Legal Help When Buying and Selling Property

Questions To Ask That Could Save You Money On Your Federal Tax Return

2 March 2016 by Louise Boyd

The federal government offers taxpayers numerous potential tax breaks. Although you may benefit from some of these tax benefits, they're only helpful if you know about them. If you are looking for ways to decrease your tax liability or increase your tax refund this year, you may want to ask a tax preparer these questions.

Do I need to include any state or local tax refunds as income on my federal tax return?

Although the federal government considers state and local tax refunds as income for federal income tax purposes, you may not have to claim it as income. If you took the standard deduction for the tax year you received the refund, you don't have to include the refund amount in your taxable income the following year when you file your federal tax return.

However, if you itemized deductions on the previous year's return, you may owe tax on all or part of the refund in the following year. There is a worksheet you must complete to calculate how much of the refund – if any – is taxable.

Will I owe taxes on a home I inherit from my parents?

Although the state where you live may require that you pay estate or inheritances taxes on a property you inherit, generally, the federal government allows you to exclude inherited property from your gross income. But the new tax basis for property you inherit from a deceased individual's estate will be the property's fair market value at the time of the person's death.

What that means is even if the property was worth only $25,000 at the time the individual purchased the real estate, if it was worth $250,000 on the person's date of death, that amount is the property's new tax basis. If you later sell the property for $280,000, you will need to report a gain of $30,000 on your tax return. Typically, if you sell the property soon after you inherit it, there may be little gain from the sale to report.

Must I use up all the contributions I make to a Flexible Spending Account (FSA) within that same year?

If you participate in an FSA as a way to receive reimbursement for medical expenses you incur during the year, and the plan sponsor allows you the option, you can carry over up to $500 of any unused amount to the next year. Some plans allow a lesser carryover amount than the $500 maximum. As an added benefit, the amount you carry over won't count toward the contribution limit for the new plan year.

No federal income taxes are deducted from voluntary payroll contributions you make to a health flexible spending account. Your employer can make contributions as well and exclude the contributions from your gross income. Withdrawals from the plan are not taxed providing you use the money to pay qualified medical expenses. For more tax tips, contact a company like Bauer & Associates LTD. 

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