This document provides strategies for real estate investors to reduce their tax burden. It discusses establishing an S-corporation to avoid self-employment taxes, maximizing depreciation deductions by separating land from improvements, taking deductions for repairs and vehicle expenses, and using tax credits. It also recommends strategies like establishing family employment to save on payroll taxes and setting up a medical reimbursement plan to deduct healthcare costs.
This document lists the 10 most expensive tax mistakes that business owners can make. These include failing to do tax planning, having "audit paranoia", operating under the wrong business entity, choosing the wrong retirement plan, missing opportunities for family employment, missing medical benefits, not deducting a home office, missing car/truck expenses, missing meals and entertainment deductions, and not using a tax coaching service. It provides details on each mistake and how to avoid or minimize them.
How to Reduce Plaintiff Attorneys' Income Taxes and Build Wealth Using Contin...Greg Maxwell
This presentation was created by Greg Maxwell, Esq., CFP® of Amicus Settlement Planners. If you have any questions about deferring legal fees, you may schedule a complimentary call with Greg via this link: bit.ly/book-a-call-with-greg-maxwell, or you can email Greg at Contact@AmicusPlanners.com.
Current Tax Planning Techniques in U.S. and International TransactionsWinston & Strawn LLP
The document summarizes various tax planning techniques for U.S. and international transactions, including:
1) Inversions following recent IRS notices that limit benefits;
2) Acquisitions of foreign targets through alternative structures like a non-inversion, inversion, or acquisition by a foreign subsidiary;
3) Considerations for cross-border transactions like tax deferral, foreign tax credits, and tax-efficient repatriation.
4) Potential tax consequences of inversion transactions for shareholders.
A Mid-Year Financial Review:
More Time to Plan
Understanding Mutual Fund
Expense Ratios
How Much Life Insurance is
Enough?
I started a business that lost
money this year. Do I have
NOL?
Variable annuities and mutual funds are long-term investment vehicles designed for retirement. Variable annuities offer tax-deferred growth and death benefits while mutual funds allow for more flexibility but do not provide the same tax benefits. Both have associated fees that impact returns. Retirement planning should consider factors like longer lifespans, inflation, and rising healthcare costs to ensure adequate savings.
This document discusses tax practice and ethics regarding Campbell Corporation's tax return preparation. Campbell develops electronic products including GPS applications. Its research department works with the US government and on software development. Some research qualifies for the federal tax credit but some items are uncertain. As Campbell's tax advisor, you must determine how aggressive to be in claiming credits, consider potential penalties, and provide diligent advice given limited expertise in GPS software. The document then summarizes IRS administration including letter rulings, determination letters, technical advice memorandums, audit selection processes, audit types and procedures.
This document lists the 10 most expensive tax mistakes that business owners can make. These include failing to do tax planning, having "audit paranoia", operating under the wrong business entity, choosing the wrong retirement plan, missing opportunities for family employment, missing medical benefits, not deducting a home office, missing car/truck expenses, missing meals and entertainment deductions, and not using a tax coaching service. It provides details on each mistake and how to avoid or minimize them.
How to Reduce Plaintiff Attorneys' Income Taxes and Build Wealth Using Contin...Greg Maxwell
This presentation was created by Greg Maxwell, Esq., CFP® of Amicus Settlement Planners. If you have any questions about deferring legal fees, you may schedule a complimentary call with Greg via this link: bit.ly/book-a-call-with-greg-maxwell, or you can email Greg at Contact@AmicusPlanners.com.
Current Tax Planning Techniques in U.S. and International TransactionsWinston & Strawn LLP
The document summarizes various tax planning techniques for U.S. and international transactions, including:
1) Inversions following recent IRS notices that limit benefits;
2) Acquisitions of foreign targets through alternative structures like a non-inversion, inversion, or acquisition by a foreign subsidiary;
3) Considerations for cross-border transactions like tax deferral, foreign tax credits, and tax-efficient repatriation.
4) Potential tax consequences of inversion transactions for shareholders.
A Mid-Year Financial Review:
More Time to Plan
Understanding Mutual Fund
Expense Ratios
How Much Life Insurance is
Enough?
I started a business that lost
money this year. Do I have
NOL?
Variable annuities and mutual funds are long-term investment vehicles designed for retirement. Variable annuities offer tax-deferred growth and death benefits while mutual funds allow for more flexibility but do not provide the same tax benefits. Both have associated fees that impact returns. Retirement planning should consider factors like longer lifespans, inflation, and rising healthcare costs to ensure adequate savings.
