Author: Leon Clinton

Tax

Tax Consideraions When a Loved One Passes Away (Part 2)

If you become an executor of your loved one’s estate, you may have some important tax decisions to make. Here are some quick thoughts.

The decedent’s medical expenses provide you with planning opportunities to

  • deduct as itemized deductions (subject to the 7.5 percent floor) not only the medical expenses incurred during the taxable year of death, but also those unpaid at the date of death but paid within one year of death; or 
  • deduct in full (no floor) the medical expenses paid after the date of death against the federal estate tax.

You, as the executor, may need to file

  • the decedent’s final Form 1040,
  • the estate’s Form 1041 income tax return, and
  • the estate’s Form 706.

You won’t need to file Form 1041 when all the decedent’s income-producing assets bypass probate and go straight to the surviving spouse or other heirs by contract or by operation of law—assets such as

  • real property that is owned by joint tenants with right of survivorship, 
  • qualified retirement plan accounts and IRAs that have designated account beneficiaries, and 
  • life insurance death benefits that are paid directly to designated policy beneficiaries. 

If the estate is valued at $11.58 million or less and the decedent did not make any sizable gifts before death, you don’t have to file Form 706. But even if you don’t have to file Form 706, you may want to file it anyway to preserve the portability election.

If you have questions on this process, please call me on my direct line at 408.778.9651.

Tax

Home-Office Deduction – Show Me the Proof!

Question. If you have an office outside your personal home—say, downtown—can you have a tax-deductible office inside your home for the same trade or business?

Answer. Yes.

Q. Who says that?

A. The IRS.

Q. Show me where they say that!

In IRS Publication 587, the IRS says this: 

Your home office will qualify as your principal place of business if you meet the following requirements:

  1. You use it exclusively and regularly for administrative or management activities of your trade or business.
  2. You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

The quote above mirrors the law and the legislative history, as you will see below. Note the following points:

  • The administrative office is a “principal” office.
  • You must use this office exclusively for business.
  • You must use this office regularly for business.
  • You must do your administrative work in your home office.
  • You must not do your administrative work in the office outside the home.

Here is a second important quote from IRS Publication 587:

You can have more than one business location, including your home, for a single trade or business.

The IRS makes this rule very clear and straightforward: you may have more than one office for your business, including an office in your home.

If you would like my help so you can better understand the home-office deduction, please call me on my direct line at 408.778.9651.

Tax

New Stimulus Law Grants Eight Tax Breaks for 1040 Filers

As you doubtlessly know, Congress recently passed a massive new stimulus bill that was enacted into law on December 27, 2020. Most of the public’s attention has been focused on the bill’s authorization of additional stimulus checks and new PPP loans and other aid targeted to struggling businesses.

But Form 1040 American taxpayers who are not in business are struggling as well. The stimulus bill contains a hodgepodge of eight new or extended tax breaks intended to help Form 1040 taxpayers.

None of these tax breaks are earthshaking by themselves, but together they add up to a nice tax present for COVID-19-weary Americans. 

Here are eight new tax breaks that can help you

  • deduct cash contributions to charity if you don’t itemize,
  • deduct up to 100 percent of your adjusted gross income (AGI) as a charitable deduction,
  • lengthen to one year the time you have to repay your 2020 employee Social Security taxes if you had them deferred by your employer,
  • deduct medical expenses in 2021 using the now-extended 7.5 percent of AGI floor for this deduction,
  • carry over unused flexible savings account (FSA) funds to next year,
  • use your 2019 income to qualify for the earned income tax credit and/or child tax credit if you’re a lower-income taxpayer,
  • deduct out-of-pocket expenses for personal protective equipment (PPE) if you’re a teacher, and
  • take advantage of the lifetime learning credit in 2021 if you’re a higher income taxpayer.

If you have any further questions or need my assistance, please call me on my direct line at 408.778.9651.

Scroll to top