If taxable income is up to $40,125 as a single individual, $80,250 if you are married, and $53,700 if you file as head of household (HOH), you may not owe any taxes on your sales of any security that you sell.

Say a married person has a taxable income of $40,000, and $40,000 in stock sales then their AGI is $80,000.  They are below the $80,250 threshold they may not owe any taxes on their securities sales. Now is the time to take hold of this situation.

Further, if you fall out of the perimeter for a 0 percent capital gain tax, you can still work with them to harvest gains and losses in 2020. Let’s say a person sold $80,000 in securities, but then harvested their losses of $100,000 then you would have a $3,000 capital loss and the remainder would be carried forward. This would wipe out any lurking capital gains.

Any amount of capital gains received is taxed either as ordinary income or 15 percent or 20 percent, depending on AGI.  The calculation of the gains is then added to all other income, to comprise AGI and after deductions, you arrive at taxable income. The capital gains portion of the taxable income is figured differently than the ordinary taxable income. If that income falls below the 12 percent tax bracket then there is no capital gains tax due.

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There are also many opportunities to save on taxes imposed by local jurisdictions on the business entity. A number of local jurisdictions — and the list is growing — impose local taxes on business entities. In some cases, such as New York City, the tax applies to unincorporated businesses. This would include partnerships, LLCs, and sole proprietorships.

With an unincorporated business tax rate of 4 percent, the amount of the tax is significant. The tax rate “is charged to income allocated to New York City,” meaning that income is not allocated to a business for employees working from a location outside of New York City. You can take away that portion of the work that is not performed in New York City and you don’t have to pay the 4 percent. It can be quite a substantial savings for businesses that make a lot of money. Large companies can save millions in taxes.

This is an ongoing conversation, other jurisdictions are considering this since they are under increasing pressure to find alternative means of raising revenue.

Companies need to take advantage of this if they qualify. Companies thinking about this opportunity should know that all tax jurisdictions are going to be aggressive. States, counties, and cities all have significant deficits, so states are unlikely to assist the local jurisdictions since they have their own issues.

Since local budgets won’t get fixed anytime soon, expect to be audited. To successfully fight the audit, a business should be prepared to prove who is working, from where, and for how long. The burden of proof falls on the taxpayer, so if the local jurisdiction audits the taxpayer, the onus will be on the firm to provide clear and convincing evidence about the position it has taken. But given the amount of tax savings involved, the effort is worth it.

For more information please visit: https://www.accountingtoday.com/news/remote-workers-may-provide-tax-savings-for-employers

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