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Tax Basics
What You Must Know About Taxes...

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Business Taxation


Be sure to choose the business structure that is the best choice from a liability and tax point of view for the type of business that you have—and your current and long-term goals. 

Be sure you know what a w-9 form is—and know how it affects you and your business.

Be sure you are aware of the tax laws (or hire  competent professionals) that affect your business—and tax plan far in advance.

If you have a home based business you can now deduct your home office expense in a less burdensome manner—since the passage of new regulations in 2012.


Capital Gains  

If you have capital gains during the year you can offset those gains (up to $3,000) against losses—if more than $3,000 in losses you carry the losses forward. 

In 2013 the capital gain rate for many taxpayers—depending on your income—will increase from 15% to 20%.  If you have taxable income of $400,000 (individual) and $450,000 (joint return) any amount over that amount would be taxed at 20%.

Debt Cancellation

It is important that you realize that the cancellation and reduction of "certain debt" may be taxable to you.  It is your responsibility to know this on the front endprior to engaging in a debt settlement or debt reduction with any of your creditors!


Estate Taxes


With the January 2013 update of taxesestate taxes receive some clarificationas the first $5 million in individual estatesand $10 million for family estatesare now exempted from the estate tax.  

After that the rate will be 40%, up from 35%
and the exemption amounts are now indexed for inflation.


Excise & Other Taxes


Excise and other taxes that go by various names are also here to stay.  Whether they called them fees, licensing—or the like—expect for them to increase in the future—as utilities, local, state, and federal revenue must be created to fund the operations of government.

Gift Tax

The federal gift tax applies whenever you give someone besides your spouse a gift worth more than $15,000 (as of tax year 2021).

You can give up to $15,000 to as many recipients as you want without having to pay any gift tax. If you and your spouse want to gift something that you jointly own, you can each give up to $15,000.

If something is community property in your state, you and your spouse are each responsible for half of the value.

In all cases, you and your spouse need to file individual gift tax returns.

When making a gift to a trust, each trust beneficiary is considered a recipient of your gift and you can still gift each beneficiary $15,000 per year.

NOTE: the lifetime gift tax exclusion more than doubled from 2017 to 2018 (went from 5,49 million in 2017 to 11.70 million  in 2021) because of the Tax Cuts and Jobs Act, a tax reform act that passed in 2017.


Health Savings Accounts


What they are:

An account that is often used to pay medical expenses that occur for an individual or family—that has major tax advantages—that include the following:

  • Contributions that are tax deductible (or contributions that are made on a pre-tax basis—if made through your employer’s plan)

  • Contributions and earnings that grow tax deferred

  • Contributions and earnings that can be used tax freefor out-of-pocket medical expensesin any year


How to Qualify:

  •  You must have a health insurance policy with a deductible of at least $1,250 individual—or $2,500 for families in 2014

  • Your contribution limit is $3,300 per individual and $6,550 for families (additional $1,000 contribution allowed if you are age 55 for the year)

  • You can’t make HSA contributions after you sign up for Medicare

  • You can pay Medicare parts B and D and Medicare Advantage with your HSA account—but not Medigap

  •  You can pay a portion of long-term care premiums with your HSA account


How to Best Utilize:

  • If you are in financial position to do so (after you have addressed all areas of your finances appropriately—and you have maxed out your 401k at the highest level that is allowed to get your employer match)—let your money in the HSA account grow tax-free—and use it only during your elderly years—or during your retirement years

  • Try to pay your current year deductibles and co-payments with your current  income—or savings

  • Consider mutual funds and stocks (if your plan allows them in your portfolio) not just savings accounts

  • Maximize your contribution—and think long-term—in 20 years you will be amazed at the growth of the account


 Income Tax


You must look at your current income taxes that you pay on a local, state and federal level—and analyze (or pay a competent professional) them in a thorough manner to see if you can reduce or eliminate the taxes that you pay. 

If you currently receive a large refund—you may want to adjust your w-4 (payroll withholding).


Itemized Deductions


Under the “Pease Limitations” that reduce the value of itemized deductions there would be a limitation on the amount of itemized deductions.

