Infinity CPA Group LLC

05/03/2022

Maximizing the Tax Benefit of Charitable Deductions

Your charitable contribution deductions are still a great tax savings tool, but they now require more planning. Now is a great time to look at this area as part of your tax planning exercise.

BACKGROUND

Typically, cash and non-cash charitable donations can be deducted on an itemized return. But with the standard deduction now $12,950 for single filers and $25,900 for married joint filers, itemizing this year is less beneficial for most of us.

This is especially so because many other itemizable deductions have been reduced as well, including miscellaneous itemized deductions, state and local tax deductions, and home loan interest deductions.

LEVERAGE CHARITABLE TAX PLANNING

If you want to donate and get beneficial tax treatment, you can still make it work. Here's how:

UNDERSTAND THE ABOVE-THE-LINE DEDUCTION EXPIRED. Unless Congress acts the $300 above the line deduction for charitable contributions ($600 joint filers) expired at the end of 2021. So now charitable donation deductions are only available if you itemize your deductions.

CONDUCT A YEAR-END TAX FORECAST. Plan now to see how close the amount of all your yearly itemizable items will come to exceeding your standard deduction threshold.

BUNDLE TWO-IN-ONE. Consider bundling two years of charitable giving into one year. This will allow you to maximize your itemizations in one year, while using the tax savings of the standard deduction in the other year to help pay for your donations. Still not enough? Consider bundling three years of giving into one!

MAXIMIZE YOUR CHARITABLE DEDUCTION. When you can take advantage of the charitable deduction, consider donating appreciated stock held longer than one year. This is a better alternative than writing a check as you avoid paying capital gains and you can deduct the fair market value of the stock as a donation.

LOOK INTO A DONOR ADVISED FUND. When you establish this account, you receive an immediate charitable deduction for your contributions, the contributions are then invested, and you can grant the funds to qualified charities over time.

Itemized deduction rules have changed, but you can still take advantage of the tax deductibility of your charitable giving. You simply need to adjust your tax planning. Call if you'd like to discuss this or any other tax-planning strategies.

04/26/2022

IF YOU'RE EXPECTING A REFUND, READ THIS!

If you’re getting a refund, here are four useful tips to know.

1. THE AVERAGE REFUND IS MORE THAN $3,500. Through February 18, the IRS reports the average refund is $3,536, which is up 22% versus the same time last year. Since a refund is really your money to begin with, it’s like giving the federal government an interest-free loan.

TIP: If you’re getting a big refund this year due to overpayment of tax, it may be worth adjusting your withholdings to eliminate overpayment for 2022.

2. MOST REFUNDS STILL ARRIVE WITHIN THREE WEEKS. The IRS says it issues nine of 10 refunds within 21 days. However, electronically filed returns will usually get a refund faster than those filed by paper in the mail. Don't expect that turnaround with a paper filed return, however. The IRS says they are still processing a backlog of last year's returns and don't expect to be caught up until year end.

TIP: The best way to check the status of your refund is by visiting https://www.irs.gov/refunds. While you can see the status of your refund, there isn't a whole lot you can do about it until the IRS processes the refund.

3. SOMETIMES REFUNDS ARE WRONG. If your refund isn’t the amount you expected, there could be multiple reasons why. The primary culprit may be caused by the numerous incentives available during the 2021 tax year, driven by the increased Child Tax Credit. But there could also be a typo or calculation error, or the IRS may have disallowed some deductions or credits. If you owe other debts to the government, they may have these garnished from your refund check.

TIP: If your refund amount is different than the amount on your tax return, try to understand why this is the case before cashing the check. Follow up with the IRS for an explanation about the missing amount. Amounts cashed that are larger than you expect can actually cause problems if the IRS expects repayment.

4. CON ARTISTS PREY ON REFUND CHECKS. Year after year, IRS scams are among the most commonly reported frauds. Con artists call unsuspecting taxpayers and claim to be from the IRS. They say that you owe money or that a refund was issued in error and demand immediate repayment.

TIP: An IRS agent will never call a taxpayer over the phone without first sending an official letter, and will neither threaten a taxpayer nor demand immediate payment. They’ll also never ask for credit card or debit card numbers over the phone. If you are contacted by a suspected scammer, report it to the IRS by calling 800-366-4484.

Get information about tax refunds and track the status of your e-file or paper tax return.