This document discusses tax practice and ethics regarding Campbell Corporation's tax return preparation. Campbell develops electronic products including GPS applications. Its research department works with the US government and on software development. Some research qualifies for the federal tax credit but some items are uncertain. As Campbell's tax advisor, you must determine how aggressive to be in claiming credits, consider potential penalties, and provide diligent advice given limited expertise in GPS software. The document then summarizes IRS administration including letter rulings, determination letters, technical advice memorandums, audit selection processes, audit types and procedures.
The document lists items taxpayers should bring to a tax interview. These include social security cards, drivers licenses, dependents' information, wage and earnings statements, records of income like pensions and interest, business/self-employment records, records of major purchases/sales like real estate, and records of deductions and credits like medical expenses, taxes paid, and charitable contributions. Having these documents makes the tax preparation process faster and more accurate.
This document discusses various tax planning strategies that can be implemented before or after death to minimize estate taxes and income taxes. It covers reducing the value of assets, increasing liabilities, utilizing annual gift and estate tax exemptions, planning for basis step-ups, structuring closely-held business interests, and final year income tax planning techniques. Key ideas include making annual exclusion gifts, using grantor trusts, private annuities, self-cancelling installment notes, and converting traditional IRAs to Roth IRAs.
This document discusses various tax planning strategies, including:
1) Simple income tax planning strategies like IRA conversions to Roth IRAs and using Section 529 plans.
2) Estate planning techniques such as irrevocable life insurance trusts (ILITs) and spousal lifetime access trusts (SLATs).
3) Using non-grantor charitable lead trusts to make charitable gifts with pre-tax income.
4) Intentionally defective grantor trusts, also known as IDIOT trusts, which allow for leveraged gifting using notes with low interest rates.
The document provides explanations and examples of how these different strategies can help clients reduce taxes and plan their estates. It is
San Francisco Bay Chapter Ten Tax Concepts Rentals Real Estatetaxhowto
This document summarizes a presentation by Gerald Pusateri on tax concepts related to rental real estate. It discusses 10 key concepts: 1) basis considerations; 2) depreciation; 3) capital gains and losses; 4) the "triangle of gain" involving appreciation, depreciation recapture, and capital gains; 5) repairs vs improvements; 6) limits on rental losses; 7) treatment of disallowed passive losses; 8) exclusion of gain on home converted to rental; 9) renting to relatives below fair market value; and 10) selling to relatives below fair market value. The presentation aims to educate rental property owners and tax clients on these important tax issues.
The document summarizes how corporately-held life insurance can be used as a tax minimization tool for the estate of a shareholder. It provides examples of how deemed dispositions at death can trigger capital gains taxes, and how life insurance death benefits credited to the corporation's capital dividend account can fund tax-free distributions to the estate to avoid double taxation. Specifically, it compares different post-mortem planning strategies, finding that using an insured redemption where some dividends are taxable and some capital preserves half the capital dividend account and results in the lowest total taxes.
This year's annual seminar took place on Tuesday, March 8, 2016.
The agenda was as follows:
8:00 a.m. Registration, Breakfast + Networking
8:30 a.m. Evolving Issues for 2016: HR To-Do List, presented by Lawrence Feheley
9:00 a.m. OSHA Recent Developments + Impact on Employers
Presented by: Eric Travers and Brendan Feheley
Eric and Brendan provided an analysis of the new developments in OSHA and provided practice pointers and strategies for employers dealing with heightened OSHA scrutiny.
9:45 a.m. Worker Misclassification, presented by Tim Gallagher.
Misclassification of an employee can leave a company in danger of facing legal issues, including FITW, FICA and FUTA tax code violations. Tim defined what constitutes an independent contractor and discussed the risks for classifying an employee incorrectly.
10:30 a.m. Break
10:45 a.m. Non-Competition Agreements, presented by Robert Cohen.
Robert discussed important aspects of non-compete agreements, including how to draft an enforceable document that works for your company. He also provided steps to take in the event an employee you would like to hire is bound to a non-compete agreement.
11:30 a.m. Are You Smarter Than an Employment Lawyer? Presented by Brendan Feheley.
In this interactive segment, Brendan challenged guests to test their employment knowledge. He focused on a variety of important topics for human resource professionals.
