Summer is a common time to put a home on the market. If you’re among those who are following this trend, it’s important to be aware of the tax consequences.

If you’re selling your principal residence, you can exclude up to $250,000 ($500,000 for joint filers) of gain — as long as you meet certain tests. Gain that qualifies for exclusion also is excluded from the Affordable Care Act’s 3.8% net investment income tax.

A loss on the sale of your principal residence generally isn’t deductible. But if part of your home is rented out or used exclusively for your business, the loss attributable to that portion may be deductible.

If you’re selling a second home, be aware that it won’t be eligible for the gain exclusion. But if it qualifies as a rental property, it can be considered a business asset, and you may be able to defer tax on any gains through an installment sale or a Section 1031 exchange. Or you may be able to deduct a loss.

If you have a home on the market, please contact us to learn more about the potential tax consequences of a sale.

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In general, when meal and entertainment expenses are incurred in the context of an employer-employee or customer–independent contractor relationship, one party will be subject to a 50% limitation on the deduction. But which party? Last year, the IRS finalized regulations that address this question.

In the employer-employee setting:

• If the employer reimburses the employee for meal or entertainment expenses and treats the reimbursement as compensation, the employee reports the entire amount as taxable income. The employer deducts the payment as compensation, and the employee may be able to claim a business expense deduction, subject to the 50% limit.
• If the employer doesn’t treat the reimbursement as compensation, the employee excludes the entire amount from taxable income and the employer deducts the expense, subject to the 50% limit.

In a customer–independent contractor setting, the final regulations allow the parties to agree as to who will be subject to the 50% limit. If there isn’t an agreement, then:

• If the contractor accounts to the customer for meal and entertainment expenses reimbursed by the customer (i.e., properly substantiates the expenses), the 50% limit applies to the customer.
• If the contractor doesn’t, the limit applies to the contractor.

The rules surrounding meal and entertainment expense deductions are complex. Please contact us to ensure you’re making the most of the deductions available to you but not putting yourself at risk for back taxes, interest and penalties.

First and foremost, don’t take a lump-sum distribution from your old employer’s retirement plan. It generally will be taxable and, if you’re under age 59½, subject to a 10% early-withdrawal penalty. Here are three alternatives:

1. Stay put. You may be able to leave your money in your old plan. But if you’ll be participating in your new employer’s plan or you already have an IRA, keeping track of multiple plans can make managing your retirement assets more difficult. Also consider how well the old plan’s investment options meet your needs.

2. Roll over to your new employer’s plan. This may be beneficial if it leaves you with only one retirement plan to keep track of. But evaluate the new plan’s investment options.

3. Roll over to an IRA. If you participate in a new employer’s plan, this will require keeping track of two plans. But it may be the best alternative because IRAs offer nearly unlimited investment choices.

There are additional issues to consider when deciding what to do with your old retirement plan. We can help you make an informed decision — and avoid potential tax traps.

The passing of Memorial Day marks the beginning of summer in the minds of many Americans. Although the kids might still be in school for another week or two, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax break?

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2014, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Be aware, however, that overnight camp costs don’t qualify for the credit.

Additional rules apply, so please contact us to determine whether you’re eligible.

If you’re considering donating a property to charity, here are three potential tax traps you need to be aware of:

1. If you donate real estate to a public charity, you generally can deduct the property’s fair market value. But if you donate it to a private foundation, your deduction is limited to the lower of fair market value or your cost basis in the property.
2. If the property is subject to a mortgage, you may recognize taxable income for all or a portion of the loan’s value. And charities might not accept mortgaged property because it may trigger unrelated business income tax for them.
3. If the charity sells the property within three years, it must report the sale to the IRS. If the price is substantially less than the amount you claimed, the IRS may challenge your deduction.

These are only some of the traps that could reduce the tax benefit of your real estate donation. Please contact us to help ensure that you avoid these and other traps.

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