New Parent Series Part I - Dependent Issues and Tax Filing Status For You to Consider

It truly is a magical and to some extent, an overwhelming moment when the doctor places your new baby in your arms for the first time or your family grows through the joy of an adoption. There are so many things to think about. Everything from clothing to food to social and emotional development are concerns that you must consider for this tiny person who is relying on you for survival. With all the changes that are taking place in your life during this time, it is easy to overlook what changes you may need to make concerning your taxes and estate planning.

This is the first part of a five-week series covering topics that new parents may want to consider. Future posts will cover issues surrounding health care FSA's and HSA's; the child tax credit, childcare credit, and employee child care credit (a pretax deduction); tax considerations for families that grow through adoption; and estate planning so that your little ones can be provided for even if you are unable to do so yourself. 

This week our post focuses on when you can claim your child as a dependent for tax purposes and filing as head of household that provides additional tax benefits over filing as "single" for unmarried parents.

When You Can Claim Your Child as a Dependent: Even if your child was born at 11:59 PM on December 31st, you are able to claim that child as a dependent on your taxes for that entire year. Similarly, if you are married just before the stroke of midnight on December 31st, you can file under a married status for that year. To claim your new bundle of joy, the IRS requires that you include the newborn's Social Security number when filing your income taxes. If you are still waiting for this information when it comes time to file your taxes, you can request an extension or file an amended return when you do have the necessary information in hand.

File as Head of Household: If you are an unmarried parent (or perhaps even a married, separated parent due to a pending divorce) who provides for more than half of the annual expenses of keeping up your home, and your home is the primary residence for your qualifying child for over half of the year, you may be eligible to file as "head of household" on your taxes. If your child was born near the end of the year, this status may still be available for you as long as you provided over half of the care for the child's life. If you qualify, this classification allows you to claim a higher standard deduction of $3,000 on your taxes as opposed to filing as "single."

Come back next week when we will discuss health care FSA's and HSA's. In the meantime, if you have any questions regarding your personal taxes and what other exemptions you may qualify for, please feel free to contact Glick and Trostin, LLC at 312-346-8258. 

To read the other posts in the New Parent Series, simply follow these links:

New Parent Series Part II - Healthcare FSA's and HSA's
New Parent Series Part III - Child and Care Tax Credits
New Parent Series Part IV - Adoption Tax Credit and Benefits
New Parent Series Part V - Creating an Estate Pan

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Do you Qualify as a Trader for Tax Purposes?

In today's internet age, anyone has the ability to buy and sell stocks at the push of a button. While some individuals dabble in the market, others spend a significant portion of their day buying, selling and researching.  Whether you qualify as a trader depends on factors the IRS looks at to categorize taxpayers as either “investors” or “traders.”  Traders can qualify for better tax treatment so it is important to determine what classification applies to you.

Most taxpayers fall under the “investor” definition.  If you buy and sell stocks for long-term growth and dividends, you are an investor[1].  As an investor, you typically report income on your tax return each year when you receive “dividends.”  Dividends are reported to stockholders by the company that generates the income on a 1099-DIV.  Then, when you sell your stock, the company reports the sale of the stock and the basis (the value of the stock when it was purchased, plus costs) of the stock on a 1099-B. 

When the sale of stock is reported on your tax return, you will either have a gain or a loss.  The gain or loss created upon the sale is called a “capital” gain or loss, and it is combined with other capital gains or losses that you have from other capital transactions during the same tax year.  If there is not enough capital gain to offset your losses, the IRS allows you to deduct up to $3,000 of that loss against your ordinary income.  If you have a capital loss greater than $3,000, you may carry forward the excess loss to the next tax year.

What does it take to be qualified as a “trader,” and why does it matter?

If you qualify as a trader, you are considered to be operating a business.  As such, you can take business deductions (ordinary losses) against your trading income (most typically on a Schedule C if you are 1040 filer).  Another added benefit to be aware of is that if you are trading for yourself, you are not subject to self-employment taxes as are most other business owners. 

But it is not so simple to qualify as a trader.  You must meet all the following criteria:

1. Your trading income or losses must come from short-term market movements and not from long term holdings;
2. Your trading must be substantial;
3. You must trade on a regular and continuous basis.

Taxpayers who trade from time to time (even if they hold stock for short term periods) will probably not meet these tests.  Some taxpayers who consider themselves “day traders” may or may not meet the above tests. 

