I do tax planning, prep, and IRS Representation primarily in Western PA. I hold an Enrolled Agent license, a PA insurance License, a Series 66 Investment Advisors License as well as being a Certified Tax Resolution Consultant.
There are quite a few things out there in the personal finance realm that are reportable to the taxing authorities even though they are not taxable. This runs contrary to what many people think, because, hey, if it isn't taxable, I just do it, walk away and life goes on, right? Not so fast. Here are two examples that are often botched.
1. Sale of Personal Residence- Yes, you can sell your home and not pay capital gains taxes on up to $250,000 if single and $500,000 if married many states also extend this tax skipping privilege, but it does come with reporting requirements. You must have lived in the home as a personal residence for two of the past five years (if you get married and your spouse moves in within two to five years sale, that complicates things a bit), and once you get the exemption, you can't get it again for three years. You are limited to the aforementioned $250,000/$500,000 limitation so it helps if you have the closing documents for both the purchase and sale of the home, as well as substantiation of major improvements such as a major remodel. So....
Taxable: No, not within specified limitations
Reportable: Absolutely
2. Early Withdrawal of Roth IRA Basis- Since Roth IRAs are typically funded with after tax money, you can withdraw your basis at any time free of tax liability, but does that mean withdrawing basis isn't reportable, absolutely NOT! In fact, you'll have another form to fill out and submit with your tax return (Form 8606, which can be, and needs to be filed on its own, even if you don't need to file a 1040 tax return) explaining what you did (Form 8606). Be sure to keep a good record of your basis (amount contributed out of pocket) in case of an audit.
Taxable: No, not as long as you are taking out basis and no growth
Reportable: Always
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Ph: 412-685-4285
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