12:30 p.m. Questions + Answers
The document introduces the M Financial Group and their "Super Roth" deferred compensation strategy. It summarizes that the strategy allows tax-free growth and tax-free withdrawals through a company-sponsored plan with life insurance funding. It provides hypothetical examples showing how the "Super Roth" strategy could provide higher total and spendable retirement benefits than traditional pension or personal investment strategies by diversifying accumulations and hedging against future tax increases.
This document discusses considerations for selecting a corporate tax structure and compares the tax implications of sole proprietorships, partnerships, S corporations, and C corporations. It covers factors to consider like financing, liability, profits/losses, exits, and employees. Each structure is then summarized in terms of separate taxation, taxation of income, contributions of property, and special allocations or elections. The presenters are available to answer questions.
This document provides a summary of the Electronic Bulletin of Australian Tax Developments. It discusses several key topics from the issue, including:
1) The proposed investment allowance which provides tax deductions for businesses that invest in new depreciating assets or improve existing assets, in an effort to boost capital expenditure.
2) Key details businesses should be aware of regarding the investment allowance, such as the deadlines for entering arrangements and using/installing qualifying assets.
3) Ways businesses can utilize GST rules and cash flow planning to reduce costs and access refunds, including options for changing reporting periods and claiming credits in different circumstances.
4) Tax implications that may arise from asset impairment given current economic conditions
This document discusses various retirement planning strategies using your business. It begins by asking how much readers think retirement will cost and lists common estimates. It then outlines an agenda to cover accumulating money pre-tax and after-tax, different plan types, taxation of retirement income, and combining plans. The document discusses strategies like qualified plans, IRAs, annuities, and life insurance to save both pre-tax and after-tax. It emphasizes the benefits of tax-deferred growth and argues readers should diversify their strategies between taxable, pre-tax, tax-deferred, and tax-free approaches. The document suggests meeting to review the reader's goals, existing plans, and make recommendations to help achieve their retirement objectives.
The document summarizes a presentation given by Terrance Resnick on business succession and estate planning. It discusses how inefficient succession planning is a leading cause of family businesses failing between the first and second generation. It provides a checklist of issues that should be addressed in a business succession plan and highlights common mistakes made, such as relying solely on an "I love you will" that leaves everything to a spouse.
The document provides an overview of the changes to individual and business taxation resulting from the 2017 tax reform law. For individuals, it summarizes changes such as lower tax rates, increased standard deduction, changes to certain deductions. For businesses, it discusses expanded expensing allowances, limitations on interest expense deductions, changes to meals and entertainment deductions. It also provides details on the new 20% pass-through deduction and its limitations.
This document discusses retirement plan distribution options and how to invest distributions. It provides three main distribution alternatives: lump-sum distributions, rolling over to an IRA, or leaving the money in the plan. It notes tax and penalty consequences of each option and emphasizes the benefits of rolling over funds to an IRA to avoid taxes and continue tax-deferred growth. It also provides tips on selecting investments and discusses risks and rewards associated with different asset classes.
Sullivan Dewing Business Builders - Prevent Withering on the Vine - Becoming ...Sullivan Dewing
Find out the strategies your business needs to implement to ensure it is making the profit it should.
Discover how to create personal wealth by accessing the profits of the business in a tax effective way.
Key points covered:
Our philosophy – work hard & keep as much of your earnings as possible
Show some tricks of the trade to stop leakage of: income tax, workers comp, payroll & super
Go through a Live example
SMSFs – the perfect vine for growing personal wealth
What to look for in an accountant
The document provides 13 tax strategies for saving money, as outlined by Mark Huber, CFP. Strategy #1 recommends lending money to a lower-income spouse at the prescribed interest rate of 1% so any investment gains will be taxed at the spouse's potentially lower tax rate. Strategy #2 suggests liquidating investments to pay down non-deductible debt and replacing them by borrowing to make the interest deductible. Strategy #3 recommends selling losing investments to offset capital gains.
This document provides an overview and summary of preserving retirement assets through IRA rollovers. It discusses the options available when changing jobs, including taking a lump sum distribution, leaving funds in the previous employer's plan, or rolling funds over to a new employer's plan or a traditional IRA. It notes that taking a lump sum distribution can result in taxes and penalties that reduce the available retirement funds. The document then provides examples showing how much more money could be available in retirement by rolling funds over instead of taking a lump sum. It discusses the details and benefits of direct and indirect IRA rollovers.
