The tax man cometh, even though this year’s deadline, April 17, is four months away. It’s not too soon for some planning because the size of your tax bite may well depend upon the moves you make in the waning moments of 1977. This year things are more confusing than ever, because of two legislative acts enacted in the last 15 months, which change many of the rules we taxpayers have been playing and paying by. A check with Steve Buchman, tax partner in the local office of Coopers & Ly-brand, clarified some of the changes.
Some of the changes are good news The tax man cometh, even though this year’s deadline, April 17, is four months away. It’s not too soon for some planning because the size of your tax bite may well depend upon the moves you make in the waning moments of 1977. This year things are more confusing than ever, because of two legislative acts enacted in the last 15 months, which change many of the rules we taxpayers have been playing and paying by. A check with Steve Buchman, tax partner in the local office of Coopers & Ly-brand, clarified some of the changes.
Some of the changes are good news and of course some are bad news, in our eternal struggle with the friendly IRS. But first, two critical points on timing. If you are considering selling any stocks, remember: Whether you have a gain or a loss in a stock is an important factor in deciding which day to sell. If you have a gain and you sell the stock by December 23, the gain will be taxed on your 1977 return. Better to sell after December 23, and take the gain on your 1978 return, thus postponing your tax payments until 1979. If you have a loss, you may sell the stock any time before the end of 1977, and take the loss benefits in your 1977 return.
and of course some are bad news, in our eternal struggle with the friendly IRS. But first, two critical points on timing. If you are considering selling any stocks, remember: Whether you have a gain or a loss in a stock is an important factor in deciding which day to sell. If you have a gain and you sell the stock by December 23, the gain will be taxed on your 1977 return. Better to sell after December 23, and take the gain on your 1978 return, thus postponing your tax payments until 1979. If you have a loss, you may sell the stock any time before the end of 1977, and take the loss benefits in your 1977 return.
Another critical point in timing: To qualify for long-term gain status in 1977 and receive more favorable tax rates, you must have held your stock for more than nine months. As of January 1, 1978, the holding period increases to 12 months. If you bought a stock in the first 10 or 11 weeks of 1977 and have a gain on it, consider selling it by December 23, 1977, for the long-term gain. If you wait until early 1978 to sell, you will sell yourself into a short-term gain, fully taxable. Conversely, if you have a dog of a stock bought during the first 10 or 11 weeks of 1977, Another critical point in timing: To qualify for long-term gain status in 1977 and receive more favorable tax rates, you must have held your stock for more than nine months. As of January 1, 1978, the holding period increases to 12 months. If you bought a stock in the first 10 or 11 weeks of 1977 and have a gain on it, consider selling it by December 23, 1977, for the long-term gain. If you wait until early 1978 to sell, you will sell yourself into a short-term gain, fully taxable. Conversely, if you have a dog of a stock bought during the first 10 or 11 weeks of 1977, you may want to wait until January to sell it, which would generate a short-term loss.
Among the many new provisions applicable in this year’s laws, about a dozen have fairly wide-ranging implications. One change is good news for married couples filing jointly, but bad news for singles. This year the maximum standard deduction for singles has been dropped to $2,200 from last year’s $2,400. For married couples filing jointly, the maximum standard deduction has been raised to $3,200 from $2,800. For married filing separately, it will be $1,600. The term “standard deduction,” IRS says, is being dropped this year in favor of “zero bracket amount.”
Now for the good news, all of which affects everyone. These deductions are made from gross income, before one decides whether to take the standard deyou may want to wait until January to sell it, which would generate a short-term loss.
Among the many new provisions applicable in this year’s laws, about a dozen have fairly wide-ranging implications. One change is good news for married couples filing jointly, but bad news for singles. This year the maximum standard deduction for singles has been dropped to $2,200 from last year’s $2,400. For married couples filing jointly, the maximum standard deduction has been raised to $3,200 from $2,800. For married filing separately, it will be $1,600. The term “standard deduction,” IRS says, is being dropped this year in favor of “zero bracket amount.”
Now for the good news, all of which affects everyone. These deductions are made from gross income, before one decides whether to take the standard deduction or to itemize, so even those who don’t itemize should take these deductions.
● Capital losses: If you’ve had a badyear in the stock market and have up to$2,000 more in capital losses than in capital gains, deduct those losses against ordinary income. Of course, if the lossesare long-term, you’ll need two dollars inlosses to offset one dollar of ordinary income.
● Moving expenses: If you move and your new job site is at least 35 miles further from your old residence than is your old job site, you qualify for some liberalized deductions. Take up to $1,500 for “indirect” moving expenses, such as house-hunting, breaking a lease, temporary housing and so forth. Of course the actual cost of moving your belongings is fully deductible.
● Individual Retirement Accounts: Ahusband earning more than $11,666 anduction or to itemize, so even those who don’t itemize should take these deductions.