04/18/2022

TAX DAY IS HERE!
Last-minute details, tips and freebies

With the individual tax-filing deadline on Monday, April 18, now is the time to complete all filing arrangements and payments. If you have not already done so, ask yourself these questions before it’s too late to act:

1. DO YOU NEED TO SIGN YOUR E-FILE AUTHORIZATION FORM? IRS Form 8879 needs to be signed by you before your taxes can be e-filed. If filing jointly, your spouse needs to sign as well. If you haven’t already, please return the signed form ASAP to ensure that your taxes can be e-filed on time.

2. DO YOU OWE TAXES ON YOUR 2021 TAX RETURN? If yes, make your tax payment now! The IRS has several payment options on their website. If mailing a payment, include Form 1040-V and ensure the mail is postmarked on or before April 18. Sending the payment certified mail will ensure you have proof of timely payment. Late payments, even by one day, are subject to IRS penalties and interest.

3 DO YOU NEED MORE TIME TO FILE? If you are not ready to file your taxes before the initial April 18 deadline, you can file for a six-month extension. Be aware that it is only an extension of time to file — not an extension of time to pay taxes you owe. You still need to pay all taxes by April 18.

4. DO YOU NEED TO DEPOSIT FUNDS IN YOUR IRA or HSA? Did you claim an IRA or HSA contribution on your tax return? In order for the deduction to be valid for 2021, all deposits to those accounts need to be made by April 18. Once completed, save proof of the contribution with your 2021 tax files.

5. DO YOU NEED TO MAKE AN ESTIMATED TAX PAYMENT? The first quarter estimated tax payment for 2022 is also due on April 18. If you owe taxes for 2021, making 2022 estimated payments might make sense for you. A quick way to determine a first payment is to divide the taxes you paid by four, and then adjust the amount for any paycheck withholdings. Send your payment along with Form 1040-ES to the IRS by April 18. Then, schedule a tax-planning meeting to determine the best approach for the remainder of the year.

6. DO YOU LIKE FREE STUFF? Who doesn't?! From free sub sandwiches and smoothies to discounted furniture and delivery services, tax day deals are out there waiting to be found. Check out the list from hey it's free to see if there are any deals you can enjoy!

If you miss a deadline, file your return and pay the taxes as soon as you can to stop accruing interest and penalties.

04/12/2022

IT'S TAX TIME! ESTIMATED TAXES ARE DUE.
Now is the time to file your taxes and make your estimated tax payment.

Both your individual tax return AND first quarter estimated tax payment are due by Monday, April 18th. Here is what you need to know.

FIRST QUARTER DUE DATE: MONDAY, APRIL 18, 2022

THE ESTIMATED TAX PAYMENT RULE

You are required to withhold or prepay throughout the 2022 tax year at least 90 percent of your 2022 total tax bill, or 100 percent of your 2021 federal tax bill.* A quick look at your 2021 tax return and a projection of your 2022 tax obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks.

THINGS TO CONSIDER

UNDERPAYMENT PENALTY. If you do not have proper tax withholdings throughout the year, you could be subject to an underpayment penalty. A quick payment at the end of the year may not be enough to avoid the underpayment penalty.

W-2 WITHHOLDINGS HAVE SPECIAL TREATMENT. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 wage withholdings to make up the difference.

SELF-EMPLOYED. In addition to paying income taxes, self-employed workers must also pay Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.

USE YOUR REFUND? An alternative option to pay your 2022 first quarter estimated tax is to apply some or all of your 2021 tax refund.

PAY MORE IN THE FIRST QUARTER. By paying a little more than necessary in the first quarter, you can be in a position to adjust future estimated tax payments downward later this year if your 2022 tax obligation appears that it will be lower than you originally thought.

NOT SURE IF YOU NEED TO MAKE A QUARTERLY PAYMENT? Take a quick look at your 2021 tax return to see the amount of tax you paid. Divide the tax by the number of paychecks for the year. Is enough being withheld from your paycheck? Consider adjusting your withholdings with your employer if you think it is necessary to cover your 2022 tax bill.

*If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2021 tax obligation to be safe from an underpayment penalty on your 2022 tax return.

04/05/2022

APRIL FOOLS! YOU'VE BEEN SCAMMED.
Great tips to identify scams BEFORE they happen

In honor of the traditional day of practical jokes and harmless antics, instead of chasing the hottest new tax scam, why not arm yourself with traits that will help identify even the most recent version of them. Here is what you need to know:

YOU ARE A TARGET

While virtually anyone can be a target of scams, thieves usually target those that are most likely to respond. So if you fit into one of these categories, your scam meter should go way up:

* ELDERLY. Why: High trust, generally less tech savvy
* STUDENTS. Why: Low income, high debt, and lack of street smarts
* IMMIGRANTS. Why: Easy to threaten residence status, lower understanding of processes
* HEAVY SOCIAL MEDIA USERS. Why: More willing to give away their identity and to click on things.

