Possible expansion of capital gains exemption on home sales

Recently, there has been discussion by the Trump Administration to expand the capital gains tax on home sales.  Due to significant increases in home prices and low inventories of existing homes, the discussion is important.

Let's review the tax provision as it currently sits.  The existing law goes back to 1997 where the following parameters were put in place:

Excluded gain on sale of home                               Filing status

250,000 or less                                                        Single

500,000 or less                                                        MFJ

The 1997 law was significant legislation and provided considerable tax relief to taxpayers for selling their homes.  However, since that time, there has been no indexing gains to inflation.

Right now, this is an idea has been brought up for discussion.  It will take an act of  Congress  to draft the legislation, plus a vote in the affirmative along with a signature from the President for it to become law.  We don't know what form this proposal will eventually take, but LFC will be watching  the development of this idea in the weeks and months ahead.

Consulting Businesses - accounting for retainers

 In the consulting business, retainers are received from clients for future work on projects or on-going consulting services.  How to handle this for accounting purposes is an important concern.  

First of all, if the consulting business accounting system operates on a cash basis, the receipt of a retainer would be recorded as income even through no work has been done yet to be applied against the retainer received.  Therefore, a system outside of the accounting system, perhaps a spreadsheet, would monitor hours worked and applied against the retainer.  

If the accounting system is an accrual system, the initial receipt of the retainer is recorded as Unearned Revenue.  This means that the receipt of the retainer does not generate income.  Work performed and invoiced against the retainer is when the income is earned.  Once work is performed, invoices can be created and applied against the retainer based on how work is charged: per hour, flat rate, etc.  

If charging customers by the hour, one could make use of Quickbooks timesheets to monitor time charged against a project and applied against an already received retainer.  This will help keep track of the work performed as well as know how much of the retainer has been used.

Keep in mind, if a retainer has not been fully exhausted, the remaining balance would be a liability for the company and owed back to the customer.  

If your business accepts retainers and is unclear how to handle them, contact Liberty Financial for more information.

2026 Tax Preparation - things to know

 Some key provisions of the One Big Beautiful Bill Act (OBBBA) of 2025 kick in for 2026 or are adjusted for inflation.  Below is a short list of important items for the 2026 tax preparation season:

1.  Educator expenses of $350 to be deducted without itemizing.  Excess of $350 can be deducted on Schedule A and not subject to 2% AGI limitation.

2.  $2500 of Education loan interest is deductible.

3.  Annual gift tax exclusion amount is $19,000.

4.  Standard mileage (use of car for business, charities, or medical) per mile:

      a.  Business - 1/1/26 to 6/30/26:   72 cents; 7/1/26 to 12/31/26:   76 cents

      b.  Charities - 14 cents

      c.  Medical - 1/1/26 to 6/30/26:  20.5 cents:  7/1/26 to 12/31/26:  23.5 cents

5.  Recipients of 1099 Misc or 1099 NEC:  reporting organizations will issue forms if amount paid to qualifying individuals is $2,000 or more (prior to 2026 amount was $600).

6.  Child and Dependent Care credit - up to 50% of expenses (prior years: 35%)

7. Mortgage insurance premiums are included as qualified mortgage interest.

8.  Gambling losses are reduced to 90% of losses against gambling winnings.

9.  SALT (State and local tax) deduction limitation raised to $40,400 for 2026.

10.  Charitable deduction of $1,000 ($2,000 for Married filing jointly) for non-itemizing taxpayers.

11.  529 Education Plans - distribution increase from $10,000 to $20,000 for elementary and secondary school expenses in 2026.

 

These are some of the provisions of the OBBBA for 2026 to be aware of.  LFC can help taxpayers learn more about the 2026 filing season and what other items of the law may impact them.  

Contact LFC for more information or set an appointment.      

Errors on financial statements in Quickbooks

As a Quickbooks Pro Advisor, Liberty Financial has offered assistance to Quickbooks users in assessing and correcting problems with financial statements.

Many errors result from incorrect item set up or lack of understanding of basic accounting.

Here are some examples:

1.  Adding items to the item list:  the item list is used to populated forms such as invoices, sales receipts, sales orders, purchase orders, and bills.  The items direct the transactions to the chart of accounts.  If the item is tagged to the incorrect account on the chart of accounts, the financial statements will be incorrect.  It is important to know when an item is to be coded as income, expense, or an inventory item as it is used on a form.  

2.  Treating all payments as expense - payments for credit cards or loans should not be treated as expenses.  These are liability payments.  The expenses are the actual charges on the credit card statements and the interest component on the loan payment. These are the charges that should be reflected on the income statement, not the payment to reduce the loan or credit card balance.  Those payments impact the balance sheet.

Basic accounting requires an understanding of the accounts on the chart of account list:

Assets - items owned by the company:   cash, accounts receivable, fixed assets, inventory, and intangible assets such as trademarks and patents.

Liabilities - items owed by the company:   accounts payable, payroll taxes, sales taxes, customer deposits, mortgages loans, vehicle loans, and credit cards.

Capital - net equity of the company (assets - liabilities):  capital consists of cash and property put into the company by the owner; distributions taken by the owners, and retained earnings (sum of profits and losses over the life of the business).

Viewing transactions as a journal entry will help reduce errors on a financial statement. Here are some examples:

Sales:      Debit to Accounts Receivable or Cash

                Credit to Income

Expense:  Debit to Expense (utilities, office supplies, etc)

                  Credit Cash or Accounts Payable

Owner Draw/Distribution:      Debit Owner Distributions (capital account)

                                                  Credit Cash

These are some basic concepts to keep in mind about processing financial data for one's financial statements.    Liberty Financial can help organizations ensure they have credible financial statements, which are vitally important to their success.

Contact LFC today for assistance.

Estimated Tax payments 2026 - 3rd and 4th Quarter

For those taxpayers who need to make quarterly tax payments each year, the 3rd and 4th quarter payment due dates will be coming up soon.  Those due dates are as follows:

• 9/15/26
• 1/15/27

The One Big Beautiful Bill, passed in 2025, has made the necessity to review the estimated tax calculations important.  With its multitude of new provisions and tax savings features, it is vital to know that the calculation for these payments is accurately determined and one is taking full advantage of the law's tax savings as it pertains to one's financial situation.  

Liberty Financial Consulting, Inc. can help you with these calculations.  Contact the office to arrange a time before the September deadline for the 3rd quarter payment.