You sold your home, investment property or other thing of value. When do you tell the IRS?
When selling a valuable asset, such as real estate, the IRS really wants to know about it.
In fact, for the sale of many assets from the IRS discovers even if you do not tell them, through reporting forms such as 1099-S form, the product of real estate transactions .
Regardless of how the deal or how much money you received as a result of the sale, you wait until you file your tax return the income to report the sale to large IRS.
However, this does not mean that you must not do anything until next year. In fact, it could be a costly mistake if you wait until you prepare your tax return for planning any tax on capital gains.
It is very important when you sell an asset to determine if you need to make estimated tax payments or otherwise plan for the tax consequences of the sale.
Why worry about estimated tax payments?
IRS may require you to make quarterly estimated tax payments if you have substantial income, such as from the sale of an asset, not subject to withholding.
for the tax year 2015, you might need to make quarterly payments if you have more than $ 1,000 when you prepare your tax return and your withholding and refundable credits are less 0 percent of your total tax or 100 percent of your income for the previous year.
If you do not make the estimated tax payments, you could face penalties and interest charges on the amount of tax you should have paid during the year.
Would you pay additional taxes as a result of capital gains?
the first thing you should know is that if your tax bill will increase as a result of the sale. If you do not have a substantial gain, the sale may not affect your taxes much.
For example, if you sold an asset, no matter how it was for less or a little more than you paid for it, there is little to fear.
However, if you have achieved the significant appreciation of your assets, your tax on capital gains can significantly affect your overall tax bill.
may be the best way to know if you need more money after the sale of an asset is to run the following year's tax numbers using the calculator to 'tax TaxAct.
Answer all questions according to your expectations for the entire year. All is well to estimate. When you work, you will be able to see how the sale affects your refund or tax due amount in the upper right corner of your screen.
How can I estimate the tax on an asset?
another way to quickly determine how much tax you will pay on a sale is to estimate the gain depending on your tax rate.
If you sell an asset you owned for one year or less, you will pay tax at your tax rate on ordinary income.
For example, say you sold stock at a profit of $ 10,000. You held the stock for six months. If your tax rate federal income is 25 percent, you have about $ 2,500 in tax on short-term capital gain.
If you had the same $ 10,000 profit, but you held the asset for more than a year, the tax rate is lower.
If you're in the tax bracket of 25 percent, for example, your tax rate on long term capital gains is only 15 percent. You only have $ 1,500 in taxes on capital gains.
If you're in the tax bracket of 10 percent or 15 percent, your tax rate on long term capital gains is 0 percent.
Be aware that capital gains can push you a tax bracket to another (see How to Work tax brackets)
in this case, the entire gain is not taxed at the higher rate -. only the part that is now in a higher bracket.
Consider an example where a taxpayer is in the marginal tax bracket of 15 percent before capital gains. The taxpayer then sells a parcel of land that is considered an asset with significantly greater value than the base of the taxpayer in the country. The taxpayer will recognize a capital gain from the sale of the land.
If the capital gain is $ 50,000, this amount can push the taxpayer in the marginal tax bracket of 25 percent. In this case, the taxpayer should pay 0 percent of capital gains tax on the amount of the capital gain corresponding to the marginal tax bracket of 15 percent.
The remaining portion of the capital gain that pushes the taxpayer in the 25 marginal tax bracket is then subjected to a 15 percent capital gains
another warning : .. the substantial capital gains may increase your adjusted gross income, possibly change the amount of tax benefits you receive for various deductions and credits
When making estimated tax payments
you usually have to pay tax on capital gains that you expect to have before the payment date applicable to a quarter of the sale.
quarterly due dates are 15 April for the first quarter on 15 June for the second quarter on 15 September for the third quarter and 15 January of the following year for the fourth quarter. When the due date falls on a weekend or holiday, your quarterly payment is due on the next business day.
Although you are not required to carry out estimated tax payments, you may pay the capital gains tax shortly after salewhile you still want to profit in the hand.
Making quarterly estimated tax payments
TaxAct you can use to determine your quarterly payments and print a quarterly payment. You must print the voucher, send a check or money and send it to the IRS before the due date.
Another option is to use the electronic funds Withdraw (EFW) to have a payment deducted from your bank account automatically. You can adjust this using the TaxAct software.
The IRS also has a telephone system and a website that accepts payment by credit or debit card. Unfortunately, there is an additional convenience fee for this service.
If you must pay estimated taxes and other payments regularly, it's worth the time to set up an account with the electronic federal system paying taxes (EFTPS), which is a service provided free of charge by the US Treasury department. If you want to use EFTPS is always best to plan ahead.
Alternatives to make estimated tax payments
Instead of making estimated tax payments, you can choose to increase your withholding tax on income to cover the additional tax .
file a new Form W-4 with your payroll. This can be a relatively painless way to cover the additional tax. Just do not forget to adjust your withholding on income again after January 1st, when the amount of the capital gain is not included in your income (see Completing the Form W-4 to keep more money in your pocket).
Another strategy is to plan other tax events to counteract the effect of the tax on capital gains.
For example, you may want to sell an asset that has declined in value, make a business investment or contribute to charity in the same year as the sale. Losses on investments are first used to offset capital gains, meaning less tax you pay on capital gains.
However, it is important to note, losses can not be deducted from capital gains of the same nature. For example, short-term capital losses are deductible only to short-term capital gains.
In addition, you can deduct up to $ 3,000 of capital to long-term losses in a given tax year. Any excess net capital losses in the long run may be postponed until sufficient capital gain income or limitation of capital loss of $ 3,000 long term net is exhausted.
If you sold an active recently, have you planned for the tax consequences before you made the sale?
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