● Capital losses: If you’ve had a badyear in the stock market and have up to$2,000 more in capital losses than in capital gains, deduct those losses against ordinary income. Of course, if the lossesare long-term, you’ll need two dollars inlosses to offset one dollar of ordinary income.
● Moving expenses: If you move and your new job site is at least 35 miles further from your old residence than is your old job site, you qualify for some liberalized deductions. Take up to $1,500 for “indirect” moving expenses, such as house-hunting, breaking a lease, temporary housing and so forth. Of course the actual cost of moving your belongings is fully deductible.
● Individual Retirement Accounts: Ahusband earning more than $11,666 annually can now contribute up to $1,750 annually for a joint IRA to cover both himself and his wife, as long as she is not employed outside the home. (There’s more news on IRA on page 40.)
● Alimony payments are now deductible from gross income, so even people who don’t itemize can take this deduction and still qualify for the full standard deduction.
● Auto expenses: If you use your car in business, but aren’t reimbursed for it, there’s a liberalized deduction. Take 17 cents a mile (previously 15 cents) for the first 15,000 miles of use. This applies only to taxpayers who have been using the simple mileage formula, not those who use the more complicated alternative, the depreciation method.
● Sixty-five and selling your home: If you are at least 65 years old and selling your home, you get a break on the gain from your sale. If the sales price is $35,000 or less, after deducting selling expenses, all of your gain is tax free. If your house sells for more than $35,000, the tax free portion of your gain may vary according nually can now contribute up to $1,750 annually for a joint IRA to cover both himself and his wife, as long as she is not employed outside the home. (There’s more news on IRA on page 40.)
● Alimony payments are now deductible from gross income, so even people who don’t itemize can take this deduction and still qualify for the full standard deduction.
● Auto expenses: If you use your car in business, but aren’t reimbursed for it, there’s a liberalized deduction. Take 17 cents a mile (previously 15 cents) for the first 15,000 miles of use. This applies only to taxpayers who have been using the simple mileage formula, not those who use the more complicated alternative, the depreciation method.
● Sixty-five and selling your home: If you are at least 65 years old and selling your home, you get a break on the gain from your sale. If the sales price is $35,000 or less, after deducting selling expenses, all of your gain is tax free. If your house sells for more than $35,000, the tax free portion of your gain may vary according to the selling price, but it will be substantial.
Now for the bad news, aimed primarily at those who itemize deductions.
●Vacation homes: IRS is crackingdown on those second homes which arerented occasionally, so the owner cantake depreciation on the house for theentire year. In general, this year you’dbetter use that vacation home a little andrent it a lot if you hope to take a fullyear’s depreciation. Otherwise, be prepared to take partial tax benefits. Ask yourtax advisor about benefits.
●Conventions: This is a bad year forconvention-goers, especially those whohabitually vacation while supposedlyattending foreign business meetings.This year a taxpayer can deduct expensesfor attending only two foreign conventions and then he must show that the mainpurpose of the trip was to attend the convention, not vacation. “Foreign,”of to the selling price, but it will be substantial.
Now for the bad news, aimed primarily at those who itemize deductions.
●Vacation homes: IRS is crackingdown on those second homes which arerented occasionally, so the owner cantake depreciation on the house for theentire year. In general, this year you’dbetter use that vacation home a little andrent it a lot if you hope to take a fullyear’s depreciation. Otherwise, be prepared to take partial tax benefits. Ask yourtax advisor about benefits.
●Conventions: This is a bad year forconvention-goers, especially those whohabitually vacation while supposedlyattending foreign business meetings.This year a taxpayer can deduct expensesfor attending only two foreign conventions and then he must show that the mainpurpose of the trip was to attend the convention, not vacation. “Foreign,”of course, includes both Mexico and Canada.
● Office at home: A deduction for ahome office is practically out. If you areself-employed and your home is yourexclusive place of business, an office deduction is in. But if you are an employee,you’ll have to prove that your employerrequires you to do work at home beforeIRS will consider any sort of deduction.
● Tax shelters: For those who havemost of their income sheltered, there maybe a minimum tax to be paid. But this yearit is 15 percent, up from last year’s 10percent. The amount of that tax variesupon one’s actions in such areas as accelerated depreciation, capital gains andlosses, qualified stock options, oil andgas deals and so on.
● Other investment deductions: Deductions on many investments have beenlimited. In many non-real estate areas,investors can deduct no more than they course, includes both Mexico and Canada.
● Office at home: A deduction for ahome office is practically out. If you areself-employed and your home is yourexclusive place of business, an office deduction is in. But if you are an employee,you’ll have to prove that your employerrequires you to do work at home beforeIRS will consider any sort of deduction.