With January 2013 legislation the limitations are permanently repealed for many taxpayers.  If you make less than $250,000 (individual) or $300,000 (joint) you won’t be affected.    


Mortgage Debt Relief Act


If you find yourself in the position where you may have to sell your home as a result of a “Short Sale” or you facedor are facing foreclosure—or you had a loan modification that did not work out—you still have relief as the Mortgage Debt Relief Act of 2007  was extended to January 1st of 2014

The extension means that if you faced any of the above—you would be excluded from paying taxes on the debt that was forgiven.

The Mortgage Insurance Premium Deduction for tax filers who make less than $110,000 was also extended for tax year 2013—meaning that in addition to your interest, property tax and possibly points—you can continue deducting the portion of your housing payment that goes toward the payment of the insurance premium—whether the premium is for an FHA (MIP) or Conventional loan (PMI).


Payroll Taxes (Social Security, Medicare & other Withholdings)  

Although your Social Security and Medicare withholdings are mandated by law—you may be able to control other areas of your withholdings. 

You control your
w-4 withholding—your retirement contributions (if you have an employer who provides a match—it may be wise to contribute at a level of the match)—and other withholdings that your employer may offer.

Be sure to consider an
IRA—Traditional or Roth.  A traditional has the potential to reduce your yearly taxes and help you save for your future—you would be taxed at withdrawal. 

A Roth provides no immediate tax reduction—but your
contributions and earnings would grow tax free—and you can withdraw your “contributions” tax-free
at basically any time.

Property Taxes  

You must analyze your current property taxes—and if you feel they are too high you can utilize the appeal process to possibly get them reduced! 

Be sure that you know the property tax amount that you currently pay—and be sure that you have properly applied for the
homestead exemption—and other exemptions that may be available in your community.

Be sure you know the strength or weakness of your local government—as they possess the power to increase or decrease your future
Millage Rates—and by knowing the condition of your government you can better plan for the likelihood of tax increases in the future.

You can possibly find the tax rate in you community
or a community that you plan on moving to by Clicking Here...

Be sure to click on "calculators" and then "data tools" to get the needed rates.

You can also go to to get an overview of property and other taxes in your stateor a state that you anticipate moving to.

Always realize that "property taxes" are local in naturewhich means they can vary significantly from county to county--or city to city!


If you have rental properties you can utilize them to possibly decrease your annual taxes if you file them on schedule E (Rental Property form) or a K-1 partnership tax return. 

If you have the property set up under a schedule C—self-employed form—you can also possibly utilize the rental properties on your personal tax return to help reduce your taxes owed or increase your refund amount. 

Rental property deductions and the proper use of depreciation are a few of the major deductions left for the modest income taxpayer.

If your rental properties are “corporately held” you would possibly gain a tax advantage on your corporations return. 

If you had a pass through corporation (S-corporation) you would possibly have taxable income—on your personal tax return.  If the S corporation reported a loss—you could possibly reduce the amount of taxes that you owe or increase your refund amount.


It is important that you have a realistic understanding of how your retirement income will be taxed at the State as well as Federal level! 

You must have a basic understanding (right now) of how your Estate & Inheritance taxes, Social Security Benefits, IRA's, Pensions & Other Retirement Accounts will be taxed during your retirement years.

Taxation of the above is fairly consistent at the Federal levelbut varies greatly from State to State.  Be sure you have an understanding of the taxation of your retirement income in your State!

Do you know if estate and inheritance taxes are applicable in your state based on the size and value of your estate? 

Do you know if Social Security benefits will be taxed in your Stateor the State that you plan on retiring in?

Do you know the States that don't tax income at all (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming)?

Do you know if there are exclusions in your state that allows some or all of your retirement income to be excluded from taxation?

For examplein my StateGeorgiathere is a generous retirement income exclusion of $65,000 for taxpayers 65 and older ($130,000 if Married Filing Jointly).  Those age 62 to 64 can take a $35,000 exemption per person.

