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Small Business Tax Q&A: December ’17

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No gift of carryover loss

Q. My elderly father has a capital loss carryover from the prior year. Can he gift it to me if he can’t use it? D.J.L., Amherst, Mass.

A. No. A capital loss carryover occurs in a tax year in which you still have a remaining loss after offsetting your capital gains and up to $3,000 of ordinary income. When this situation occurs, the excess is carried over to the next tax year and forward indefinitely until it is exhausted or the taxpayer passes away. But it can’t be gifted to someone else or otherwise transferred to another party. So the carryover loss can only benefit your father.

Tip: This may be a good time for your father to sell appreciated assets to absorb the carryover loss.

Program tax break for biz software

Q. I’m confused about write-offs for business software. Is this currently deductible? K.R., Burlington, Vt.

A. It depends, which can be confusing. Thanks to recent tax law changes, “off-the-shelf” software is currently deductible via the Section 179 deduction. This includes software that isn’t custom-designed and is available to the general public. The tax break for off-the-shelf software was extended and permanently preserved by the Protecting Americans from Tax Hikes (PATH) Act.

Tip: The cost of customized software can be amortized over 15 years.

What comes out in the wash

Q. I sold an S&P index fund at a loss. If I buy another one, will this trigger the wash sale rule? L.R., Denver

A. Maybe, but the rules are murky. The “wash sale” rule only applies if you acquire substantially identical securities within 30 days of the sale of the securities you sell for a loss. In that case, you can’t deduct the loss from the initial sale. Unfortunately, there is no bright-line test for what constitutes “substantially identical” securities for this purpose. But comparable index funds are arguably a close call, so you might want to err on the side of caution. Alternatively, you can wait at least 31 days to buy the second index fund.

Tip: If the loss is disallowed, it is added to your basis in the new index fund to compute taxable gain or loss on the future sale of shares in that fund.

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{ 1 comment… read it below or add one }

Raymond Lavine December 22, 2017 at 2:25 pm

You may deduct LTC premiums if you have medical expenses exceed 10% of your medical expenses from personal income taxes. LTC premiums may also be deductible as a business expense if your company pays the premiums, you an LLC, Subchapter S, or C Corporation. Consult with your accountant or wealth advisor. If you own a business or the business will pay for your benefits — it is a good deal but keep in perspective, The purpose of this plan is to have reserves in place for caregiving benefits which will not disrupt your cash flow. Never own a benefit because of tax deductions. Own a benefit because it will reimburse if you need the benefits. Tax deductions are secondary and useful. There is no “conservative return on investment” available to you as an individual to accomplish what an insurance company and the tax code provides. The tax codes changes. Sometimes it giveth or it may taketh. Pleasant and Happy Holidays.

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