Zero capital gains rate coming in 2008

You already know the federal tax rate on capital gains varies, depending on your tax bracket, the kind of property you sell, and how long you owned it.

But are you aware that starting next year some capital gains won’t be taxed at all?

From 2008 through 2010, if your taxable income falls within the 10% or 15% tax brackets, the rate you’ll pay on your federal return for certain dividends and long-term capital gains will be zero.

The zero rate generally applies to gains on sales of assets such as stocks, bonds, and mutual funds that you owned longer than a year. Qualified dividends, which include dividends on most US stocks, are also eligible.

Note: Gains on sales of assets you owned for twelve months or less are still taxed at your ordinary income rate. Depreciation recapture and sales of collectibles remain subject to higher rates as well.

Though the zero percent break becomes effective January 1, you can start planning now. For instance, it may be beneficial to wait until 2008 to sell appreciated stocks in taxable investment accounts.

In addition, since expanded kiddie tax rules go into effect in January, it’s a good idea to review gifting plans before year end. Why? The new rules mean the investment income of your age 19 and younger dependent children (under age 24 for students) might be taxed at your rate in 2008. Preparing in advance can save tax dollars.

Other planning opportunities exist. Please contact us for more information.

contact: info@accountingassociatesva.com

How to determine the amount of a casualty loss deduction

Fire, flood, tornado. Violent weather can wreak emotional and financial havoc. If your home, vehicle or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.

In most cases, you claim a casualty loss in the taxable year the calamity strikes. However, if you’re in a presidentially declared disaster area, you have the option of amending your prior year return, thereby getting tax relief sooner.

Either way, to receive the maximum benefit you’ll need to calculate the amount of your loss. Here’s how.

1. File an insurance claim. If your property is insured, file a timely claim. Otherwise, you’ll only be able to take a deduction for the part of the loss that isn’t covered by insurance.
2. Get an appraisal. An appraisal determines the decline in fair market value caused by the casualty. Tax rules require that you measure the difference between what your home or property would have sold for before the damage and the probable sales price afterward. Your loss is the lesser of this decline or your adjusted basis in the property.
3. Establish basis. Generally, your home’s adjusted basis is what you paid for it, plus improvements. If your records were lost in the casualty, recreate them using reasonable estimates or the best information you have.
4. Keep receipts for repairs. In some situations, repairs you make to restore your property to its pre-casualty condition can be used as an indicator of the decline in the fair market value.

The aftermath of a casualty is often a stressful time. We’re here to help you resolve the tax issues. Please give us a call.

contact: info@accountingassociatesva.com

The newest issue of the Financial Times is out. Here’s a summary:

Antidote to the Sub-Prime Mortgage Crisis: What impact will the sub-prime mortgage crisis have on your financial life? A brief discussion of the problem and the possible ripple effects – along with a proven approach to riding out the inevitable ups and downs in your financial life.

Disability Insurance – A Common Foundational Weakness: Even though most Americans acknowledge a single incident of disability would severely impact their financial lives, very few own disability insurance. Why? A short commentary on the realities of disability, and the financial fall-out that often follows.

What is BOLI? Find out why banks give permanent life insurance a significant place in their financial operations, and how some of the same financial principles can be applied for individuals.

The Opportunity Cost of Season Tickets. If you are a football fanatic, keep this information under wraps! Your obsession could cost you more than a million dollars!

Retirees Don’t Want A Mortgage Payment. Some financial commentators might argue that owning a home free and clear is unprofitable because all that equity is just sitting there. But most retirees see it differently.

For the full issue on PDF, click here.

Check the link below on how to properly prepare yourself in case your return is chosen for a random audit.
Weekly Tax Tip

The September issue of the Financial Times (and not that London nonsense, but the REAL Financial Times) is out. Here is a summary of some of the key issues:

PAPER ASSETS VS REAL ASSETS
Paper assets and real assets have distinct differences. Not only is it important to know and understand these differences, it’s also helpful to keep each type of asset in balance as part of your overall financial program.

A NEW TREND IN HOMEOWNERS’ DEDUCTIBLES
Could you afford a $15,000 deductible for damages to your home that were caused by natural disasters? A short explanation of why insurance companies are changing the way they price homeowners’ insurance.

ATMs IN HOUSES OF WORSHIP?
New IRS regulations on documentation for charitable giving have become much more stringent. Some charities, particularly houses of worship, have come up with might be considered an inspired response – and in some cases, actually received more donations.

RISK TOLERANCE ILLUSTRATION
If a picture is worth a thousand words, this illustration should give you plenty to talk (and think) about when the topic is your risk tolerance.

RATIONAL DECUMULATION
When it comes time to spend accumulated assets in retirement, what asset class works best? A new report from the Wharton School of Business offers some interesting opinion, including some thoughts on why many (even “financial professionals”) don’t respond rationally to the challenge of spending our savings.

For the PDF on the full issue, please click here.