Did you know that 6 States (California, Minnesota, Nebraska, North Dakota, Rhode Island and Vermont) offer no exclusions at all for retirement income? 

In short, it is your responsibility to look into how your taxes will be affected during your retirement years at—both the Federaland State level.

Sale of Residence

The sale of your residence if done properly could lead to a real windfall for you and your family.

If you remain at the residence for 2 plus years and later sell your property at a gain—you can exclude $250,000 of the gain if you are single—and up to $500,000 of the gain if you are married.

Be sure you know all of the parameters involved—if you are considering selling your home—and you want to exclude the gain from taxation.

Note: if a portion of your residence is used for business and deducted on your taxes—that portion will be subject to recapture (will be taxed at time of sale)—thus the amount of your excluded gain will be reduced.

Sales Tax


You must realize that sales taxes are here to stay—and you must be prepared to pay them now—and in the future.  Unless you live in Alaska, Delaware, Montana, New Hampshire, or Oregon you will have to pay sales tax on your purchases.

If you travel a lot—be sure that you understand that hotel and lodging taxes vary sustantially from state to state—and even city to city—in the same state.  You may pay as low as 9.4% in Colorado Springs, Colorado to as high as 17.5% in Birmingham, Alabama.  The average rate usually fluctuates in the 13% to 14% range—across the United States.

To find the sales tax rate in your stateor a state that you plan on moving toClick Here...

Stepped-Up Basis

It is important that you understand the concept of "stepped-up basis"as it simply  means that you will get a break on your taxes if you inherit a house, stocks, bonds, mutual funds etceterafrom your parent(s) or spousedue to the value being assessed at the current market pricenot the value when it was purchased.

If your parent was to transition and as part of the estate you received a house currently valued at $350,000but the property was purchased by your parent 30 years ago for $50,000you would not owe taxes on $300,000 (the difference between purchase price and the current value if you were to sell immediately after your parents transition).

Instead, if you sold the property for $350,000you would owe zero in taxes. 

If you sold the property for $400,000 you would owe taxes on $50,000 ($400,000 minus $350,000)meaning the value of the property was "stepped-up" to the current market value of $350,000. 

That is important information to knowon the front end whether you are inheriting propertyor you plan on leaving property for your heirs.

It is important to realize that in similar fashion stocks, bonds and mutual funds also receive "stepped up basis" treatment when they are inherited. 

If your parent purchased stocks 20 years ago for $15,000 and at the time of their transition the stocks are worth $200,000your basis would be stepped-up to $200,000and if you sold immediatelyyou would owe zero in taxes. 

If you sold the stocks 2 years later for $300,000you would owe taxes on $100,000 ($300,000 minus $200,000) instead of $285,000 ($300,000 minus the $15,000 original basis).

Always realize that inherited IRA's whether ROTH or Traditional can be trickyas there are certain rules, guidelines and nuances that must be adhered to if your goal is to minimize your taxes.

Be sure to utilize competent professionals if you were to inherit a home, stocks, bonds, mutual funds etceterawhether inside or outside of a retirement account.

In addition, be aware that if your parent had income (salary, interest, dividends etc.) that was owed to them at the time of their transitionincome tax could still be owed on the incomeand you might be required to pay it.

NOTE: Always keep the federal and state exemption amounts in mind when you are receivingor leaving property as a result of a loved ones transitionor your transition.  Even though you may be eligible for the federal exemption if your estate is smaller than 5.34 million (2014 limit) and possibly double that amount if it was your spouse who transitionedyou may indeed owe at the state levelso always keep that in mind when doing your tax planning.

Tax Preparation

For income tax preparation you can utilize the tax professional of your choice—or if your tax situation is not very complicated you can choose among—the following:


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About This Article:


The above article was written by Thomas (TJ) UnderwoodThomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia. 

He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and  Managing & Improving Your Credit & Finances for this MILLENNIUM.

In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.

He is the creator of where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. 

He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind"  and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  You can also get highly relevant tips on "living your life more abundantly" and link to and possibly earn revenue by logging on to

He is also an IRS registered tax planning professional with over 30 years of tax experience and can be reached at:



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