When a person sells a capital asset, the transaction usually results in a capital gain or loss. Capital assets include inherited property or belongings someone owns for personal use or as an investment.

Here are 10 facts you should know about capital gains and losses:

1. Capital Assets Capital assets include property such as a home or a car. It also includes investment property, like stocks and bonds.
2. Gains and Losses A capital gain or loss is the difference between the basis and the amount the seller gets when they sell an asset. The basis is usually what the seller paid for the asset.
3. Net Investment Income Tax Taxpayers must include all capital gains in their income. Capital gains may be subject to the Net Investment Income Tax if the taxpayer’s income is above certain amounts. The rate of this tax is 3.8 percent.
4. Deductible Losses Taxpayers can deduct capital losses on the sale of investment property but can’t deduct losses on the sale of property they hold for their personal use.
5. Limit on Losses If a taxpayer’s capital losses are more than their capital gains, they can deduct the difference as a loss on their tax return. This loss is limited to $3,000 per year, or $1,500 if married and filing a separate return.
6. Carryover Losses If a taxpayer’s total net capital loss is more than the limit they can deduct, they can carry it over to next year’s tax return.
7. Long and Short Term Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.
8. Net Capital Gain If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.
9. Tax Rate The tax rate on a net capital gain usually depends on the taxpayer’s income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
10. Forms to File Taxpayers often will need to file Form 8949, Sales and Other Dispositions of Capital Assets. Taxpayers also need to file Schedule D, Capital Gains and Losses, with their tax return.

Have a question about capital gains or losses? Give Ellsworth & Associates a call at 513.272.8400. We would be happy to help.

The average taxpayer claims the standard deduction when they file their federal tax return, but some filers may be able to lower their tax bill by itemizing. You can determine which way saves the most money by figuring your taxes both ways.

Here are some tips to help you decide which way to file:

• Figure Your Itemized Deductions. Taxpayers need to add up deductible expenses they paid during the year. These may include expenses such as:
  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses
• Know The Standard Deduction. If a taxpayer doesn’t itemize, then the basic standard deduction for 2016 depends on their filing status*. If the taxpayer is:
  • Single - $6,300
  • Married Filing Jointly - $12,600
  • Head of Household - $9,300
  • Married Filing Separately - $6,300
  • Qualifying Widow(er) - $12,600
• Check the Exceptions. There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if the taxpayer is married filing a separate return and their spouse itemizes. In this case, the taxpayer’s standard deduction is zero and they should itemize any deductions. See IRS Publication 17 for more on these rules.
• Use the IRS ITA Tool. Go to IRS.gov and use the Interactive Tax Assistant tool. It can help determine whether a taxpayer can use the standard deduction. It can also help a filer find their eligibility for certain itemized deductions.
• File the Right Forms. For a taxpayer to itemize their deductions, they must file Form 1040 and Schedule A, Itemized Deductions. Filers can take the standard deduction on Forms 1040, 1040A or 1040EZ.

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*If a taxpayer is 65 or older, or blind, the standard deduction is higher than normal. The deduction may be limited if the taxpayer can be claimed as a dependent.

Thinking about calling the IRS this President's Day? There's good news and bad news. The good news is, because calls peak this time of year, and this day in particular, the IRS toll-free lines will be open Monday, Feb. 20, from 7 a.m. to 7 p.m. The bad news is, they are at their busiest, so be prepared to wait on hold longer than usual. If your question can wait, don't call today.

If you need to call the IRS this tax season, be prepared to validate your identity when speaking with an IRS representative. This will help avoid the need for a repeat call. IRS phone representatives will only discuss personal information with the taxpayer or someone authorized to speak on their behalf.

If you're calling about your personal tax account, have the following information handy:

• Social Security numbers and birth dates for those listed on the tax return
• An Individual Taxpayer Identification Number (ITIN) for those without a Social Security number (SSN)
• Filing status – Single, Head of Household, Married Filing Joint or Married Filing Separate
• Prior-year tax return (The IRS may need this to verify your identity before answering certain questions)
• A copy of the tax return in question
• Any letters or notices received from the IRS

If you're calling to check on the status of your refund, a better option is to use the "Where's My Refund?" tool. For information on a state return, a good starting point is our Tax Refund Status page.

​If you collect Social Security benefits, you might have to pay federal income tax on part of those payments. These tips can help you determine if you need to do so.

