxes as well as your 1040 quarterly estimated tax payments. EFTPS is convenient and flexible. It allows individual taxpayers to schedule payments up to 365 days—and businesses up to 120 days—in advance of the payment due date. With the ability to schedule payments in advance, you can avoid missing deadlines and incurring penalties. Scheduled payments can be cancelled up to 48 hours before the scheduled payment due date. EFTPS is available around-the clock. The electronic payment system and a live Customer Service representative are available 24 hours a day, 7 days a week. Other features include an immediate, printable acknowledgement number which acts as a receipt for your payment.  After you enroll in EFTPS, you will receive a confirmation package by mail. In a separate mailing you will receive an EFTPS Personal Identification Number (PIN) with instructions for activating your enrollment. Employers who apply for and receive a new Employer Identification Number and have a federal tax obligation are automatically enrolled in EFTPS Express Enrollment to make their Federal Tax Deposits.   Tax tip provided by the Internal Revenue Service. For more information, please contact one of our accountants.