Wednesday September 16, 2015
The air is starting to get cold & crisp in the morning and pretty soon the leaves will start changing. But where do taxes fit in?
There's No Better Time Than NOW
There is no better time than the fall season to review any year-end tax planning decisions that could lead to savings come April 2016. Below are 10 year-end tax tips that can help you keep your hard-earned money:
10 Year-End Tax Saving Strategies
The # 1 Loss of Wealth in the U.S. is TAXES
- Average American loses between 40% - 50% of annual income in the various
- types of taxes (federal income tax, state income tax, payroll tax, sales tax, property tax, use tax, etc.)
- Only way to legally reduce taxes is with proactive tax planning
- It is anticipated that tax rates will rise in the near future
Year-End Tax Planning
- Complete YTD Bookkeeping, to know where you stand
- Comprehensive analysis of year-to-date personal, business, and investment information to determine action steps before December 31st, 2015 to save taxes on this year’s income
- December 31st is generally the cut-off date to determine tax liability and accordingly, the last date for implementation of certain tax saving strategies
Benefits of Year-End Tax Planning
- Paying less taxes means more money to enjoy and invest
- Decreased taxes results in increased investing potential
- Deferring payment of taxes into future years to increase current return on investment
Tax Refund Opportunity in Year-End Tax Planning
- New law passed in November 2009 to allow for significant opportunities in tax refunds
- On average, the new refund laws have resulted in tax refunds ranging between $4,000 to over $500,000 per taxpayer.
- Do not overlook planning if losses were incurred in the past year….MAXIMIZE those losses and turn them into CASH!!
Income Deferral Strategies in Year-End Planning
- Structure “earning” of income until after December 31 and defer the payment of taxes for over 365 days
- Look at matching gains and losses within the same year to minimize or eliminate Taxes
Tax Depreciation and Expenses
- Depreciation makes real estate a tax preferred investing vehicle by creating "paper losses" while generating positive cash flow and equity growth
- Cost segregation to classify building components and improvements can increase a current tax deduction by accelerating depreciation expense
- Take advantage of accelerated depreciation because it is a complete write-off of the capital in the first year the expense is incurred (if applicable)
Accelerate Expenses to Speed up Tax Deductions
- Analyze money to be spent in early next year and consider prepaying or incurring those expenses to accelerate the tax deduction
- Examples of common expenses for real estate investors that can be prepaid are: repairs, accounting fees, legal fees, property taxes, insurance, marketing fees, etc.
- Bonus: Ask vendors to accept credit card payments. Charge these expenses prior to December 31 to get a tax deduction this year without any cash out of pocket!
Real Estate Professional Status
- Benefit of real estate professional is unlimited ability to utilize real estate losses to offset most all other income categories
- Real estate professional as defined by the IRS does not require any licensing.
- Rather it looks to specific type and amount of activity performed by the investor
- Work with Laura to determine ways to qualify for the related tax benefits through planning and documentation
2015 New Retirement Plan Opportunity
- Traditional IRA allows for tax deferred growth while Roth IRA allows for TAX FREE growth
- Ability to invest in real estate with a qualified plan by rolling funds from IRAs, 401ks, pensions, defined contribution plans, etc.
- Invest in real estate with Roth IRAs to generally pay no taxes on the gain upon the sale of the property AND on monthly income from property
- Any individual, regardless of income level, can convert funds from traditional to a Roth IRA. (Downside of conversion is taxes may need to be paid in the year of conversion)
Putting It All Together
- Look at combining multiple strategies above to minimize tax liability or maximize tax refund
- Obtain high level of understanding for above strategies and work with Laura to determine applicability of each
- Get together with Laura NOW to start planning for ways to reduce taxes and maximize cash flow and investing potential