Axley & Rode, LLP

The housing market in many parts of the country is strong this spring. If you’re buying or selling a home, you should know how to determine your “basis.” How it works You can claim an itemized deduction on your tax return for real estate taxes and home mortgage interest. Most other home ownership costs can’t be deducted currently. However, these costs may increase your home’s “basis” (your cost for tax purposes). And a higher basis can save taxes when you sell. The law allows an exclusion from income for all or part of the gain realized on the sale of your home. The general exclusion limit is $250,000 ($500,000 for married taxpayers). You may feel the exclusion amount makes keeping track of the basis relatively unimportant. Many homes today sell for less than $500,000. However, that reasoning doesn’t take into account what may happen in the future. If history is any indication, a home that’s owned for 20 or 30 years appreciates greatly. Thus, you want your basis to be as high as p...

The June 15 deadline (Texas, Oklahoma, and Louisiana) for filing your 2020 individual tax return is coming up soon. It’s important to file and pay your tax return on time to avoid penalties imposed by the IRS. Here are the basic rules. Failure to pay Separate penalties apply for failing to pay and failing to file. The failure-to-pay penalty is 1/2% for each month (or partial month) the payment is late. For example, if payment is due May 17 and is made June 22, the penalty is 1% (1/2% times 2 months or partial months). The maximum penalty is 25%. The failure-to-pay penalty is based on the amount shown as due on the return (less credits for amounts paid through withholding or estimated payments), even if the actual tax bill turns out to be higher. On the other hand, if the actual tax bill turns out to be lower, the penalty is based on the lower amount. For example, if your payment is two months late and your return shows that you owe $5,000, the penalty is 1%, which equals $50. ...

The Families First Coronavirus Response Act (FFCRA) was among the first major laws enacted in response to the COVID-19 pandemic. It allows employees paid sick time and paid family leave time to care for themselves or loved ones during the ongoing public health crisis. In turn, eligible employers can claim tax credits to offset the costs of providing the leave. FFCRA paid leave has been subject to various guidance over the past year, and the rules have changed yet again under the recently signed American Rescue Plan Act (ARPA). Changes under the ARPA apply to amounts paid during calendar quarters beginning after March 31, 2021. Here are some highlights: The FFCRA paid sick time and paid family leave credits have been extended from March 31, 2021, through September 30, 2021. Paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages. Credits for pai...

President Biden recently announced his $1.8 trillion American Families Plan (AFP), the third step in his Build Back Better policy initiative. The announcement followed the previous releases of the proposed $2.3 trillion American Jobs Plan and the Made in America Tax Plan. These plans propose major investments in various domestic initiatives, such as expanded tax credits for families, offset with tax increases on high-income individual taxpayers and corporations. Proposed tax changes for the wealthy The AFP would reverse many of the provisions in 2017’s Tax Cuts and Jobs Act and other parts of the tax code that benefit higher-income taxpayers. These taxpayers could be hit by changes to the following: Individual tax rates. The plan proposes to return the tax rate for the top income bracket to Obama administration levels, going from the current 37% to 39.6%. It’s not clear whether the income tax brackets will be adjusted. For 2021, the top tax rate begins at $523,601 for single ...

Many employers use cafeteria plans to offer employees a menu of benefits from which to choose. Under Section 125 of the Internal Revenue Code, participants in a cafeteria plan must be permitted to opt for at least one taxable benefit (such as cash) and one qualified benefit. Chosen benefits are then provided on a pretax basis. Among the most popular benefits is enrollment in a dependent care assistance program (DCAP). Such a program allows participants to use those pretax dollars to pay for eligible child day care or elder day care expenses. The recently signed American Rescue Plan Act (ARPA) includes a substantial, albeit temporary, boost to a critical dollar amount associated with DCAPs. Program as FSA As mentioned, an eligible employee’s gross income generally doesn’t include amounts paid or incurred by an employer for dependent care assistance provided under a qualified DCAP. Many employers maintain their DCAPs under a cafeteria plan as a DCAP Flexible Spending Arrangement (FSA...