Capital Gains

Most assets that are held for more than one year are capital assets and will be subject to capital gains when sold. When a capital asset is sold by a taxpayer, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. Capital assets generally include the profit from the sale of such property as stocks, mutual-funds, and real estate. Long term-gains from the sale of collectibles are currently taxed at 28%.

Casualty Loss

A taxpayer who suffered a loss of personal property due to a casualty or theft, may be able to deduct this loss as an itemized deduction on Schedule A. A casualty loss is defined as “the complete or partial destruction of property resulting from an identifiable event of a sudden, unexpected or unusual nature” (e.g., floods, storms, fires, auto accidents). Individuals may deduct a casualty loss only if the loss is incurred in a trade or business or in a transaction entered into for profit or arises from fire, storm, shipwreck, or other casualty or from theft. The taxpayer must consider certain limitations that will affect the amount that they are able to deduct on their tax returns for the casualty loss.

Charitable Contributions

Charitable contributions are deductible (subject to various restrictions and ceiling limitations) if made to qualified nonprofit charitable organizations. Donations to charity in one year cannot exceed 50% of adjusted gross income AGI for that year. This will be lowered to 30% in the case of donations of appreciated assets and contributions to private foundations.Excess charitable contributions can be carried forward to different years.

Child Support Payments

Payments for child support do not constitute alimony. These payments are not includible in gross income by the recipient or deductible as alimony by the payor.

Child Tax Credit

The child tax credit is based solely on the number of qualifying children under age 17. Taxpayers may take the credit if they have dependent children. The child tax credit is phased out as adjusted gross income rises.

Compensatory Damages

Compensatory damages are excludible from the recipient’s gross income. These are received by a taxpayer out of a personal injury action.

Coverdell Education Savings Account (CESA)

This is a special savings account established to pay for qualified education expenses. These qualified tuition, fees, books, supplies, related equipment, room and board if the student’s course load is at least one-half of the full-time course load. The maximum annual contribution to the savings account of a beneficiary is $2,000 that will be used to pay a student’s school bills. There’s no deduction for contributions, but if the money is used to pay qualifying expenses, withdrawals are tax free.

ESA funds can also be spent for primary and high school bills. There is a special phase-out limit that changes every day.

De minimis fringe

A de minimis fringe benefit is a benefit provided to employees that are very small and hard to account for the benefits received by each employee and the value of those benefits. Such amounts are excludible from the employee’s gross income on their tax statement provided by an employer.

Dependent

Under tax rules, a dependent is a person, other than the taxpayer or the taxpayer’s spouse, for whom an exemption can be claimed and a reduction in taxes occurs. Generally, to be a dependent, a person must be a qualifying child or qualifying relative. This would be someone the taxpayer supports and for whom you can claim a dependency exemption on your tax return. Each dependent under age 17 also qualifies his or her parent for a tax credit that’s worth up to $1,000.

Earned Income Tax Credit

This is a a refundable tax credit designed to provide assistance to certain low-income individuals who meet certain qualifications. For purposes of this credit, earned income includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings. The exact earned income tax credit amount depends on your income level, as well as how many qualifying children you have.