Clients are interested in taxes this spring…
Judging by the number of your questions. Here are some popular questions with answers.
My employer offers a pet insurance benefit. Can I pay for this with pretax wages?
No. Unlike employer-paid health insurance for workers, which isn’t included in taxable wages, the value of employer-paid pet insurance is taxable income. Most employers who offer pet insurance benefits don’t subsidize the cost, and employees who opt in pay their share through post-tax payroll deductions.
Can I use 529 funds to pay for a college student’s studies abroad?
In many cases, yes. A 529 plan can be used for any college that participates in the U.S. federal student aid program. If a student is enrolled in a U.S. college and chooses to study abroad through the school’s program for a semester or two, the study-abroad program will be 529-eligible, provided the U.S. college is eligible and the college accepts the study-abroad credits. If the child decides to enroll in a non-U.S. college for their full college education, then that foreign university must participate in the U.S. federal student aid program. And, believe it or not, many foreign colleges do participate and would therefore qualify as eligible schools for 529 purposes. Tuition, books, fees, and room and board can be paid with 529 funds.
I own a residential rental property and put a new roof on it last month. Can I fully deduct the cost of the roof on Schedule E of my 2024 Form 1040?
No, but you can depreciate it over 27.5 years. The new roof you installed is treated as an improvement to the rental property and is treated separately from the underlying property for depreciation purposes. This means the roof’s cost is depreciated over 27.5 years, the same as residential rental property. The beginning depreciation year would be 2024, the year you put on the new roof.
I am planning to take out a reverse mortgage on my primary residence. Will I owe federal income tax on the money I receive in the transaction?
No. The payments you get from a reverse mortgage are treated as nontaxable loan proceeds. Note that if you itemize, you cannot deduct on Schedule A of the 1040 the interest you eventually pay. That’s because you are not using the reverse mortgage proceeds to buy, build or substantially improve the home that is securing the mortgage.
My business just received the employee retention tax credit for 2021 wages. Must my firm amend its 2021 income tax return to reflect the ERTC refund?
Yes, if your business previously deducted the wages on that return. The ERTC reduces the wages-paid deduction on the employer’s income tax return. Since your firm got the ERTC after filing its 2021 return, it must amend that return to reduce the wages deduction by the ERTC received. You can’t treat the ERTC refund as income in 2024, the year you received it. Note that examiners at the Service are looking at this issue very closely because it’s a common ERTC compliance error.