In an audit, the IRS will look at the volume of your trades throughout the year (dollar amount, number of shares, type of trades), how often you traded (daily, weekly, sporadically), what your other sources of income might have been (are you employed or otherwise financially supported), and how much time you spend on your trading (studying charts, researching on-line, reading financial papers/articles, in addition to actual trading).

While the tax benefits of qualifying as a Trader are appealing, the tax laws governing traders are complex.

If you have further questions on this topic, please feel free to call us to discuss them in detail at Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

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[1] Even traders will have to separate out their long term holdings from their trading investments.

Summertime and Tax Savings for Parents

School is out, the days are long, and your kids are restless. You may be in need of something to keep your kids active and entertained. But what? Did you know that common summer activities for your children such as summer camp, the zoo, museums, botanic garden, arboretum, and even participation in amateur athletic organizations can provide tax deductions for you?

            

Some or all of the costs of memberships to organizations that qualify as nonprofit 501(c)3 organizations such as The Chicago Botanic Gardens, Children's Museum, Shedd Aquarium, and Brookfield Zoo can be tax deductible even when gifted to someone else.  Often times, the cost of a family membership can pay for itself in as few as two visits for a family of four.  

Additionally, summer day camp expenses in addition to in-home care by a sitter or nanny may count toward the child care credit on your taxes if both parents are working. Some things that will need to be considered are the age of your children, how many children you have of qualifying age, and your gross income. This is something that we can help you figure out.

Just remember to keep your receipts for these expenses in a safe place so that you can reap the tax benefits when you file in the next calendar year.

            

If you have any questions regarding your personal taxes and other exemptions you may qualify for, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Are you missing the Homeowners Exemption?

Over the past year, I have reviewed many clients' assets for tax and estate planning purposes and I have noticed some are missing a large tax exemption each year: their homeowners exemption (also known as Homestead Exemption).  This exemption is given to property owners on their property tax bill. Taxpayers whose single-family home, townhouse, condominium, co-op or apartment building (up to six units) is their primary residence can save $250 to $2,000 per year, depending on local tax rates and assessment increases. 

If you are over 65 years of age, you may be entitled to a Senior Exemption or Senior Freeze on your property taxes.

First check to see if you have a homeowner's exemption with your County Assessor or Treasurer:  In Cook County, you can search your property by PIN on the Cook County Treasurer's website.

In Cook County, you can review your last property tax bill, it will list the exemptions and whether you received any exemptions for that tax period. 

If you believe you are entitled to an exemption, you can obtain the exemption forms on the Cook County Assessor's website.  If you have lived in the property for a number of years and have not claimed the exemption, you can file Certificate of Error forms to request a refund for the Homeowners and/or Senior Exemption the years you qualify. 

This exemption is not limited to Cook County or the State of Illinois.  Contact your local Property Tax Assessor or Treasurer to confirm that you are receiving all credits for being a homeowner in your state.

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Do You Have Unclaimed Property?

Finding money in a coat pocket is always a nice surprise, but what if you found that you could search the internet to locate lost assets?  Most states have an unclaimed property website that allows you to search your name to determine whether you may have property that the state is holding for you. Illinois is currently holding $3.5 billion in abandoned assets that are unclaimed by their residents. 

It is a good practice to check every year or two with your state to see if you may have unclaimed property in the state where you currently or previously lived.  Many times when you move, checks are sent to your old address.  If the payor is not aware that you moved, the funds are eventually deposited with the state as unclaimed property.  

You may also find assets that may have been held by loved ones who have passed away. This is one of the most common reasons for unclaimed property to go to the state when someone dies and accounts are abandoned.  As estate planning attorneys, we do a search frequently for estates that we have handled to make sure we did not miss anything when administering an estate.

What is unclaimed property?

Common types of unclaimed property include: checking and savings accounts, uncashed wage and payroll checks, uncashed stock dividends, and stock certificates, insurance payments, utility deposits, customer deposits, accounts payable, credit balances, refund checks, money orders, traveler’s checks, mineral proceeds, court deposits, uncashed death benefit checks, and life insurance proceeds.

In most states, you can file a claim form to reclaim your property.  The claim form will tell you which documents you will need to provide to make a claim.  

The following are a few websites for the unclaimed property if you live or have lived in these states. 