This document provides an overview of key concepts related to capital gains and losses for income tax purposes. It defines capital assets and discusses the tax treatment of capital gains and losses, which depends on the holding period. Short-term capital gains are taxed as ordinary income, while long-term capital gains are taxed at preferential rates. The document also covers determining gain or loss amounts and the tax treatment of section 1231 assets.
First of our 4 part series on using Self Managed Superannuation Funds as part of your Wealth and Retirement Planning.
this is the introduction to SMSF and why and how to use them as well as the respobsibilities and some tips and traps to avoidT
International Tax and Transfer Pricing TopicsSkoda Minotti
This document provides an overview and agenda for topics related to international taxation and transfer pricing. It discusses general U.S. tax principles, income tax treaties, the foreign tax credit, international filing requirements, and transfer pricing. Specific items covered include the U.S. tax treatment of foreign persons and U.S. persons, anti-deferral regimes like Subpart F and PFIC, and documentation requirements for forms like 5471, 8865, and 8858.
Rome became politically unstable over 50 years with 22 different emperors fighting for the throne. Corruption spread as government officials accepted bribes, fewer talented people served in government, and wealthy citizens refused to pay taxes. As a result, infrastructure like roads and bridges fell into disrepair, trade routes became unsafe due to invaders, and hunger spread as not enough farmers worked the land. Various tribes and groups like the Huns repeatedly invaded the empire, which had grown too large to defend effectively.
The document lists items taxpayers should bring to a tax interview. These include social security cards, drivers licenses, dependents' information, wage and earnings statements, records of income like pensions and interest, business/self-employment records, records of major purchases/sales like real estate, and records of deductions and credits like medical expenses, taxes paid, and charitable contributions. Having these documents makes the tax preparation process faster and more accurate.
This document discusses various tax planning strategies that can be implemented before or after death to minimize estate taxes and income taxes. It covers reducing the value of assets, increasing liabilities, utilizing annual gift and estate tax exemptions, planning for basis step-ups, structuring closely-held business interests, and final year income tax planning techniques. Key ideas include making annual exclusion gifts, using grantor trusts, private annuities, self-cancelling installment notes, and converting traditional IRAs to Roth IRAs.
This document discusses various tax planning strategies, including:
1) Simple income tax planning strategies like IRA conversions to Roth IRAs and using Section 529 plans.
2) Estate planning techniques such as irrevocable life insurance trusts (ILITs) and spousal lifetime access trusts (SLATs).
3) Using non-grantor charitable lead trusts to make charitable gifts with pre-tax income.
4) Intentionally defective grantor trusts, also known as IDIOT trusts, which allow for leveraged gifting using notes with low interest rates.
The document provides explanations and examples of how these different strategies can help clients reduce taxes and plan their estates. It is
San Francisco Bay Chapter Ten Tax Concepts Rentals Real Estatetaxhowto
This document summarizes a presentation by Gerald Pusateri on tax concepts related to rental real estate. It discusses 10 key concepts: 1) basis considerations; 2) depreciation; 3) capital gains and losses; 4) the "triangle of gain" involving appreciation, depreciation recapture, and capital gains; 5) repairs vs improvements; 6) limits on rental losses; 7) treatment of disallowed passive losses; 8) exclusion of gain on home converted to rental; 9) renting to relatives below fair market value; and 10) selling to relatives below fair market value. The presentation aims to educate rental property owners and tax clients on these important tax issues.
The document summarizes how corporately-held life insurance can be used as a tax minimization tool for the estate of a shareholder. It provides examples of how deemed dispositions at death can trigger capital gains taxes, and how life insurance death benefits credited to the corporation's capital dividend account can fund tax-free distributions to the estate to avoid double taxation. Specifically, it compares different post-mortem planning strategies, finding that using an insured redemption where some dividends are taxable and some capital preserves half the capital dividend account and results in the lowest total taxes.
This year's annual seminar took place on Tuesday, March 8, 2016.
The agenda was as follows:
8:00 a.m. Registration, Breakfast + Networking
8:30 a.m. Evolving Issues for 2016: HR To-Do List, presented by Lawrence Feheley
9:00 a.m. OSHA Recent Developments + Impact on Employers
Presented by: Eric Travers and Brendan Feheley
Eric and Brendan provided an analysis of the new developments in OSHA and provided practice pointers and strategies for employers dealing with heightened OSHA scrutiny.
