Why It’s So Important to do Year End Tax Planning
Once December 31st has come and gone, your tax liability for the tax year will be set in stone.
Until then, and especially now that your final tax picture for the year is becoming more clear, year-end tax planning presents a unique last chance to lower your tax bill. This frees up more money for you to fund your real estate and business investments.This is an investment in time well worth considering!
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. By taking certain steps now, before the year draws to a close, you can reduce the size of your tax bill otherwise due when you file your return next year.
Year End Tax Saving Tips for Real Estate Investors
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, 2011.
Rental Income
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.
Rental Expenses
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.
Last Minute Year End Tax Tips
There’s not much of 2011 left and many people are scrambling to save whatever they can on their taxes. Yes, it’s quite possible to save a ton of money before the year is out and start 2012 fresh ready to focus on wealth building.
Here are some strategies you can use to save those last minute bucks.
1. Start a business. If you don’t already have a business, consider starting one before December 31st. You could convert your real estate practice into an LLC and get deductions for business expenses. Plus you can get some relief from Alternative Mininum Tax (AMT)
2. Check your AMT status. AMT 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.
3. Employ your children. Yes really! This is a tax deduction for your business, and it will keep everyone happy, you, the IRS and even your kids. Just make sure you stick to the rules: written job description, time-sheet records and pay in line with current market rates.
4. Settle on a rental property by December 31st. You’ll be entitled to depreciation deductions, plus you can incur rental property expenses such as utilities, repairs and insurance.
5. Accelerate Business expenses. You don’t need to invest in anything you don’t need, but you can prepay some regular expenses such as; rent, insurance and taxes. You can prepay for up to 3 months and take the deduction.
Top Reasons Why You Should Set up a Solo 401k as part of your Year End Tax Planning
What is a Solo 401k?
A Solo 401k is a great retirement plan for self-employed individuals or business owners with no employees or part-time employees only.Business types such as sole proprietorships, family businesses, partnerships and corporations can take advantage of what the Solo 401k has to offer–maximized savings at a low cost and the flexibility to invest in traditional and alternative investments tax free or by deferring taxes.
There are many features of the solo 401k that make it attractive to business owners:
Alternative Assets & Equity Investments
A Solo 401k allows you to invest in many types of investments including; stocks, mutual funds, real estate, hedge funds, gold, private loans, private equity and more.
Year End Tax Tips for Business Owners and Individuals that Could Save a Lot of Money
Tax planning does not have to be as dreadful as some people will have you believe, if you know how to plan and what to consider when planning for your taxes. This is probably one of the most important and consistent financial issues you will face. It is a good idea to stay abreast of your tax obligations and responsibilities. Whether you are an individual tax payer or business owner, a tax professional has the knowledge and experience to make the task as beneficial for you as possible.
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 Tax
AMT 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.
What we can Learn from Steve Jobs about Year End Tax Planning
It’s not often that talk about taxes hits celebrity blogs and gossip sites, but the recent death of Apple CEO, Steve Jobs, and the hasty divorce application of TV reality star, Kim Kardashian, have made the headlines partly because of how Uncle Sam will affect their respective fortunes.
Steve Jobs
Steve Jobs will forever be remembered as the engineer who most shaped our technology into the future. Steve Jobs died worth $7billion and we may never know how he planned his estate, but he probably protected his assets with trusts rather than using a will. Unlike a will, a trust does not have to be submitted to probate, therefore maintaining privacy.
If Steve’s fortune goes to his wife there won’t be any tax. The spouse can inherit a fortune with no estate tax as long as she is a US citizen. But any that goes to anyplace else is subject to tax. Joe Robbie, who owned the Miami Dolphins and the stadium, died and his kids had to sell the Dolphins to pay the estate tax because it was his children who inherited, and children do not escape the estate tax.
Also, for the next 2 years we can each transfer up to $5 million tax-free to anyone else. In 2011, widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This dramatic change enables them together to transfer up to id=”mce_marker”0 million free of the estate tax, which is currently 35 percent. Tax geeks call this portability.
Finally, it is possible to set up a grantor retained annuity trust or GRAT that will result in no taxable gift. This involves putting appreciating assets into a short-term irrevocable trust (two years is typical) and retaining the right to receive an annual income stream for the term of the trust.
TOP TEN YEAR END TAX PLANNING CHECKLIST
1. If you own a business, do you have an EIN number, operating agreement, and a separate bank account?
2. Have you recorded all the income and expenses related to the business on the business bank account? This is a huge audit item for 2011.
3. If you own investment property that was foreclosed or sold as a short sale, have you considered the impact of the cancellation of debt income on your individual income taxes? Have you calculated the loss of sale of investment property?
4. If you generated any kind of active real estate income, have you considered restructuring your business to minimize the impact of self employment taxes?
5. If you have significant real estate education expenses, have you registered a business in order to minimize your audit exposure on deducting these expenses?
6. If you have significant business expenses and already have a registered business, have you considered converting to a partnership to avoid an audit flag?
7. For homes that have been repossessed, do you know the rules on recourse vs. non-recourse debt?
8. Do you understand what your tax filing requirements are for the states where your business is registered such as annual filing, personal property tax returns, etc.?
9. If you own investment property, have you considered doing a cost-segregation study in order to increase your depreciation expense?
10. If you bought or sold property in 2011, have you considered the impact of capital gains, adding rehab expenses to the basis of the property, and whether the holding costs (mortgage interest, taxes, and insurance) are deductible in 2011?
I address many of these issues in my Wealth Building Plan. Make sure you are getting the best tax advice. Let me evaluate your financial and tax situation, then develop a customized tax strategy just for you. Together, we will come up with a strategic plan designed to answer your questions as you build your own customized wealth-building plan. You can get more information at Ultimate Wealth Building Plan.
