We’ve received lots of tax questions. Here is just a sampling…and our answers.
Will the charitable write-off be expanded?
It’s possible. Under present law, only filers who itemize on Schedule A can deduct donations they make to charity. A bipartisan group of lawmakers wants to make the deduction available to everyone. More specifically, they would let non itemizers deduct charitable contributions in an amount equal to as much as one-third of standard deductions for 2023 and 2024, meaning the write-off could spike to $4,617 for single filers and $9,233 for couples for 2023 returns filed next year. The odds are low this year of passing legislation with such high deductible amounts. But there’s a bit better chance of reviving the $300/$600 write-off for non itemizers.
Can I gift an I bond before it matures and avoid an income tax hit?
No. Like most people, you’ve likely deferred reporting for federal income tax purposes the interest that you earned on the savings bond. Gifting away EE or I bonds to someone else before those bonds mature will accelerate the interest reporting. It doesn’t matter whether the bonds are reissued in the recipient’s name. You still owe U.S. tax on all the previously deferred interest in the year of the gift.
Can I get a 20% QBI deduction for the income I earn on my rental property?
It depends. Self-employed individuals and owners of LLCs, S corporations and other pass-through entities can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes of more than $364,200 for joint filers and $182,100 for single taxpayers and head-of-household filers. Schedule E rental income may be eligible for the write-off in some cases. But applying the QBI rules to income from rentals of real estate is thorny. IRS regs say the rental activity must generally rise to the level of a trade or business, a standard which is based on each taxpayer’s particular facts and circumstances. Alternatively, there is a safe harbor if at least 250 hours a year of qualifying time are devoted to the activity by the taxpayer, employees or independent contractors. Time spent on repairs, collecting rent, negotiating leases, and tenant services counts. Hours put in driving to and from the real estate aren’t included for this purpose. Taxpayers who use the safe harbor must meet strict record-keeping requirements and attach an annual statement to their tax returns. Meeting the safe harbor will let you treat the rental activity as a trade or business for QBI purposes.
I am self-employed and pay state and local property taxes in my business. Can I deduct them on Schedule C?
Yes. Schedule A itemized deductions for state and local taxes are capped at $10,000. However, property and sales taxes are fully deductible for individuals engaged in a business or a for-profit activity. Self-employeds can write off these taxes in full on Schedule C. Farmers can take them on Schedule F. And landlords can deduct on Schedule E property taxes paid on realty.