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Facts, Circumstances, and Forever Stamps

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The price of a forever stamp increased from $0.58 to $0.63 on January 1, 2023. A tax pro posted this fact as a public service announcement on Facebook. Of course, tax pros being tax pros, someone chimed in, “Do I have to recognize a capital gain upon disposition of my forever stamp?” And of course, someone (me) felt obliged to answer, “It depends.” A direct message followed this bit of tax drollery on Twitter that says, “In theory, if I’m holding stamps as an investment, they would be a capital asset.” And so it begins…

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Crypto Charitable Deduction Compliance – Mission Impossible?

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Reilly’s Fourth Law of Tax: “Execution isn’t everything, but it’s a lot” might be amended when it comes to charitable deduction of property, because there you have an area where execution is almost everything. It is also an area that dramatically illustrates the Seventh Law: “Read the instructions.”

In January, we received guidance from the IRS on the reporting requirements for charitable contributions of crypto currency . If you have followed IRS guidance on crypto and know something about charitable donation reporting requirements, the result shouldn’t surprise you , but maybe it will.

The most disturbing part of the story is that the IRS may be asking for something we can’t provide…

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Getting Maximum Value from Small Business Stock Losses

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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.

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How Things Go Criminal

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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.

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Home Sale Rules for Newlyweds and Significant Others

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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.

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