In this year’s tax series, we have covered a variety of tax topics. This post will summarize each post in the series!
The “Firearm Safety Device Credit” provides a credit toward taxpayers’ Virginia state income tax if they purchase a firearm safety device. All purchases must be made from a federally licensed firearms dealer. The maximum credit is $300 per individual each year. The credit is non-refundable. In order to claim the credit, you have to fill out a separate application.
A W2 has a number of boxes:
Boxes A through F identify the employee and employer.
Boxes 1 (wages, tips, other compensation), 3 (social security wages), and 5 (medicare wages and tips) show different wage calculations. There can be differences between these numbers.
Boxes 2 (federal income tax withheld), 4 (social security tax withheld), and 6 (Medicare tax withheld) show different taxes withheld.
Boxes 7 and 8 show information about tips.
Boxes 10 and 11 show information about dependent care benefits and nonqualified plans.
Box 12 shows codes for a variety of things, such as retirement account contributions and HSA contributions.
Boxes 15 through 20 show state and local tax information.
Workplace plan contributions are typically reported on your W2 and the tax treatment is already reflected on the other areas of the W2.
Traditional IRA contributions need to be reported on your tax return. Roth IRA contributions do not need to be reported on your tax return, but they need to be reported for the Saver’s Credit.
The Saver’s Credit provides extra tax benefits for making retirement account contributions. However, it is only available to lower income taxpayers.
To qualify for the child tax credit, a taxpayer must have a qualifying child and their AGI must not exceed certain limits. The maximum AGI to receive the full credit is $400k.
The credit can be up to $2,000 per child. This amount is non-refundable. However, there is also the “additional child tax credit” that works in tandem with the “child tax credit.” It can be thought of as the refundable part of the child tax credit. Up to $1,600 per child can be refundable.
A Roth conversion is where an account holder with a traditional IRA moves funds or securities from within their traditional IRA to a Roth IRA. A Roth conversion will often trigger taxes.
If all contributions made to the traditional IRA were tax-deductible, the amount converted is all taxable as regular income in the year of the conversion.
If non-deductible contributions were made to the traditional IRA, the whole amount of the conversion is not taxable. However, you cannot choose to just convert the non-deductible contributions. The conversion must be pro-rata or proportional to the portion of the non-deductible contributions to the total value of all the account holder’s IRAs.
The Adoption Tax Credit is a federal tax credit that can help offset some of the costs associated with adoption. The limit of the credit in 2024 is $16,810. The full credit can only be claimed by taxpayers with MAGI below $252,150.
When the credit can be claimed depends of the type of adoption. For a domestic adoption, expenses can be claimed the year after they are paid or in the year the adoption is finalized, whichever is sooner. For an international adoption, expenses can only be claimed in the year the adoption is finalized.
For business and investment purposes, the purchase price of property (or major improvements to property) that are expected to last for more than one year, cannot be claimed fully as a deduction in the year of purchase. Rather, the purchase price is divided over a number of years. The yearly deductible expense is called “depreciation.”
The number of years a property is depreciated depends on the type of property. For example:
Cars/trucks are depreciated over 5 years.
Office furniture is depreciated over 7 years.
Residential rental property is depreciated over 27.5 years.
Non-residential real estate is depreciated over 39 years.
Under straight-line depreciation, the property’s cost basis is divided by the depreciation period. In practice, there are systems used to accelerate the depreciation on property in excess of what straight-line depreciation would allow.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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