Tax Tips for Individuals

Have a hobby that’s become a passion? Maybe you’ve been crafting decorative wreaths to sell at local street fairs. Or perhaps you turned your love of fashion into a small side hustle, reselling thrifted treasures or styling your friends for big events.

Anytime money is exchanged for goods or services, the IRS will expect their cut. With part-time gigs becoming a more common way to generate income, here’s what you need to know from an IRS standpoint.

Defining hobby vs. business

The IRS considers a hobby any activity that’s engaged in primarily for pleasure, recreation or personal fulfillment — not for profit. But there are exceptions. For example, if you occasionally sell your homemade quilts at a yard sale and make a few bucks, it’s not typically considered taxable business income.

On the other hand, a business is an endeavor undertaken with the intention of making a profit. The key here is your intent.

You might not be profitable yet, but if your goal is to make money, the IRS may consider this a business. Other factors indicative of a business (according to the IRS) include whether or not you:

• Maintain complete and accurate books and records
• Put time and effort into the activity, demonstrating a plan to make it profitable
• Depends on the income generated from the activity
• Have been successful in making a profit in similar activities in the past
• Expect to make a future profit

Understanding the implications

Whether it’s a hobby or business, maintaining thorough records is crucial for potential dealings with the IRS. For hobbies, keep track of any income earned, especially if you’re generating sales through a payment app. If you receive a Form 1099-K, you’ll need to report the earnings.

 For businesses, you’ll also want to record and report all income and expenses. You may also make applicable deductions. Keeping meticulous records will not only help at tax time but can also provide valuable insights into your business’s financial health. Be sure to regularly review your finances and adjust your strategies as needed.

For fun and profit?

The last thing any taxpayer wants is a surprise letter from the IRS. As your hobby grows, or if you’re considering turning your passion into something more, get up to speed with the tax implications. The experts at Magone & Co can help. For tax planning guidance, give us a call today at (973) 301-2300.

 

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation. 

According to the IRS, medical expenses include the “costs of diagnosis, cure, mitigations, treatment or prevention” of an injury or disease. And dealing with these costs can be a challenging part of life.

But what many taxpayers may not realize is that there are specific tax laws governing the deduction of certain medical expenses to help you save.

Understanding these regulations is essential to ensure you’re maximizing your tax benefits while staying compliant with the law. Here’s a rundown of the basic rules:

Flexible spending accounts (FSAs). An FSA is a tax-advantaged account offered by some employers to help alleviate qualified health-related expenses like prescriptions or eyeglasses. This type of account has a “use-it-or-lose-it” feature, so any money leftover at the end of the year will be forfeited. Keep that in mind when allocating how much to contribute for the year.

Medical and dental deductions. Medical and dental expenses that aren’t reimbursed by your insurance may be deducted to the extent your annual total exceeds 7.5% of your adjusted gross income.

To qualify for medical deductions, you must also itemize. When adding up your medical costs, be sure to include the cost of traveling to your doctor or medical facility for treatment. If you go by car, you can deduct a flat mileage rate, adjusted by the IRS each year, or you can keep track of your actual out-of-pocket expenses for gas, oil, repairs, parking and tolls.

So what’s eligible?

To make the most of your tax deductions, here’s a quick breakdown of items that you may and may not write off.

Questions about your medical deductions? Reach out to the CPAs at Magone & Company to ensure you’re on track to save.

Eligible	Not Eligible
A physician-directed weight-loss program undertaken to treat obesity	Meal replacements, diet foods and supplements, or a weight-loss program to maintain appearance
Treatment at a drug or alcohol clinic, a smoking-cessation program or  a prescription for nicotine withdrawal medication	A doctor-recommended trip or vacation to rest or boost your mood
Acupuncture	Marriage counseling
Dentures, hearing aids and orthopedic shoes	Household help
Admission and transportation to a medical conference concerning the chronic illness impacting you or your family member	The collection and storage of DNA (unless you can prove how DNA will be used for diagnostic testing)
Childbirth classes for a mother-to-be	Maternity clothes
Teeth cleaning and orthodontia	Teeth bleaching
A wig that benefits the mental health of patients suffering hair-loss from disease	Hair transplants
Contact lenses and peripheral materials	Retin-A for wrinkles
Nursing services at home or a care facility	Home nursing services for a normal, healthy baby

 

This information is provided for educational purposes and should not be construed as financial or legal advice. Please consult your accountant or attorney for advice specific to your situation.

The 2017 Tax Cuts and Jobs Act (TCJA) introduced substantial adjustments to estate and gift tax exemptions. The act nearly doubled the lifetime estate and gift tax exemption to $13.61 million per person and $27.22 million for a married couple.

But nothing lasts forever. The increases in the federal gift and estate tax exemption are temporary and are expected to decrease by the close of 2025 and revert to (significantly lower) 2017 rates.

While there’s a possibility for new tax legislation to pass prior to 2026, families who may face tax liability in the near future should review their estate plans now and make some smart money moves to preserve their wealth — before it’s too late.

Building a strategy with estate planning

Take a proactive approach to help safeguard your goals for your legacy while ensuring that your estate plan remains effective and tax efficient. If your family is impacted, consider some options to build long-term financial stability for your loved ones:

• A credit shelter trust may be created by a surviving spouse, following the death of a spouse. Also known as a bypass or exemption trust, it allows your assets to pass on to your remaining beneficiaries — with no estate taxes — when the surviving spouse also passes. If you or your family have assets above the exclusion amount when the current law expires, this type of trust might be worth a discussion.
• Another estate planning tactic for married couples, a spousal lifetime access trust allows one spouse to create an irrevocable trust to benefit their partner. As the grantor, the assets would be taken out of your estate and are available to your beneficiary spouse as needed.This is an option for transferring wealth to your loved one and future generations without exposing the assets to federal estate tax.
• By transferring assets to your heirs now, you can effectively lower your future estate tax obligation and provide asset protection. But what about highly appreciating assets like real estate, stocks or cryptocurrency that may see significant growth in the future? A grantor retained annuity trust allows you to transfer that asset appreciation to your beneficiaries. That means you can potentially eliminate estate and gift taxes that would otherwise be paid on the value of the appreciation.