• Form SSA-1099. If taxpayers received Social Security benefits in 2016, they should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of their benefits.
• Only Social Security. If Social Security was a taxpayer’s only income in 2016, their benefits may not be taxable. They also may not need to file a federal income tax return. If they get income from other sources, they may have to pay taxes on some of their benefits.
• Tax Formula. Here’s a quick way to find out if a taxpayer must pay taxes on their Social Security benefits: Add one-half of the Social Security income to all other income, including tax-exempt interest. Then compare that amount to the base amount for their filing status. If the total is more than the base amount, some of their benefits may be taxable.

The three base amounts are:

• $25,000 – if taxpayers  are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from their spouse for all of 2016
• $32,000 – if they are married filing jointly
• $0 – if they are married filing separately and lived with their spouse at any time during the year

Tips on Making Charitable Contributions:

• Be wary of charities with names that are similar to familiar or nationally known organizations. Some fake charities use names or websites that sound or look like those of respected, valid organizations. Legitimate charities will make available their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy through the IRS.
• Don’t give out personal financial information, such as Social Security numbers or passwords, to anyone who solicits a contribution. Scam artists may use this information to steal identities and money from victims. Donors often use credit cards to make donations. Be cautious when disclosing credit card numbers. Confirm that those soliciting a donation are calling from a legitimate charity.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides a receipt of the gift.

Another long-standing type of deception involves scams that happen in the wake of natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned donors. Scam artists use a variety of strategies. Some scammers operating bogus charities may contact people by telephone or email to ask for money or financial information.

Before you give, utilize Select Check on the IRS website to determine if a non-profit is real or not.

The Child Tax Credit could save you up to $1,000 for each eligible, qualifying child. Make sure you qualify prior to claiming it. Here are four things to keep in mind about the Child Tax Credit:

1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:
   1. Age. The child must have been under age 17 on Dec. 31, 2016.
   2. Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
   3. Support. The child must have not provided more than half of their own support for the year.
   4. Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
   5. Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
   6. Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
   7. Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.
2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate a taxpayer’s credit depending on their filing status and income.
3. Additional Child Tax Credit.  If a taxpayer qualifies and gets less than the full Child Tax Credit, they could receive a refund, even if they owe no tax, with the Additional Child Tax Credit.
4. Schedule 8812. If a taxpayer qualifies to claim the Child Tax Credit, they need to check to see if they must complete and attach Schedule 8812, Child Tax Credit, with their tax return.

The IRS offers a tool called Is My Child a Qualifying Child for the Child Tax Credit?, which can help you determine if a child is a qualifying child for the Child Tax Credit.

The IRS is a common lure for scammers this time of year. These tax scams take many different forms. The most common scams are phone calls and emails from thieves who pretend to be representing the IRS. Scammers use the IRS name, logo or a fake website to attempt to steal money from taxpayers. Identity theft is often another motive.

Fake IRS Calls
Be wary of phone calls or automated messages from anyone who claims to be from the IRS. Frequently these criminals will tell you that you owe money. They also demand payment immediately. Other times scammers will lie and claim you are due a refund. The thieves ask for bank account information over the phone.

IRS employees will never:

• Call demanding immediate payment. The IRS will not call a taxpayer if they owe tax without first sending a bill in the mail.
• Demand payment without allowing the taxpayer to question or appeal the amount owed.
• Require the taxpayer pay their taxes a certain way. For example, demand taxpayers use a prepaid debit card.
• Ask for credit or debit card numbers over the phone.
• Threaten to contact local police or similar agencies to arrest the taxpayer for non-payment of taxes.
• Threaten legal action such as a lawsuit.

If you receive a call from a scammer, report it to the Federal Trade Commission.

Fake IRS Emails
In most cases, an IRS phishing scam is an unsolicited, bogus email that claims to come from the IRS. Criminals often use fake refunds, phony tax bills or threats of an audit. Some emails link to fake websites that look real. The scammer’s objective is to convince you to give them your personal and financial information. If they get what they’re after, they use it to steal your money and identity.

If you receive a “phishing” email, remember these important tips:

• Don’t reply to the message.
• Don’t give out your personal or financial information.
• Forward the email to [email protected]. Then delete it.
• Do not open any attachments or click on any links. They may have malicious code that will infect your computer.

It’s possible that you will find it necessary to take out money early from your IRA, 401(k), or other retirement plan. This might create an extra tax on top of your income tax.

