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It's that time of the year! Year End Tax Planning is very important for especially for real estate investors. A lot has happened this year in the real estate market and the general economy. It impacts the portfolio of many Real Estate Investors in many ways. Not just value of the holding in our hands, how we want to invest in coming years and even our retirement. It also impacts tax issues that will be confronting us in the upcoming tax filing season. There is also preparation we have to do in our tax planning with a view of the economic trend in the coming year.
The Difference Between Tax Preparation and Tax Planning
Tax preparation for the March 15th or April 15th return is not considered advance tax planning. It is merely tax compliance as opposed to voluntary tax reduction planning. Though returns aren't due until April, they cover a tax year that ends Dec. 31. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning. Getting a head start could make you a lot happier in April, giving you a bigger refund or a smaller check to write to Uncle Sam.
At this time of year, it's important for real estate investors, landlords, property owners and vacation owners to take advantage of tax saving opportunities. Tax planning should be a priority so you can reap the rewards when tax filing time rolls around. Here are some year end tax strategies to use, but you must take action before December 31st.
Tax rates are at historically low rates right now, but that won't always be the case. To prepare for any future tax hikes, you should accelerate any rental income by receiving January rental income in December. Income timing can be difficult though and you should consider its impact on various deductions.
You can accelerate many times of rental expenses such as: paying bills early and buying equipment or services needed for the rental property business. Your expenses can include: printing, memberships, insurance, real estate education, cell phone services and adverts. Don't forget your largest deductible expense which is the mortage – you can prepay the January mortgage to increase your interest expenses. If you hire employees, you can also prepay social security, medicare and unemployment taxes.
Individuals & Self-Employed
Plain vanilla year-end tax planning strategies suggest that all taxpayers should generally defer income and accelerate expenses in order to reduce current-year taxable income and tax liabilities. But the AMT (Alternative Minimum Tax) is becoming an increasingly big problem, turning most tax planning logic upside-down.
Alternative Minimum TaxAMT is catching more and more individuals. Those who happen to have significant deductions – those living in a state with a relatively high personal income tax rate and high real estate taxes – are vulnerable. The AMT makes year-end planning difficult and potentially dangerous if done in a vacuum.
Reducing regular tax liability through deductions, deferral and overall rate reductions has increased the AMT liability exposure. All planning must consider multiple years to be truly effective. While a credit for prior-year AMT may be available against regular income tax in a subsequent year, there is no guarantee that the AMT will ever be recovered.
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Our Free Assessment allows you to find out just how much you could have saved over the years, and how much you could save in the future. Assessments can find missed deductions, potential audit triggers and identify compliance and asset protection risk.
For those about to file taxes, we offer a free consultation. Learn how you can legally reduce the amount you pay out, personally, or maximize the financial efficiency of your business as a whole. We also advise on business formation and business restructuring.
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