9:45 a.m. Worker Misclassification, presented by Tim Gallagher.
Misclassification of an employee can leave a company in danger of facing legal issues, including FITW, FICA and FUTA tax code violations. Tim defined what constitutes an independent contractor and discussed the risks for classifying an employee incorrectly.
10:30 a.m. Break
10:45 a.m. Non-Competition Agreements, presented by Robert Cohen.
Robert discussed important aspects of non-compete agreements, including how to draft an enforceable document that works for your company. He also provided steps to take in the event an employee you would like to hire is bound to a non-compete agreement.
11:30 a.m. Are You Smarter Than an Employment Lawyer? Presented by Brendan Feheley.
In this interactive segment, Brendan challenged guests to test their employment knowledge. He focused on a variety of important topics for human resource professionals.
12:30 p.m. Questions + Answers
The document introduces the M Financial Group and their "Super Roth" deferred compensation strategy. It summarizes that the strategy allows tax-free growth and tax-free withdrawals through a company-sponsored plan with life insurance funding. It provides hypothetical examples showing how the "Super Roth" strategy could provide higher total and spendable retirement benefits than traditional pension or personal investment strategies by diversifying accumulations and hedging against future tax increases.
This document discusses considerations for selecting a corporate tax structure and compares the tax implications of sole proprietorships, partnerships, S corporations, and C corporations. It covers factors to consider like financing, liability, profits/losses, exits, and employees. Each structure is then summarized in terms of separate taxation, taxation of income, contributions of property, and special allocations or elections. The presenters are available to answer questions.
This document provides a summary of the Electronic Bulletin of Australian Tax Developments. It discusses several key topics from the issue, including:
1) The proposed investment allowance which provides tax deductions for businesses that invest in new depreciating assets or improve existing assets, in an effort to boost capital expenditure.
2) Key details businesses should be aware of regarding the investment allowance, such as the deadlines for entering arrangements and using/installing qualifying assets.
3) Ways businesses can utilize GST rules and cash flow planning to reduce costs and access refunds, including options for changing reporting periods and claiming credits in different circumstances.
4) Tax implications that may arise from asset impairment given current economic conditions
This document discusses various retirement planning strategies using your business. It begins by asking how much readers think retirement will cost and lists common estimates. It then outlines an agenda to cover accumulating money pre-tax and after-tax, different plan types, taxation of retirement income, and combining plans. The document discusses strategies like qualified plans, IRAs, annuities, and life insurance to save both pre-tax and after-tax. It emphasizes the benefits of tax-deferred growth and argues readers should diversify their strategies between taxable, pre-tax, tax-deferred, and tax-free approaches. The document suggests meeting to review the reader's goals, existing plans, and make recommendations to help achieve their retirement objectives.
The document summarizes a presentation given by Terrance Resnick on business succession and estate planning. It discusses how inefficient succession planning is a leading cause of family businesses failing between the first and second generation. It provides a checklist of issues that should be addressed in a business succession plan and highlights common mistakes made, such as relying solely on an "I love you will" that leaves everything to a spouse.
The document provides an overview of the changes to individual and business taxation resulting from the 2017 tax reform law. For individuals, it summarizes changes such as lower tax rates, increased standard deduction, changes to certain deductions. For businesses, it discusses expanded expensing allowances, limitations on interest expense deductions, changes to meals and entertainment deductions. It also provides details on the new 20% pass-through deduction and its limitations.
This document discusses retirement plan distribution options and how to invest distributions. It provides three main distribution alternatives: lump-sum distributions, rolling over to an IRA, or leaving the money in the plan. It notes tax and penalty consequences of each option and emphasizes the benefits of rolling over funds to an IRA to avoid taxes and continue tax-deferred growth. It also provides tips on selecting investments and discusses risks and rewards associated with different asset classes.
Sullivan Dewing Business Builders - Prevent Withering on the Vine - Becoming ...Sullivan Dewing
Find out the strategies your business needs to implement to ensure it is making the profit it should.
Discover how to create personal wealth by accessing the profits of the business in a tax effective way.
