With home sales booming throughout much of the country, you may decide that now’s the right time to put your abode on the market. If you do put your primary residence up for sale, try to steer clear of the following mistakes.
- Not qualifying for the home sale exclusion. If you’ve owned and used your home as your principal residence at least two out of the last five years, you can exclude from your taxable income the first $250,000 of gain if you’re single and $500,000 if you’re married.
What you can do: Consider a delay of selling your home until you meet the 2-out-of-5-year threshold. If you can’t qualify for a full exclusion, you may qualify for a partial exclusion if your sale results from an employment change, a need for medical care or other IRS-approved circumstances.
- Forgetting to deduct points. If you have points from your current mortgage that you haven’t deducted on a previous tax return, include the balance of these points on your next tax return. Too many taxpayers forget to do this and lose thousands in deductions.
What you can do: Review your loan documents before selling your property. Identify all costs, including points, that are included in the loan. Save the document with your tax records to ensure the deduction is not forgotten.
- Not double-checking your settlement statement. Closely review the closing statement. It is easy to assume all the numbers are correct and the math is done right. Often this is not the case! And a mistake here could be costly.
What you can do: Review the closing document multiple times. Have your Realtor and closing agent explain items you don’t understand. Pay special attention to property taxes. The property tax bill will be allocated between the seller and the buyer. Only pay the share of the bill that covers the time period when you’re the owner.
Selling a home is full of tax implications. Since selling a home is not an everyday occurrence, it is easy to make a mistake. So, if you need help with these or any other tax questions surrounding the sale of your house, contact your financial advisor…before you sell!
It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.
But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that often offer a more valuable tax break:
The AOTC. The American Opportunity Tax Credit (AOTC) is a credit of up to $2,500 per student per year for qualified undergraduate tuition, fees and course materials. The deduction phases out at higher income levels, and is eliminated altogether for married couples with a modified adjusted gross income of $180,000 ($90,000 for singles).
Lifetime Learning Credit. The Lifetime Learning Credit provides an annual credit of 20 percent on the first $10,000 of tuition and fees, for either undergraduate or graduate level classes. There is no lifetime limit on the credit, but only couples making less than $132,000 per year (or singles making $66,000) qualify. Unlike the AOTC, this deduction is per tax return, not per student.
So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction was generally the only means you had to reduce your tax bill.
But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.
One of the most successful selling techniques used today is to offer “free” shipping for mail and internet orders. But shipping is never free. So why is it such a popular offer to buyers of goods and services?
The average order size play – The classic way sellers pay for the shipping is to get you to increase your average order size. The hope is that your increased purchases will not only cover the cost of shipping, but will enhance their per order profitability. Amazon does this with their $35 order size requirement and their annual Prime fee.
Upcharge shipping – Another way to get free shipping is to entice you to pay for more expedited shipping. Remember, part of your cost of free shipping is paid for in the slower shipping time. If enough customers pay to receive their orders sooner it can cover the seller’s cost of free shipping to everyone else.
It is in the cost – Don’t be fooled. Shipping charges are built into the cost of what you are buying. Even worse, if you live in a state that does not charge sales tax on shipping charges, you actually pay more money for free shipping as the buried shipping costs are now being subjected to sales tax.
What are companies paying for shipping? – Companies like Fed Ex and UPS offer large discounts to major customers like Amazon. Small companies’ shipping costs can be much higher. In addition, Fed Ex and UPS add fees onto deliveries such as fuel surcharges, residential delivery fees and non-urban delivery fees. A minimum undiscounted, one pound ground shipment (with tracking information) can easily range from $5.75 to well over $8.00.
So what? – If you have a small business and wish to try free shipping, you need to understand your costs and what the lift in business sales free shipping will yield. As a consumer, don’t be fooled. You are paying for shipping. Try to calculate the trade-off on this popular consumer hook with the value of a discount offer on your desired purchase. You may be surprised at what you find.