ACTION: If one of these groups describes you, understand you will be subject to a scam…probably every year. If not, then understand who you need to coach for heightened awareness.

HINTS TO IDENTIFY SCAMS

While not a sure-fire way to avoid all types of scams, if you follow these hints to identify scams, the likelihood of being a victim lowers dramatically.

* Personal information is requested via email, web, or phone.
* The contact comes to you, and not the other way around.
* Emails ask you to click on something.
* You are asked to visit a website.
* Initial contact from the “IRS” is anything other than mail.
* You feel threatened.
* Fear is used as a tactic.

NEVER GIVE THEM YOUR KEYS

You would never give your car keys to a complete stranger. So keep that thought in your mind as it relates to your identity, and your money. Drive your own car when it comes to the IRS by controlling the process. You do this by:

* UNDERSTANDING. Initial contact with the IRS and their collection agents always uses the mail. So never respond via email or web or phone.

* NOT TAKING THE BAIT. Any non-mail initial contact is met by hanging up the phone or deleting the email. And NEVER click on any links in an email or go to a website directed by a stranger.

* INDEPENDENT CONFIRMATION. Never respond directly unless a trusted expert handles the correspondence for you. In addition, ask any IRS agent for their pocket commission and HSPD-12 card. Then go to www.irs.gov, get the appropriate phone number and call them for confirmation that the person or form is legitimate.

* IGNORE, NON-MAIL, NON-FEDERAL. Scammers know it is harder to scam with an IRS ID, so they will claim to be from the state, local law enforcement, Social Security and even the Taxpayer Advocate Service. IN ALL CASES, either ignore or hang up the phone. Then independently look up the number of the agency and call them directly to confirm the validity of the claim. If they say they are legit, ask for mail confirmation, but DO NOT give them your address, they should already have it.

* PAYMENT ONLY GOES ONE PLACE. Finally, all IRS payments are made out to the US Treasury and sent via approved addresses or direct deposit. This can be found on www.irs.gov. There are no exceptions to this. So do not give credit card information, buy gift cards, send a check to anyone other than approved addresses, or pay anyone other than the US Treasury.

Remember, your best defense is a good offense, so call immediately if you need help. And now you really can have a happy April Fools Day!

Pay your taxes. Get your refund status. Find IRS forms and answers to tax questions. We help you understand and meet your federal tax responsibilities.

03/28/2022

TOSS THIS. NOT THAT.
YOUR GUIDE TO POST TAX-FILING RECORD RETENTION

Before you close this year's tax file there is still some work to do. If the IRS or state revenue department selects your return for review, you will need to be prepared. Here is what you need to do now:

1. KEEP A COPY OF YOUR FORM 1040 INDEFINITELY. Do not toss or destroy any of your 1040s. You may need them to correct historic Social Security earnings statements or to prove that you filed a tax return.

2. SUPPORTING DOCUMENTS NEED TO BE RETAINED FOR THREE YEARS. Records to support your tax return (i.e., W-2s, 1099s, K-1s, receipts, canceled checks, bank statements and mileage logs) should be kept for a minimum of three years from the later of the tax filing due date, the date you filed your taxes, or the date you paid your tax in full. This approach ensures that your records are available for a potential IRS audit.

3. PROPERTY AND INVESTMENT RECORDS NEED TO BE HELD LONGER. To prove your cost/basis and taxable gain or loss, all records relating to property that you own (your home, rental properties, stocks bonds and other investments) need to be kept for at least three years after it's sold or disposed.

4. BE MINDFUL OF OTHER RECORD RETENTION REQUIREMENTS. The three-year period is the federal guidance for standard returns. There are other factors that should be considered, including:
** State record retention requirements (often six months to one year longer)
** Requirements for insurance, banking or estate management
** Additional federal requirements for tax returns including unreported income (six years), worthless securities (seven years) or bad debt (seven years)
** No audit time limit for fraudulent returns

5. A SPECIFIC FILING SYSTEM IS NOT REQUIRED, BUT ORGANIZATION IS KEY. The ability to easily find your documents in the event of an audit will make the process much simpler. Here are some tips:
** File records by year rather than income or deduction type.
** Within the file, order your records to match the flow of the Form 1040.
** Consider scanning your files to create a digital file as a backup.
** Create 2022 files now to save documents for current year.
** Shred old documents; don't just throw them away.

