December is the perfect time to organize your taxes!
Taxes in December? Sounds a bit crazy, but hear me out. As the year comes to a close, you are still in this fight, and all are fresh. While you do not have to perfect your entire taxes, you can list out what occurred in 2022, such as:
Life Events ( Marriage, Dependents, Retirement)Sale of Asset ( Home, Rental Property)
Income Generated ( Wages, Retirement Distributions)
Investment Income ( Stock Sales, Crypto Currency Transactions)
Business Year-End Reports: Payroll, 1099 Contractors
If you are busy with life, the best thing you can do is jot down all the taxing events and the types of income you generated throughout the year. It is better to be prepared, than to procrastinate with your income taxes.
Keep in mind some transactions that might be taxable:
There are times we get hit with a tax we did not expect. Such as, with an economic downturn, there are waves of lenders or banks foreclosing on homes or repossessing cars. These transactions will cause the lenders to issue:
1099C ( Cancellation of Debt )
1099A (Acquisition or Abandonment of Secured Property)
The law is unfair with the treatment of taxable income in these types of situations, however, some exclusions may apply.
Another situation that may land you in hot water is the treatment of a home sale. If you lived in the home for at least 2 years out of the last 5 years, you may exclude:
$250,000 ( Single)
$500,000 ( Married)
However, if you did not live in the home for the qualifying period, the gain on the sale is subject to the appropriate capital gains tax. In addition, even if you qualify for the homeowner's exclusion, the sale of the house, the basis, and the exclusion must be disclosed on the tax return. Skipping this step will cause an under-reporting issue with the IRS.
In addition, if you sold a rental property, the depreciation is recaptured, creating an unexpected gain during the sale of the house.
If you planned to sell the house, and do a Sec 1031 Exchange, you must have done so with the requirements:
Purchase another like-kind investment property
the replacement property must be of equal or greater value;
must invest all of the proceeds from the sale (cannot receive any “boot”);
must be the same title holder and taxpayer;
must identify new property within 45 days; and (6) must purchase new property within 180 days.
If you did not meet the requirements, then the applicable capital gains tax applies to your situation.
If you find yourself in a taxing situation, where you need professional advice, we can provide an initial 15 Tax Review Appointment.
