Dear Mr. Ex-IRS

 

Dear Mr. Ex-IRS,

Are Social Security Benefits Taxable?

Social Security benefits may, or may not be taxable depending upon the individual taxpayer’s personal situation.  Additionally, if Social Security benefits are taxable, they may be fully or only partially taxable.

Principally, the determination of taxability on these benefits is based upon several factors such as if you have other taxable income such as wages, self-employment, pension or business income.

So, for example if you earned wages, that amount is calculated and compared against a table that determines how much of any of the Social Security benefits are taxable.  In effect, all other taxable income is part of a calculation that determines how much, if any, of your Social Security benefits are taxable.

 

 

Dear Mr. Ex-IRS,

 

If your spouse dies, do you keep them on your tax return and file as 'married filing jointly' in the year they pass away?  

 

This question is unfortunately one that came up time and time again during the Covid-19 pandemic.  Millions of families in the U.S. were impacted so this was a new/old concern that impacted many taxpayers.

The IRS allows widows and widowers to file a ‘deceased taxpayer’ joint tax return for 2 years.  This would be the tax year in which the spouse passes away as well as the following tax year.  In some cases, depending on the month of death, this could actually be up to 3 calendar years.  This may also be determined if there are minor dependent children. 

The reason for this is that many people especially if they own real estate, may be required to go through a probate process to settle debts and transfer property and assets which in some cases could last for years.

 

Dear Mr. Ex-IRS,

Can I get a tax deduction if I work from home or have a home office?

With so many people now working from home and having a side business the Home Office deduction is something of a 21^st century phenomenon.  These deductions are designed to offset expense incurred by employees working from home or for a small business being run out of the home.

Home Office deductions are applicable whether or not you itemize and regardless of if you own or rent the home from which you are working or conducting your business.

Home Office credits may be calculated by using exact amounts or by using the percentage of square footage in the home being utilized as a home office.  This is must be a dedicated working area used for work purposes.  See a tax professional for additional details if you think you have a home office.

 

Dear Mr. Ex-IRS,

What Do I Do If I Sell My Home for a Profit?  Do I Have to Pay Taxes on the Profit I Make from the Sale?

When selling your home and making a profit from that sale, there are two options for the homeowner to avoid paying capital gains taxes on the profit gained.

The first option is to defer the payment of taxes.  Taxes on the sale of a home may be deferred for a period of 3 tax years, provided the taxpayer purchases a new home within the 3 years.  If a new home is purchased within the statutory period no taxes apply. 

The second option usually is more common with senior citizens.  If when they sell their home, a profit is made, and, the taxpayer will not be purchasing a new home they may utilize a ‘one-time, lifetime’ exemption that will eliminate the taxes.  This credit may be used by anyone in a similar situation regardless of age but has opted to not replace their residence. 

Caution: this is a ‘ONE TIME ONLY’ deduction and can only be claimed once...