If you are unsure whether to retain or shred something, keep it unless you know the document can be replaced.

03/22/2022

HOMEOWNER ALERT! REVIEW YOUR TAX FORMS
New tax rules are creating confusion

Home-related tax rules changing over the past few years have caught some taxpayers by surprise. When your mortgage company reports tax-related information to you and the IRS using Form 1098, it no longer means all the interest and points reported on these statements are tax deductible. Here's what you need to know.

* MORTGAGE INTEREST DEDUCTIONS HAVE NEW LOAN AMOUNT LIMITS. For new mortgages starting on or after Dec. 15, 2017, you can deduct interest on up to $750,000 of the loan (down from $1 million for mortgages initiated before Dec. 15, 2017). If your original mortgage is above the threshold, a calculation will be done to determine the deductible amount of interest. You can’t simply deduct the full amount of interest being reported on your Form 1098.

* PROCEEDS NOT USED TO BUY A HOME ADD COMPLEXITY. Proceeds from home equity debt that are not used to build, buy or substantially improve a qualified home are not tax deductible. This includes mortgage or home equity proceeds used to pay for college expenses, debt consolidation or other purposes. Mortgage companies issuing these loans will still send you a Form 1098, but it’s up to you to prove how you use the funds during the current year and any prior year.

* MORTGAGE POINTS REQUIRES REVIEW OF SETTLEMENT STATEMENTS. Points are paid as a way to obtain a lower interest rate. Generally, points are deductible in the year they are paid, but they have more restrictions than mortgage interest. Points paid to refinance an existing mortgage, for example, may need to be deducted over the life of the loan. If you bought or refinanced a home in 2021, a review of your mortgage settlement statement may be required to ensure proper tax treatment of the cost of your points.

* MORTGAGE INSURANCE PREMIUMS ARE STILL DEDUCTIBLE. Congress extended the deductibility of mortgage insurance premiums through the end of the 2021 tax year. You will need to itemize deductions to take advantage of this extended tax law.

With all the buying and selling homes in the past year, being aware of the tax consequences is more important than ever. For each Form 1098 you receive, make a note on the form to explain what the loan is for to ensure a proper deduction.

03/14/2022

DO YOU NEED TO FILE A TAX RETURN?
GETTING THIS WRONG CAN COST YOU

One of the more common tax questions is whether you need to file a federal tax return this year. The answer is: it depends. But not filing a tax return when you should can cost you plenty. Here are some quick tips to help you determine your answer.

INCOME THRESHOLDS MATTER

If your gross income is less than the federal standard deduction you usually do NOT need to file a tax return. This is because the deduction effectively eliminates any taxable income. The amounts for 2021 are:

* Married filing joint: $25,100
* Head of household: $18,800
* Unmarried (single): $12,550

OVER THE AGE OF 65

If you or your spouse are over the age of 65 the income required to file a tax return goes up by $1,350 (Married) to $1,700 (Single/Head of Household) for each of you that meets the age threshold. So a single person, age 65 or older, for example, does not need to file a federal tax return if their gross income is $14,250 or below.

NOT SO QUICK! THERE ARE EXCEPTIONS

Like most tax laws, there are exceptions to the income limits mentioned above. Here are some of the more common situations where filing a tax return still makes sense.

* YOU HAVE FEDERAL OR STATE WITHHOLDINGS. The ONLY way to get money back that was withheld from a paycheck or a Form 1099 is to file a tax return. If you do not do so within three years, your refund will be absorbed by the government. While the IRS is quick to let you know that you owe them money, there is no such program to let you know that a refund is due to you.

* YOU ARE ELIGIBLE FOR A REFUNDABLE CREDIT. Refundable credits will pay you money even if you don’t owe income tax. For example, if you have a tax liability of $750, but you are eligible for a $1,000 tax credit, you normally can only receive the $750 tax benefit. But with a refundable tax credit you can receive the additional $250, even without a tax liability. The most common examples of refundable credits are the Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit.

* IF YOU ARE A DEPENDENT. Special filing rules apply if you are a dependent on someone else’s tax return. If this is the case, filing rules vary depending on your age, your earned income (like wages) and your unearned income (like interest income). In this case it is usually best to conduct a review of your situation.