Key points covered:
Our philosophy – work hard & keep as much of your earnings as possible
Show some tricks of the trade to stop leakage of: income tax, workers comp, payroll & super
Go through a Live example
SMSFs – the perfect vine for growing personal wealth
What to look for in an accountant
The document provides 13 tax strategies for saving money, as outlined by Mark Huber, CFP. Strategy #1 recommends lending money to a lower-income spouse at the prescribed interest rate of 1% so any investment gains will be taxed at the spouse's potentially lower tax rate. Strategy #2 suggests liquidating investments to pay down non-deductible debt and replacing them by borrowing to make the interest deductible. Strategy #3 recommends selling losing investments to offset capital gains.
This document provides an overview and summary of preserving retirement assets through IRA rollovers. It discusses the options available when changing jobs, including taking a lump sum distribution, leaving funds in the previous employer's plan, or rolling funds over to a new employer's plan or a traditional IRA. It notes that taking a lump sum distribution can result in taxes and penalties that reduce the available retirement funds. The document then provides examples showing how much more money could be available in retirement by rolling funds over instead of taking a lump sum. It discusses the details and benefits of direct and indirect IRA rollovers.
This document provides an overview of key concepts related to capital gains and losses for income tax purposes. It defines capital assets and discusses the tax treatment of capital gains and losses, which depends on the holding period. Short-term capital gains are taxed as ordinary income, while long-term capital gains are taxed at preferential rates. The document also covers determining gain or loss amounts and the tax treatment of section 1231 assets.
First of our 4 part series on using Self Managed Superannuation Funds as part of your Wealth and Retirement Planning.
this is the introduction to SMSF and why and how to use them as well as the respobsibilities and some tips and traps to avoidT
International Tax and Transfer Pricing TopicsSkoda Minotti
This document provides an overview and agenda for topics related to international taxation and transfer pricing. It discusses general U.S. tax principles, income tax treaties, the foreign tax credit, international filing requirements, and transfer pricing. Specific items covered include the U.S. tax treatment of foreign persons and U.S. persons, anti-deferral regimes like Subpart F and PFIC, and documentation requirements for forms like 5471, 8865, and 8858.
Rome became politically unstable over 50 years with 22 different emperors fighting for the throne. Corruption spread as government officials accepted bribes, fewer talented people served in government, and wealthy citizens refused to pay taxes. As a result, infrastructure like roads and bridges fell into disrepair, trade routes became unsafe due to invaders, and hunger spread as not enough farmers worked the land. Various tribes and groups like the Huns repeatedly invaded the empire, which had grown too large to defend effectively.
Water is found all over the Earth in places like ponds, streams, lakes, oceans, and underground. It is also found in clouds. Water is a clear liquid with the formula H2O and is essential for all living things. Water is considered a renewable resource because the water cycle continuously replenishes water supplies by evaporating water from bodies of water into the sky, where it condenses into clouds and falls back to the ground as precipitation like rain or snow. Without water, all living things would not survive.
Spiders live in many places around the world, including in the Arctic and on mountain tops. They catch their food using webs or by jumping on their prey and injecting poison with their fangs. Spiders have two body parts, a head and abdomen, and eight legs with claws on the bottom. Female spiders lay eggs after mating, which they may hide or carry, and the baby spiders or spiderlings molt as they grow. There are many different types of spiders that vary in size, color and toxicity, and they generally eat insects and small animals.
Osteoporosis is a condition where bones become brittle and porous, affecting over 25 million people in the US. It develops from not consuming enough calcium-rich foods and exercising regularly, especially during pre-teen years when 50% of bone growth occurs. To prevent osteoporosis, people should eat at least 4 daily servings of low-fat dairy products and exercise for 30 minutes per day to build and maintain strong, healthy bones.
The American flag represents the United States and its original 13 colonies, with thirteen red and white stripes and a star for each state. The Great Seal, found on passports and currency, features an eagle holding symbols of peace and war and mottos representing unity and a new order. The Liberty Bell symbolizes American freedom and was originally cast in England to hang in Pennsylvania's capital building. July 4th marks the nation's birthday when the Declaration of Independence was signed, establishing independence from England. The Statue of Liberty, a gift from France, stands as a symbol of freedom and friendship between the two nations. "The Star Spangled Banner" became the national anthem after Francis Scott Key wrote it originally titled "
Osteoporosis is a condition where bones become porous and fragile, affecting over 20 million Americans. It develops during childhood when many do not consume enough calcium through dairy or other foods. Exercise is also important for building strong bones, but many do not meet daily activity recommendations. Consuming calcium-rich foods like yogurt, ice cream and pudding can help prevent osteoporosis by supporting bone health.
