‘Miscellaneous’ tax deduction explained
Motley Fool
Q: What’s the “2 percent floor” in tax talk? — K.G., Fort Myers, Florida
A: It refers to miscellaneous itemized deductions. You can deduct only the portion of them that exceeds 2 percent of your adjusted gross income (AGI). For example, if your AGI is $50,000, your floor will be 2 percent of that, or $1,000. If your miscellaneous itemized deductions total $900, you’re out of luck. But if they total $1,750, you can deduct $750.
Qualifying expenses include certain home office expenses, tax-preparation fees, investment-related fees, job-hunting expenses and unreimbursed job-related expenses. Unfortunately, the recent tax reform suspends these miscellaneous itemized deductions beginning with the 2018 tax year through 2025. So enjoy using your 2017 expenses on your return this spring!
Learn more in our tax nook at fool.com/taxes and from the horse’s mouth at irs.gov. Fool’s School: Options lesson
Assume that you want to invest in Morse Code Telecommunications (ticker: TAPTAP). You can buy shares of its stock — or you might use options, which come in two main varieties: calls and puts. Buying a call gives you the right to buy a specified number of shares at a specified price within a certain period (typically a few months). Puts give you the right to sell shares at a specified price within a specified period.
Imagine that TAPTAP is selling for $50 per share, and you buy $6 “July $55” call options for it. You’ll pay a total of $600 for options to buy 100 shares at $55 apiece. If, just before your options expire, TAPTAP is selling for, say, $65 per share, you can exercise them and buy 100 shares for $5,500. Then you can keep them — or sell them at their current price, for $6,500. Your profit might seem to be $1,000, but you paid $600 for the options, so it’s really $400, less commissions and taxes. If TAPTAP stays at $55 or falls, your $600 would be entirely lost. You essentially bet that the stock will top $61 per share — $55 plus $6 — by July.
Options are enticing because of the leverage they offer. With $1,000, you can buy only 20 shares of a $50 stock. Alternatively, that $1,000 could buy many options tied to hundreds of shares of stock. With options, if things don’t go your way in a short time frame, the options will expire worthless. Most options expire unexercised.
If you’ve researched the company and believe that TAPTAP stock will rise, you’re generally best off buying its stock. You won’t have a short-term deadline, and you can hang on until it reaches your target price.
Options are not for beginning investors, and many advanced investors steer clear, too. Still, there are some lower-risk options strategies. There are also long-term “LEAPS” options that you could investigate. Learn more at fool.com/ investing/options/optionsaaspx.
Name that company
I trace my roots to 1972, when a guy founded me as a mail-order business to sell small telescopes. Over time, I offered more and more products for amateur astronomers. I’m known for innovation, such as my telescopes that feature auto-guiding systems to easily align on objects of interest. Today, based in Irvine, California, I’m the world’s leading designer and maker of telescopes, and I offer many binoculars and optical accessories, too. In 2013 I merged, with Sunny Optics, a subsidiary of a Chinese company. My brands include Coronado, SolarMax, LightBridge, LightSwitch, Wilderness and Astro. Who am I?
Last week’s answer
In 1954, my current chairman took over an Australian company and built a media empire that launched TV channels such as Fox News, FX, Fox Sports Network and National Geographic. It was split it in two in 2013, and I got many enterprises you might know, such as The Australian, Barron’s, Dow Jones, Harlequin, HarperCollins, MarketWatch, The New York Post, The Times, The Wall Street Journal, William Morrow and Zondervan. (Fox News went to the other company, 21st Century Fox.) My market value was recently near $9 billion. Who am I? (Answer: News Corp.)