* THERE ARE INCENTIVES OUT THERE. With the numerous economic stimulus payments, the enhanced Earned Income Tax Credit and higher Child Tax Credit payments this year, it may make financial sense to file a tax return to maximize your benefit. The only way to know for sure is to review your tax situation.

* OTHER REASONS. Sometimes filing a tax return can be used for other purposes. This includes using your tax return to obtain financing or to receive college financial aid. Another reason is to limit the amount of time your tax return can be audited. Once a tax return is filed, the audit time limit clock starts. After 3 to 4 years, most tax returns can no longer be audited by the IRS. However, if the return is not filed, this audit clock never starts.

02/28/2022

MAKE YOUR CHILD A TAX-FREE MILLIONAIRE!

Want to jump start your child's retirement with a million dollar tax-free account? Consider this:

THE MILLION DOLLAR IDEA

As soon as your child begins to earn income, open a Roth IRA and set a contribution goal to reach before they graduate from high school. Assuming an 8% expected rate of return, the investments made by age 19 will grow to FORTY times its value by the time they reach 67 (current full retirement age). For example, $2,500 invested before graduation will be $100,000 at retirement. If you can bump that up to a $25,000 investment before graduation, at retirement it will be worth $1 million!

WHY IT WORKS

Compounding interest occurs when interest is earned on the interest generated from the initial contribution. The more time the investment has to grow, the more exponential growth will occur. By starting to save prior to graduating from high school, the investment will have almost fifty years of compounding growth.

Even better, while contributions to Roth IRA's must be after-tax contributions, any earnings are TAX-FREE as long as the rules are followed! Simple to say, but how do you get $25,000 into a child's Roth IRA? Here are some tips.

TIPS TO ACHIEVE THE GOAL

* HIRE YOUR CHILD. Roth IRA contributions are limited to the amount of income your child earns, so earned income is key. If you own a business or even make some money on the side, consider hiring your child to help with cleaning the office, filing or other tasks they can handle.

* LOOK FOR ACCEPTABLE YOUNG-AGE WORK IDEAS. Babysitting, yard work, walking pets, shoveling, and lawn work are all good ideas to get your child earning income at a younger age. Cash-based income is harder to prove, so don't forget to keep track of the income and consider filing a tax return, even if not required.

* LEVERAGE HIGH SCHOOL YEARS. Ages 15 through 18 will be when your child has their highest earning potential before graduation. Summer jobs, internships and part-time jobs during the school year can produce a consistent income flow to contribute to their Roth IRA and still provide spending money.

* PARENT OR GRANDPARENT MATCHING IDEA. The income earned by your child doesn't have to be directly contributed by them to the Roth IRA – it simply sets the contribution limit. Make a deal that for every dollar of income your child saves for college, a parent or grandparent contributes a matching amount to their Roth account. It can be a college and retirement savings in one!

By helping your child get a head start on saving, it should ease any anxiety regarding retirement and help them focus on school, starting their career, and other personal development goals.

02/22/2022

WHY IS THE IRS SENDING ME THIS?!?
IRS turns off some notices

In a recent announcement, the IRS is telling taxpayers it's turning off some of its automated notices. Here is what you need to know.

BACKGROUND

With the pandemic, incredibly late tax law changes from Congress, the congressional imposition on the IRS to send out three rounds of stimulus checks, and the requirement to create a new, automatic payment system of child tax credits has created a huge backlog at the IRS. In fact, there are over 6 million tax returns from last year that have still not been processed.

In the meantime, there are automated notices that go out to taxpayers that have not filed tax returns or corrected errors as deemed by IRS audit programming. To make matters worse, payments are being processed without an underlying tax return and the IRS is telling you they will return the money if you do not file your return. Penalties are imposed, there are demands for payment, even repeated notices to fix errors that have been fixed months ago!

CURRENT SITUATION

The IRS is now acknowledging the angst and hardship these notices are causing, at least for some taxpayers. So effective immediately, the IRS is turning off the following notices:

* Unfiled Tax Return
* Return Delinquency Notice
* Balance Due Notices
* Withholding Compliance Letter
Source: IR 2022-31

WHAT YOU SHOULD KNOW

DON'T FRET. IRS notices almost always raise your blood pressure. So open the notice and ask for help.

IF YOU RECEIVE A NOTICE, REPLY TO IT. While the IRS says it is not necessary to reply, you should probably still do so. Your reply must be timely AND be sent with confirmation of date sent. You can use certified mail or express mail service with tracking information. You don’t want to get caught up in the IRS machine while they try to sort it out.