Illinois

Wisconsin

Minnesota

Iowa

Indiana

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Income Tax Break for Illinois Residents with Certain Dividends

It's a little-known fact that if you are an Illinois resident, you may be permitted to subtract certain dividends from specific Illinois companies. Under Illinois law, dividends you receive from a corporation that conducts business in a foreign trade zone and is designated a “High Impact Business” are eligible for the subtraction modification from Illinois base income.

Over the past few years, I have had a number of clients with stock ownership who received dividends from companies that qualify for the dividend subtraction in Illinois.  Depending on the total dividend distribution, this subtraction can be a sizable reduction in Illinois State Income Taxes, especially for shareholders who may have received stock through their employment with the company.

I am currently aware of the following 4 companies that have published letters to their shareholders notifying them of the potential dividend subtraction for Illinois that have current letters online for 2017.

Abbott Laboratories (Tax year 2017 letter)

AbbVie Inc. (Tax year 2017 letter)

Caterpillar (Tax year 2017 letter)

Walgreens Boots Alliance, Inc. (Tax year 2017 letter)

There may be other qualifying companies in Illinois although it is best to receive a letter from the company if you decide to utilize the dividend subtraction on your income tax return.  If you believe you have received dividends from a qualifying company in the past 3 years, you may want to determine if filing an amended Illinois Income Tax Return is worthwhile.

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.

Diversify Your Retirement with a Backdoor Roth IRA

Retirement is something that everyone should start thinking about once they begin their careers. Unfortunately, saving for retirement is a topic that commonly only becomes a worry as we get closer to retirement. For many families, expenses continue to grow as children are born and raised and as a result, retirement planning does not become a top priority until later in life.

If you are interested in having the options of both tax-deferred and non-taxable retirement options, it may be beneficial to utilize a Roth IRA. Unlike a traditional IRA or 401(k) tax-deferred retirement accounts (which are contributions to a retirement plan made with before tax income and then taxed on the distribution), a Roth IRA allows an individual to invest retirement savings and pay the tax on their income upfront. After the initial contribution, all growth and withdrawals are tax-free.

Unfortunately, many individuals are not allowed to open Roth IRAs because they make too much money under the traditional rules.  The current IRS income limits for 2016 only allow anyone with adjusted gross income below $132,000 (single) and $194,000 (married filing jointly) to contribute to a Roth IRA.

However, with a backdoor Roth IRA, the rules are different.  Anybody can contribute regardless of income.  Further, if an individual begins to contribute to a Roth IRA in their 20's, by the time they are nearing retirement age that investment will have grown into a substantial tax free asset. IRA and Roth IRA contributions for 2016 can be made up until April 15, 2017.

Distributions from Roth IRAs are also more flexible than traditional IRAs.  You may begin to withdraw your earnings from a Roth IRA at the age 59 1/2 as long as the Roth IRA has been in existence for 5 years.  The contributions to a Roth IRA may be taken out at any time without penalty. This is a benefit for individuals who may need emergency funds without suffering any tax or penalties upon withdrawal.  Further, unlike IRAs and 401(k)s that have Required Minimum Distribution (RMD) upon the age of 70 1/2, Roth IRAs do not have a RMD.  Therefore you can withdraw funds at your discretion.  

Here are the basics of how you proceed with a backdoor Roth IRA:

You contribute to a traditional IRA. It is easiest to go about a backdoor Roth IRA if you do not already have a traditional IRA. First, work with an IRA provider and make a traditional IRA contribution up to the yearly limit ($5,500 in 2016 and 2017, $6,500 for individuals over the age of 50).

Convert the account to a Roth IRA. Next, working with your IRA administrator, once you have contributed to a traditional IRA, convert those funds to a Roth IRA. It is important to do this conversion as quickly as possible to avoid any increase or decrease in the investment.

If you have an existing traditional IRA.  If you already have a traditional IRA that has been invested for some time, the conversion to a Roth IRA is more complex and requires pro rata conversion of the gains along with the contribution.  If you already have a traditional IRA, work with your investment adviser and tax adviser to determine the possible tax consequences.

By utilizing Roth IRAs, you can diversify your retirement investments and insure tax free growth which can be very beneficial in retirement.

If you have any questions about tax and estate planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258.

Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice.  Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein.  No one should rely upon the information contained herein as constituting legal advice.  The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.