When an individual sells a stock for a loss, it is a capital loss, and Congress makes it difficult for individuals to use their capital losses. The tax law only allows capital losses to the extent of capital gains. If capital losses exceed capital gains, the individual can only use up to $3,000 per year against ordinary income ($1,500 if married filing separately). However, there is a way around this rule: Losses on Section 1244 stock are ordinary losses, and claiming this valuable tax benefit allows an individual to save thousands of dollars in tax in the year of sale compared to the standard capital loss treatment. Let’s review what qualifies as Section 1244 stock, what benefits a taxpayer can get from Section 1244 stock, and how to claim those benefits on a tax return.

This article does not summarize key rulings of 2022, but instead offers some key lessons and reminders from 2022 tax opinions as well as a few IRS rulings. If you want to read the ruling, see the citations and links. Takeaways from a few state tax rulings that have a lesson of relevance beyond the particular state are also included...

If you were to ask most taxpayers what they worry about when it comes to their tax returns, they might say an unexpectedly high tax liability or even a late penalty. Next to none will worry they are at risk for criminal prosecution. There is a sound reason for this. In the fiscal year ending September 30, 2021, taxpayers filed over 261,000,000 tax returns. During that same period, IRS Criminal Investigation (CI) initiated only 2,581 investigations—a paltry 0.00098% of all tax returns filed. While CI entanglements are not a common experience, there are still lessons to be learned from looking at how things can go awry. So what types of scenarios have resulted in criminal investigations by the IRS, and what can this teach the everyday taxpayer? First of all, working with an expert, such as a Certified Tax Planner, will help you better understand what is permissible by the IRS and reassure you that your returns are fraud-free. For a few tips on what not to do, read the cases below and review our key takeaways for each one.

Question: A spouse didn’t meet the residence test when the home sold because they weren’t legally married for two years on the date of the house sale. You indicated, however, the spouse is eligible for the home exclusion because by the end of the year they were married for two years Answer: If you want to understand how getting married impacts your ability to take tax-free profit, we must look at two issues and pass two tests. To take the full 121 exclusion deduction amount ($250,000/$500,000), first you have to determine filing status. If you were married or an RDP as of December 31, 2022, even if you did not live with your spouse/RDP at the end of 2022, your filing status is either Married Filing Joint or Married Filing Separate. Either way, the IRS considers you married for tax purposes. Now that you’ve determined that the client’s filing status is married, the potential gain exclusion is $500,000 under Section 121. But there are two important tests to apply to see whether you can exclude the maximum of $500,000 or whether it is going to be less. To learn about these tests, read on.

We are so excited to announce the 2023 Summer Education Series! All summer long we will be bringing our loyal subscribers monthly webinars featuring some of the brightest minds in tax! Each webinar will feature our usual blend of high-quality education and entertainment and include continuing education credits for those who qualify. All of this is included in your regular subscription! Continue reading to see what we have in store...

My attitude toward 1099 compliance changed radically about fifteen years ago. The type of 1099 compliance I am talking about is for business to business services. If you are running a bank or a brokerage house, this will not be any help. I was a partner in a regional firm and frankly I never gave 1099 compliance much thought until I was called in to consult on an audit. Then I got this really scary wake-up call...

You can find new cannabis dispensaries or head shops on every corner in my neighborhood. But purchase and sale of marijuana has not been legalized on the federal level. What’s an ethical tax professional to do, when your client walks in with the news that they’ve started a cannabis business in your state? Read on to find out!

Tax season is in full effect, and it is likely that you are seeing and coping with the effects of poor administrative compliance on the part of your small business clients. Instead of bemoaning the fact that so many clients “don’t get it” use some of the time you’re spending on the return to prepare a list of administrative compliance items that the client needs to address. Then, set a (paid) planning appointment for later in the year to help the client address those items. If you do this, and if the client heeds your advice, next filing season more (if not always all) of the client’s administrative compliance will be in order by the time you start preparing their returns. It’s a win-win. Your client gets the opportunity to ensure that they are meeting administrative requirements that protect them from liability or penalties. You get cleaner paperwork (and peace of mind) moving into next filing season. Read on to learn more!