COMPLIANCE IS REQUIRED. While the IRS is turning off many notices, the penalties and interest will still accrue if you have not filed your tax return or owe tax. So file your tax return and pay the tax as it is still required.

E-FILE HELPS. While some forms must still be processed via mail, most individual tax returns can be sent via e-file. Continue to file your return digitally whenever possible. Unfortunately, handling these correspondence audits often requires a written response.

IT IS TEMPORARY. The IRS will turn these notices back on after the backlog of tax returns is brought under control.

Sanity will hopefully return and all future tax law changes will be made before the next tax year starts. Just don’t hold your breath and be quick to ask for help if you need it.

02/15/2022

COMMON TAX INCREASE SURPRISES
I did not owe that last year!

PICTURE THIS: For the past few years you've received your tax return and have had a small but nice refund. Now imagine your surprise, when this year, you are required to send in a fairly big check to settle your tax bill. Believe it or not, this message is almost as hard to deliver to you as it is to hear it. Here are some situations to watch for that can increase your tax liability:

NEW TAX LAWS. The multiple bills passed to pay out assistance from government programs must now be accounted for on this year's tax return. While the goal of the legislation is to reduce taxes, there are several changes that could cause you to pay more taxes, including:

* Repayment of duplicate economic stimulus checks.
* New taxability of unemployment benefits.
* Accounting for any small business loan and grant benefits.
* The need to take required minimum distributions once again in 2021.

A CHILD IS NO LONGER ELIGIBLE. This year's child tax credit is a big increase versus prior years. But if you already received the money through the advance child tax credit payment system, it will impact your refund this year. And as children get older they grow out of lots of things — clothes, interests and tax credits. Here are some age requirements for popular tax benefits:

* Child and Dependent Care Credit: under age 13
* Child Tax Credit: over age 17
* Earned Income Tax Credit: under age 19 (24 if a qualified student)

EARNINGS WITH SOCIAL SECURITY BENEFITS. If you are recently retired, start collecting Social Security Benefits, and then begin working part-time, you are also in for a tax surprise. These extra earnings could not only make your Social Security benefits taxable, it could result in a reduction of benefits received.

OTHER LIFE EVENTS. Other life events could provide a tax surprise for you. While some may have positive tax consequences, like a new birth, or becoming the head of household, others might surprise you and result in additional tax. Other common life events include retirement, death and entering/leaving school.

CAPITAL GAINS SURPRISES FROM MUTUAL FUNDS. Often sales of investments are a planned event. Unfortunately, many mutual funds sell assets and then you receive a capital gain statement with a surprise taxable event.

Want to avoid these surprises? Spend some time now reviewing your anticipated tax situation for 2021. By doing so, perhaps a planned pleasant surprise can be in store for you.

02/08/2022

RENT YOUR PROPERTY TAX-FREE

Most income you receive is taxable income that is reported to the federal and state tax authorities. However, renting out your home or vacation property on a short-term basis can be done tax-free if you follow the rules.

THE RULE: If you receive rental income for less than 15 days per year, that income is generally not taxable income.

ADDED BENEFIT: In addition to tax-free rental income, you may still deduct your mortgage interest expense and property taxes as itemized deductions. Neither of these tax benefits is reduced by the income from up to two weeks of rental activity.

WOULD SOMEONE WANT TO RENT YOUR PROPERTY?

Sure it sounds good, but why would someone want to rent your property? Here are some ideas:

SPECIAL EVENTS. If a big event is in town, consider renting out your home for participants and fans. Common examples include:

* Football games
* Concerts
* Golf tournaments
* Conferences and expos
* State high school tournaments

VACATION HOME RENTAL. If you have a cabin or cottage, consider renting out your place for two weeks. If you find responsible renters, you may have an opportunity to find reliable repeat renters each year.

HOTEL ALTERNATIVES. Oftentimes travelers from other cities and countries would love to rent out homes or rooms within homes while traveling. This lets travelers have a real local experience.

KNOW THE RISKS

The hassle factor needs to be considered prior to taking advantage of this tax-free income opportunity. Having a proper rental agreement, damage deposit, and insurance are key factors to consider. Also remember that if you rent out your property for more than 14 days, all rent received is taxable and rental income rules apply. And don't forget to review any local regulations prior to renting your property.

Home rental sites like Vrbo and Airbnb can help you better understand your options for renting your property.