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Frequently Asked Questions
What's the best way to borrow to make consumer purchases?
For tax years 2018 through 2025 interest on home equity loans is only deductible when the loan is used to buy, build or substantially improve the taxpayer's home that secures the loan. Prior to 2018, many homeowners took out home equity loans. Unlike other consumer-related interest expenses (e.g., car loans and credit cards) interest on a home equity loan was deductible on your tax return.
What special deductions can I get if I'm self-employed?
You may be able to take an immediate Section 179 expense deduction of up to $1,050,000 for 2021 ($1,040,000 in 2020), for equipment purchased for use in your business, instead of writing it off over many years. There is a phaseout limit of $2,620,000 in 2021 ($2,590,000 in 2020). Additionally, self-employed individuals can deduct 100 percent of their health insurance premiums. You may also be able to establish a Keogh, SEP, or SIMPLE IRA plan and deduct your contributions (investments).
Can I ever save tax by filing a separate return instead of jointly with my spouse?
You sometimes may benefit from filing separately instead of jointly. Consider filing separately if you meet the following criteria:
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One spouse has large medical expenses, miscellaneous itemized deductions, or casualty losses.
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The spouses' incomes are about equal.
Separate filing may benefit such couples because the adjusted gross income "floors" for taking the listed deductions will be computed separately.
What's the best way to give to charity?
If you're planning to make a charitable gift, it generally makes more sense to give appreciated long-term capital assets to the charity, instead of selling the assets and giving the charity the after-tax proceeds. Donating the assets instead of the cash avoids capital gains tax on the sale, and you can obtain a tax deduction for the full fair-market value of the property.
I have a large capital gain this year. What should I do?
If you also have an investment on which you have an accumulated loss, it may be advantageous to sell it prior to year-end. Capital gains losses are deductible up to the amount of your capital gains plus $3,00 ($1,500 for married filing separately). If you are planning on selling an investment on which you have an accumulated gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year (subject to estimated tax requirements).
What tax-deferred investments are possible if I'm self-employed?
Consider setting up and contributing as much as possible to a retirement plan. These are allowed even for a sideline or moonlighting business. Several types of plans are available: the Keogh plan, the SEP, and the SIMPLE IRA plan.