● Tax shelters: For those who havemost of their income sheltered, there maybe a minimum tax to be paid. But this yearit is 15 percent, up from last year’s 10percent. The amount of that tax variesupon one’s actions in such areas as accelerated depreciation, capital gains andlosses, qualified stock options, oil andgas deals and so on.
● Other investment deductions: Deductions on many investments have beenlimited. In many non-real estate areas,investors can deduct no more than they actually have “at risk” – their own money or loans for which they are personally liable. Even the interest cost of construction loans is no longer fully deductible in one year.
●Selling property to relatives: Be careful in selling any property to “lineally related” relatives, that is, your grandfather, father, children or in some cases, your spouse. Losses arising from such friendly sales may be deemed non-deductible.
These general tips are meant merely toalert the reader. For a fuller explanationlook for a copy of the 1978 edition ofCommercial Clearing House’s MasterTax Guide, which should arrive in majorbookstores in early 1978. For the finalword, of course, talk to your certifiedpublic accountant, the only source whokeeps up with day-to-day tax rulings andregulations which affect the interpretation of these new laws.
actually have “at risk” – their own money or loans for which they are personally liable. Even the interest cost of construction loans is no longer fully deductible in one year.
●Selling property to relatives: Be careful in selling any property to “lineally related” relatives, that is, your grandfather, father, children or in some cases, your spouse. Losses arising from such friendly sales may be deemed non-deductible.
These general tips are meant merely toalert the reader. For a fuller explanationlook for a copy of the 1978 edition ofCommercial Clearing House’s MasterTax Guide, which should arrive in majorbookstores in early 1978. For the finalword, of course, talk to your certifiedpublic accountant, the only source whokeeps up with day-to-day tax rulings andregulations which affect the interpretation of these new laws.
Those energy bills may seem painfully high in Dallas, but cheer up, things could be worse. Much worse. I checked with Runzheimer Affiliated Services, a Rochester, Wisconsin consulting firm which compiles comparative cost-of-living data for every major American city. The information is used by Runzheimer’s more than 1,000 corporate clients to set compensation for corporate executives being transferred among U.S. cities.
Runzheimer’s Dallas figures compare quite favorably with a sampling of 11 other American cities. The data are based upon a family of four with $39,000 annual Those energy bills may seem painfully high in Dallas, but cheer up, things could be worse. Much worse. I checked with Runzheimer Affiliated Services, a Rochester, Wisconsin consulting firm which compiles comparative cost-of-living data for every major American city. The information is used by Runzheimer’s more than 1,000 corporate clients to set compensation for corporate executives being transferred among U.S. cities.
Runzheimer’s Dallas figures compare quite favorably with a sampling of 11 other American cities. The data are based upon a family of four with $39,000 annual income, living in an affluent suburb – in Dallas the suburb is Richardson. Housing cost is based upon mortgage payments and maintenance of a 2,250 square foot home, with three bedrooms, two baths, central air and heat and a two car garage. The home was purchased August 1, 1977, with a 28-year, 80-percent conventional mortgage. Taxes include all income taxes, social security taxes and sales taxes. (Property taxes are included in the mortgage payments.) Transportation costs include operation, insurance and parking of two cars, a partially financed 1976 Chevrolet Impala and a debt free 1972 Toyota Corona.
income, living in an affluent suburb – in Dallas the suburb is Richardson. Housing cost is based upon mortgage payments and maintenance of a 2,250 square foot home, with three bedrooms, two baths, central air and heat and a two car garage. The home was purchased August 1, 1977, with a 28-year, 80-percent conventional mortgage. Taxes include all income taxes, social security taxes and sales taxes. (Property taxes are included in the mortgage payments.) Transportation costs include operation, insurance and parking of two cars, a partially financed 1976 Chevrolet Impala and a debt free 1972 Toyota Corona.
One other note: The chart doesn’t include the very high cost of insuring and operating an auto inside a major Eastern city such as Boston, which leads America in auto theft. However a separate Runz-heimer survey does show the premium one pays for operating a car in Boston, compared to Dallas, insurance on an intermediate size auto operated in Boston ranges up to $1,114 a year. In Dallas the highest annual rate is $528. A year’s cost of downtown parking in Boston, on a monthly contract, is $741, while in Dallas the annual downtown parking tab is only $494. Insuring and parking a car in Boston is 81 percent higher than in Dallas.
One other note: The chart doesn’t include the very high cost of insuring and operating an auto inside a major Eastern city such as Boston, which leads America in auto theft. However a separate Runz-heimer survey does show the premium one pays for operating a car in Boston, compared to Dallas, insurance on an intermediate size auto operated in Boston ranges up to $1,114 a year. In Dallas the highest annual rate is $528. A year’s cost of downtown parking in Boston, on a monthly contract, is $741, while in Dallas the annual downtown parking tab is only $494. Insuring and parking a car in Boston is 81 percent higher than in Dallas.
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