How to Avoid Tricky Tax Traps:
From January 2005
Community Comments
Spark a community dialogue. Be the first to contribute by adding your comments.
Mind the Sequence
Even a good idea from a friend or co-worker isn’t any good if it’s done out of sequence. Take the popular “1031” tax-free exchange of investment real estate, such as a rental house. “A lot of times people call us after they sell the house,” says Colson. “They take the cash and then they want to roll the gain.”
Whoops! Too late.
There’s a reason people can make a good living working on other people’s taxes: Tax law is complex and constantly in flux.
Consider that for 2005, the wage base for computing Social Security tax is up, the write-off for sport utility vehicles is down and the threshold for the nanny tax remains flat. Some big changes in your tax bill come from new legislation that doesn’t even have the word “tax” in the title: the American Jobs Creation Act of 2004.
Tightening Vehicle Deductions
Gone at the end of this year under that Act are tax deductions for most donations to charitable causes of cars, boats, airplanes and other modes of transportation. Congress tightened the law in October to make it much harder to claim a hefty deduction for donating a vehicle.
“A person with some passive income might do well with a limited partnership that generates a passive loss for the first couple of years,” Colson says. “But that same partnership might be useless for someone receiving profits from an actively managed investment.”
Continued...
Even a good idea from a friend or co-worker isn’t any good if it’s done out of sequence. Take the popular “1031” tax-free exchange of investment real estate, such as a rental house. “A lot of times people call us after they sell the house,” says Colson. “They take the cash and then they want to roll the gain.”
Whoops! Too late.
There’s a reason people can make a good living working on other people’s taxes: Tax law is complex and constantly in flux.
Consider that for 2005, the wage base for computing Social Security tax is up, the write-off for sport utility vehicles is down and the threshold for the nanny tax remains flat. Some big changes in your tax bill come from new legislation that doesn’t even have the word “tax” in the title: the American Jobs Creation Act of 2004.
Tightening Vehicle Deductions
Gone at the end of this year under that Act are tax deductions for most donations to charitable causes of cars, boats, airplanes and other modes of transportation. Congress tightened the law in October to make it much harder to claim a hefty deduction for donating a vehicle.
“A person with some passive income might do well with a limited partnership that generates a passive loss for the first couple of years,” Colson says. “But that same partnership might be useless for someone receiving profits from an actively managed investment.”
Continued...
The Magazine
Site Links
Prosper Plus +
- Get Prosper Plus to receive e-mail alerts, special event invites, and content that interests you.
Community
- Join the Community and start participating. It's fast. It's easy. It's free.
Advertise on this site! Show your support for the Prosper Network and reach influential thought leaders and web users like yourself. Contact us to find out how.
© 2004-2007 Prosper Media, LLC. All Rights Reserved. Terms of Use | Privacy Policy
The materials on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Prosper Media, LLC.
Community Comments