Here are some facts to remember if you're considering taking an early distribution:

1. Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
2. Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they may have to pay an additional 10% tax.
3. Nontaxable Withdrawals. The additional 10% tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan.
   A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.
4. Check Exceptions. There are many exceptions to the additional 10% tax. Some of the rules for retirement plans are different from the rules for IRAs.
5. File Form 5329. If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, with their federal tax return.
6. It’s Complicated. Early withdrawal rules can be complex. Make sure you use a qualified tax professional or some other reliable way to complete and submit your taxes after you’ve made an early withdrawal.
   

In the early parts of tax season, many early filers are anxious to hear specifics about the status of their tax refunds. This can lead to misunderstandings and speculation about refunds.

Here are five tax refund myths that tend to come up this time of year:

Myth 1: All Refunds Are Delayed
Most federal tax refunds are issued in the normal timeframe – less than 21 days. Some refunds may be delayed – but not all of them. Recent legislation requires the IRS to hold refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Other returns may require additional review for a variety of reasons and take longer.

Myth 2: Calling the IRS Will Provide a Better Refund Date
Many people think that calling the IRS can speed up their tax refund. In this case, the squeaky wheel does not get the grease. In reality, you’ll probably end up waiting on hold and getting nowhere. Your best bet is to check online through the “Where’s My Refund?” tool or via the IRS2Go app.

The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not give you new information. “Where’s My Refund” has the same information available to IRS telephone operators, so waiting on hold is a waste of time, unless you enjoy listening to on-hold music cutting in and out for what seems like forever.

Myth 3: Ordering a Tax Transcript is a “Secret Way” to Get a Refund Date
Ordering a tax transcript will not help you find out when you will get your refund. The information on a transcript does not necessarily reflect the amount or timing of a refund. While you can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation, it’s easier to use “Where’s My Refund?” to check the status of your refund.

Myth 4: Something Must be Wrong Because I Don't See a Deposit Date Yet
Where's My Refund? ‎on both IRS.gov and the IRS2Go mobile app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. If you’re claiming EITC or ACTC you will not see a refund date on Where's My Refund? ‎until then.

These refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27 — if there are no processing issues with the tax return and the taxpayer chose direct deposit. This additional period is due to several factors, including banking and financial systems needing time to process deposits. Taxpayers who have filed early in the filing season, but are claiming EITC or ACTC, should not expect their refund until the week of Feb. 27. Remember that President’s Day weekend may impact when you get your refund since many financial institutions do not process payments on weekends or holidays.

Myth 5: Refunds Claiming EITC and/or ACTC, will be Delivered on Feb. 15
By law, the IRS cannot issue refunds before Feb. 15 for any tax return claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The IRS must hold the entire refund, not just the part related to the EITC or ACTC. The IRS will begin to release these refunds starting Feb. 15.

These refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27. Any additional review of your tax return will cause an additional delay.

Using “Where’s My Refund?”
“Where’s My Refund?” can be checked within 24 hours after the IRS has received an e-filed return or four weeks after receipt of a mailed paper return. "Where’s My Refund?" has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved, and (3) Refund Sent.

Remember, when using “Where’s My Refund?” or the IRS2Go app, you must have information from your current, pending tax return to access your refund information.

The majority of taxpayers are able to claim an exemption for themselves, decreasing the taxable income on their tax return. You may also be able to claim an exemption for each of your dependents. Each exemption usually allows you to deduct $4,050 on your 2016 tax return.

​Below are five important tips to remember when it comes to dependents and exemptions:

1. Personal Exemptions. You can frequently claim exemptions for yourself and your spouse on a jointly filed tax return. For married taxpayers filing separate returns, an exemption can only be claimed for your spouse if that spouse:
   • Had no gross income,
   • Is not filing a tax return, and
   • Was not the dependent of another taxpayer.
2. Exemptions for Dependents. A dependent is either a child or a relative who meets a set of conditions. You can usually claim dependents as exemptions. Be sure to list a Social Security number for each dependent.
3. No Exemption on Dependent’s Return. If you can claim a person as a dependent, then that dependent cannot claim a personal exemption on his or her own tax return. This is true even if no one claims that person on a tax return.
4. Dependents May Have to File. A dependent may have to file a tax return. This depends on certain factors like total income, whether they are married and if they owe certain taxes.
5. Exemption Phase-Out. If you earn above a certain amount, you will lose part or all of the $4,050 exemption.