Illinois State Income Tax
The Illinois state income tax is back up, it’s just a matter of when and how much it will rise. Will Illinois implement a progressive state income tax like California? Maybe so if Illinois House Speaker Michael Madigan has his way. According to Crain’s Chicago Business, House Speaker Madigan plans to introduce legislation calling for a vote in November on a constitutional amendment to allow a progressive state income tax in Illinois. Specifically, Madigan proposed a 3 percent surcharge on individual income above $1 million. On the other hand, Senate President John Cullerton may be seeking a progressive state income tax on a lower income threshhold:
The U.S. Supreme Court ruled severance pay is taxable income. Lower courts issued divided rulings on the issue. However, it should not come as a surprise that the Supreme Court recently ruled that severance payments to laid off workers are subject to Social Security, Medicare and federal income tax. Therefore, recipients of severance pay should retain a CPA to understand the tax implications of severance pay. Also, get full details of the ruling in U.S. v. Quality Stores:
Mortgage Forgiveness Debt Relief Act
The Mortgage Forgiveness Debt Relief Act recently extended to cover tax years 2015 and 2016. https://www.nar.realtor/news-releases/2015/12/national-association-of-realtors-applaud-passage-of-tax-extenders-package
Does the cancellation of a debt result in taxable income? Yes, if you owe a debt to someone and they cancel or forgive that debt, the canceled amount may be taxable income to you. Some exceptions to this general rule were set forth in my earlier blog post on this subject. The taxpayer should receive a 1099-C Cancellation of Debt. This cancellation of debt is also reported to the IRS.
However, there is some good news for homeowners who have gone through a mortgage foreclosure or short sale. In December 2007, Congress enacted the The Mortgage Forgiveness Debt Relief Act of 2007. Generally, the Act allows taxpayers to exclude income from the discharge of debt on their principal residence as the result of a mortgage modification, mortgage foreclosure or short sale. The Act applies to up to $2 million of mortgage debt ($1 million if married filing separately) forgiven in calendar years 2007 through 2013. Subsequently, Congress extended the Act to mortgage debt forgiven in tax year 2014.
Contact Chicago CPA and attorney Brian J. Thompson for legal advice re the Mortgage Forgiveness Debt Relief Act.
IRS Form 1099-C
Did you receive a Form 1099-C this year? Chicago CPA and business lawyer Brian J. Thompson wants you to know that Form 1099-C is used to report Income from Cancellation of Debt.
The general rule is if you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable income.
There are some exceptions to the general rule. The most common circumstances when cancellation of debt income is not taxable involve:
- Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007; it applies to most homeowners.
- Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
- Insolvency: If you are insolvent (i.e., your total debts are more than the fair market value of your total assets) when the debt is canceled, some or all of the canceled debt may not be taxable income to you.
- Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. In other words, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
- Certain farm debts.
States Without Income Tax
States without income tax? Florida, Nevada, Texas, South Dakota, Washington, Wyoming and Alaska don’t impose income taxes, while New Hampshire and Tennessee only tax interest and dividend income.
If you are considering moving to a state without income tax, carefully plan your move and return visits to your former state. Otherwise, you can greatly complicate your tax life and cost yourself tons in back taxes and penalties.
One factor to consider is the amount of time you spend in your former state. If you are still planning to spend significant time in your former state, limit it to less than 183 days. This article from CNNMoney sets forth other factors to consider:
Itching for your federal income tax refund? You’ll have to wait an extra 10 days to file your 2013 tax reutrn this year. The IRS says that the 16-day government shutdown in October has delayed the start of tax filing from Jan. 21 to Jan. 31:
Chicago business lawyer and CPA Brian J. Thompson wants you to know that several homeowner tax breaks including the private mortgage insurance deduction and mortgage debt relief expired on December 31, 2013:
If you are getting ready to file your 2013 federal income taxes, you may be wondering about your 2013 marginal income tax rates and standard deduction amounts. Here’s some of the info you’ll need courtesy of the IRS and Forbes:
In order to reduce federal income taxes on your mutual funds, avoid buying mutual funds near the distribution date, buy index funds which typically have little to no capital gains or dividend distributions, buy a tax-managed mutual funds, or harvest other capital losses to offset your capital gains (If you have more capital losses than gains, you can deduct up to $3,000 of those capital losses from your earned income. And if you still have losses left over, you can carry those over into the next tax year). The full range of strategies to minimize your taxes on investment gains is explained in this article:
From filing status errors to incomplete info on charitable deductions, don’t delay receipt of your refund with any of these common tax filing mistakes (courtesy of Yahoo! Finance and Bankrate, Inc.):