Federal, state, and local governments, as well as private organizations, have collectively given trillions of dollars in financial support to individuals and businesses during the pandemic through a maze of government and private programs. These benefits will help taxpayers to a greater extent if they are tax-free, but are they? In some cases, we have a definite answer. For many, it is the classic tax law answer: “It depends.” We’ll review the general tax law rules applicable to deciding, then show three ways you can use the tax law to exclude these benefits from a taxpayer’s income.

Most of the Tax Code is “gray.” No, I don’t mean the color font it is written in. Unlike a lot of rules, the Tax Code is difficult to judge what is right and wrong. Perhaps it has to be written this way because to try and define every possible money situation is unfeasible. Perhaps, the writers like it this way because as we’ve said here many times at Think Outside the Tax Box, the gray area provides opportunity for tax savings. Take for example the official Tax Code definition of taxable income. Rather than affirmatively define it, the authors chose to negatively define it. Generally, an amount is part of taxable income unless the law specifically exempts it. Certain types of income get taxed twice. If, for example, you are subject to net investment income tax, you’ll not only pay income or capital gains tax, but an additional tax, as well. The same is true for royalty income. In some instances, it is necessary to pay income tax and self-employment tax on royalty checks you receive. To take advantage of breaks we must examine what loopholes or gray areas exist for royalties, and more importantly, how can you shield it from as much tax as possible. Continue reading to learn how.

When it comes to celebrity gossip, Charlie Sheen, who I mainly remember as the star of Two and A Half Men, is in a class by himself. You could, for example, look up the Charlie Sheen Effect, if that sort of thing interests you. At any rate, given all his other issues, it is not shocking that he has tax troubles. The IRS has been trying to collect from him for the years 2015, 2017 and 2018. He recently got some good news from the Tax Court and there may be some lessons worth learning from his case. Based on the public record, we don’t know how much the IRS is trying to get from Charlie Sheen. It is reasonable to infer that it is considerably more than the $3.1 million offer in compromise that the CPA and United States Tax Court Practitioner Steven Jager negotiated for Sheen. We also don’t know whether any of what the IRS is looking for is the result of an audit or whether it is entirely the result of Mr. Sheen filing without paying. Continue reading to learn how to negotiate your tax debt like a celebrity.

No doubt you’re familiar with taxes arising from the sale of real estate. Capital gains tax applies whenever anyone sells an asset for profit. A capital gain is the sale price minus your “adjusted basis.” ● The “basis” starts at the price paid for the property; and then: ● ADD the amount that was put into improving the property and; ● SUBTRACT the amount, if any, that you may have “written off” based on depreciation. ● Short term capital gains (within one year of purchase) are taxed as ordinary income. ● Long term capital gains are taxed at a lower rate. (15 percent if your taxable income is less than $501,600.) You’re probably also familiar with the homeowners’ gain exclusion for the sale of your primary residence. This is the spectacular Section 121 exclusion that allows you to exclude up to $500,000 of profit related to the sale of your home ($250,000 if you are single). But you may not be aware of how to claim this exemption on two homes – and you can do it on nontraditional homes such as boats or motorhomes and even vacation homes. Continue reading to learn how.