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Tax breaks for clients renting out their homes this summer: Tax Strategy Scan

Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.

Tax breaks for clients renting out their homes this summer
Homeowners considering making their residence a rental this summer could qualify for a cash windfall and a few tax breaks, however they must first determine whether the property is their primary dwelling, according to this CNBC article. If clients plan on using their homes as their primary residence and want to lease it for no more than 14 days they are not required to report the income to the IRS, according to an expert. “From a tax perspective, it’s important to understand how the home is classified: is this a personal residence or a rental property?” asked Robert Westley, CPA and a member of the American Institute of CPAs’ personal financial specialist credential committee.

Homeowners considering making their residence a rental this summer could qualify for a cash windfall and a few tax breaks, however they must first determine whether the property is a primary dwelling, according to this CNBC article.
Beach goers are seen beyond two huts at Blairgowie beach on the Mornington Penisula, Victoria, Australia, on Friday, Jan. 25, 2019. The world’s driest inhabited continent is in the grip of an extended heatwave, posting the hottest December on record, according to the Bureau of Meteorology. Bushfires are a constant threat, with much of Victoria and the island state of Tasmania under severe to extreme fire danger, the bureau said in a statement Wednesday. Photographer: Carla Gottgens/Bloomberg

Here’s how Americans paid their tax bills this year
A new survey has found that 25.89% of taxpayers who owed the IRS this year paid their tax bill using their savings, according to this Motley Fool article. The survey, conducted by tax preparation firm Jackson Hewitt and ResearchNow, also found that 13.56% of taxpayers with tax dues used their credit card to settle the liability, with 4.05% of respondents borrowing funds to pay their tax bill. Cash-strapped clients are advised to negotiate an installment agreement with the IRS to pay the bill, as this option will be less costly than a credit card, according to an expert.

IRS could be wasting even more taxpayer dollars than it reports
The IRS is underestimating improper payment risk, according to a report from the Treasury Inspector General for Tax Administration in this Fox Business article. Three of the tax breaks — the Additional Child Tax Credit, the American Opportunity Tax Credit and the Premium Tax Credit — should have been rated as a high-risk and not just a medium risk, according to the report. “As a result, the IRS continues to significantly understate its estimate of improper payments in its reports to the [Office of Management and Budget] and Congress,” the report said.

Why clients should save their tax refunds
Clients who receive a tax refund should use the windfall to shore up their emergency savings before paying off debt, according to this article on Yahoo Finance. That's because they could incur more debt if they have no savings to cover unforeseen expenses. Those who already have emergency savings can use the refund to pay off their outstanding debt, especially if they incurred the debt because they failed to adjust their tax withholding.

The average expense ratio among the top-performers is 40 basis points higher than the average.
April 9

5 ways clients can increase after-tax spendable income
Clients who want to minimize the tax bite on their spendable income should prefer qualified dividends, which are subject to lower rates than ordinary income, according to a Kiplinger expert. They should also invest in tax-free municipal bonds and use their savings to buy tax-advantaged annuities. Using traditional IRA assets to buy a qualified longevity annuity contract is one way to reduce taxable income from their retirement accounts. Seniors should also tap their retirement accounts for income and leave a legacy to their loved ones using their personal savings, as the heirs will owe no taxes on the inheritance.

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