At Magone & Company, our goal is to help you create long-term financial stability for you and the people who matter most to you. For estate planning guidance or assistance, give us a call today at (973) 301-2300.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.

From building equity to growing roots in a community, home ownership has some significant benefits — including some hefty tax savings.

Uncle Sam offers homeowners several tax advantages to help ease the financial burden of your costly investment. If you’re thinking of moving into a new home or just settling into your dream home, homeownership not only provides a place to call your own. It also can offer some valuable savings along the way.

Discount points. Considering a home purchase? If you plan to stay in the home for at least 10 years, buying mortgage points — or discount points — may be worth your while.

Each mortgage point represents one percent of your underlying loan amount. While they’re an additional upfront cost at closing, they’re also a way to negotiate a lower interest rate. Plus, they’re deductible.

Mortgage interest deduction. As a homeowner, you can deduct the interest you pay on your mortgage loan from your taxable income. This deduction can result in substantial savings, especially during the early years of your mortgage when the interest portion of your monthly payment is typically higher.

For example, if you purchased a home with a mortgage loan of $300,000 and an interest rate of 4%, you would pay approximately $12,000 in interest during the first year. By deducting this amount, you could potentially lower your tax liability by thousands of dollars.

Property tax deduction. Property taxes are calculated by the local government and are typically based on the assessed value of your home. The good news is that you can deduct the amount you pay in property taxes from your taxable income, reducing your overall tax liability.

This deduction is particularly beneficial for homeowners who live in areas with high property tax rates.

Home office deduction. If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This allows you to deduct all direct expenses and part of your indirect expenses involved in working from home, including utilities, insurance and repairs.

Keep in mind, this deduction is calculated based on the percentage of your home that is used for business purposes. So if your home office occupies 10% of your total square footage, you can deduct 10% of your eligible expenses.

Home equity loan interest. A home equity loan allows you to access the equity you’ve built in your home and borrow the funds as needed. You can typically borrow 80-85% of your total home equity.

Similar to regular mortgage interest, you can deduct the interest you’ve paid — as long as the funds were spent on making home improvements.

Medically necessary home improvements. And speaking of home improvements, medically necessary home improvements that help you, your spouse or dependents live safely in the home may be deductible. These include widening doorways, lowering cabinets, adding railings and more.

Time to take advantage of homeownership tax benefits

There are few times in life you can get money out of your house — rather than pouring cash into it. Tax season is a key opportunity!  At Magone & Company, we’ll help you get the most tax savings as a homeowner. For tax planning guidance, give us a call today at (973) 301-2300.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation. 

Tax season is officially upon us, and there’re no escaping it. The IRS has its hand out to collect a portion of your taxable income. The good news? If you have children, there are credits and strategies that can help you save more of your money this year and in years to come.

Parents, be sure to take advantage of the following opportunities that apply:

Open tax-advantaged accounts. Does your employer offer a Health Savings Account?

Specifically designed for medical expenses, you can enjoy several tax advantages by making tax-deductible contributions to your account, which reduces your taxable income. Plus, any interest or earnings on the account are tax-free, and withdrawals made for qualified medical expenses are also tax-free.

If you’re thinking ahead to paying for your children’s higher educations, a 529 plan allows money to grow in a tax-deferred account. It can be withdrawn tax-free for qualified, education-related expenses at colleges, vocational programs and apprenticeships. The funds from a 529 plan may even be applied toward up to $10,000 in student loan debt.

Claim credits exclusively for families. Eligible New Jersey residents can boost their refund by claiming a Child Tax Credit on their NJ-1040. For tax year 2023, you may receive up to $1,000 for each dependent child who’s five or under.

Have kids in daycare? If you pay for child care while working or looking for work, you might be able to claim the Child and Dependent Care Credit on your return. This gives you a tax break on qualified expenses like summer camp or before/after school care. Kids must be under the age of 13 to qualify, unless they’re incapable of caring for themselves due to physical or mental conditions. Keep in mind, you must have a New Jersey taxable income of $150,000 or less to qualify.

Another valuable tax credit for families is the Earned Income Tax Credit (EITC). The EITC assists low and moderate-income families with a refundable tax credit based on your income, filing status and the number of qualifying children you have. Depending on your circumstances, the EITC can result in a significant tax refund.

Maximize deductions. Families can take advantage of several deductions to lower their taxable income. One common deduction for families? Mortgage interest. If you own a home and have a mortgage, you can deduct the interest you pay on that loan. When you’re in the early years of your mortgage, your savings can be substantial as the majority of your payments go toward interest. Additionally, families can deduct state and local taxes, including property taxes, which can further reduce your tax liability.

Have dependents pursuing higher education? There’s also a deduction for qualified education expenses for eligible students. This deduction allows you to deduct up to $4,000 of qualified expenses, such as tuition and fees. Parents may also deduct interest payments on certain student loans from qualified lending institutions.

Planning to save can really pay off

With a little bit of planning and knowledge, you can help your family keep more of your hard-earned money. Taking steps to optimize your tax situation is an important aspect of your family’s overall financial planning. Not sure where to start? The professionals at Magone & Company can help. Reach out to learn more.

This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your unique circumstances.