This document defines and provides examples of various forms of nonfiction writing, including biography, autobiography, essays, informative articles, and interviews. Biographies tell the story of a person's life as written by someone else, while autobiographies are told from the first-person perspective. Essays are short written pieces on a single topic that typically contain 5 paragraphs. Informative articles and news stories provide factual information about subjects and current events. Interviews involve a person asking questions of a guest to obtain information.
The document discusses several foundational aspects of America, beginning with the Mayflower Compact which established self-governance for the Plymouth colony. It then discusses the Enlightenment principles of individual rights and responsibilities of government. Finally, it outlines key elements of problem solving through community groups, capitalism through private enterprise and trade, and advances in science and technology.
The Roman Empire began in Italy when the twin brothers Romulus and Remus founded Rome, with Romulus becoming the first king after killing Remus. The Empire expanded throughout the Mediterranean Sea and parts of Europe, Asia, and Africa. Some important figures included the first emperor Augustus Caesar, emperors Diocletian and Constantine who divided and moved the capital to Constantinople, and Justinian who created laws to protect citizens. The Empire eventually split into Western and Eastern halves, with the Western Empire falling first due to being poorer and more vulnerable to invasions.
Smoking is a Risk you Cannot Afford to Take jwdweck
Smoking causes over 393,000 deaths per year in the U.S. and is the number one cause of preventable death. It contains over 4,800 chemicals, including 69 that cause cancer. Smoking harms almost every organ in the body and is a leading cause of lung cancer. Quitting smoking can be difficult but is important for health and can save money, while also preventing second-hand smoke exposure for others.
The document discusses several important American symbols including the American flag, the Great Seal, the Liberty Bell, Independence Day, the Statue of Liberty, and the national anthem. The American flag represents the original 13 colonies through its 13 red and white stripes and current 50 states with its stars. The Great Seal depicts an eagle holding symbols of peace and war representing the 13 colonies. The Liberty Bell symbolizes peace and independence and is located in Philadelphia. Independence Day on July 4th commemorates the signing of the Declaration of Independence separating from England. France gifted the Statue of Liberty to the US to represent freedom. The national anthem, "The Star Spangled Banner", was originally a poem written after the defense of Fort
Dragonflies are ancient flying insects found worldwide. They have four wings, a mouth, two antennae, and a skeleton on the outside of their body. Dragonflies eat small insects and frogs using their labial mask. Their bodies have a head, thorax, abdomen, six legs, and two antennae. Dragonflies go through a life cycle where eggs are laid in water, nymphs develop underwater, then emerge as winged adults.
Scorpions are arachnids that can live up to 15 years and are found on every continent except Antarctica. They have an exoskeleton body divided into sections and use their pincers and venomous tail to kill prey like insects and other scorpions. About 25 of the over 1,500 known species can kill humans with their venom, but scientists also study scorpion venom to develop medications that may help treat diseases like cancer. Scorpions have inhabited the Earth for over 400 million years and there are likely many more undiscovered species.
This document provides an overview of tax strategies for real estate investors. It discusses how to structure income and expenses to minimize taxes through deductions, credits, and tax-advantaged business entities like S-corporations. Key strategies include maximizing depreciation by breaking out property components, avoiding self-employment taxes through S-corps, employing family members, and establishing medical reimbursement plans. The document emphasizes the importance of tax planning and coaching services to legally reduce tax liability.
dermot obrien presentation on tax at The Business of Fun 2011AOIFE
This document summarizes key tax issues for organizers of events and festivals in Ireland. It discusses typical organizational structures and how income tax, corporation tax, VAT, and payroll taxes are the main tax heads. It provides guidance on determining whether individuals are employees or self-employed contractors for payroll tax purposes. The document also examines VAT issues around classifying events as taxable or exempt and the implications for recovering input VAT. Key considerations for venue owners are also outlined.
This document discusses the tax benefits of incorporating for realtors. It outlines how incorporation allows for tax deferral through lower corporate tax rates compared to personal tax rates. Incorporation also enables income splitting between family members through dividend payments. Finally, incorporation provides liability protection as corporate assets are separate from personal assets, shielding personal assets from business-related lawsuits. The document provides examples of how to structure compensation, utilize investment vehicles like RRSPs, and engage in tax planning to further reduce taxes.
This document provides an overview of 10 key tax strategies for real estate investors:
1. Failing to properly plan taxes can be costly. Proper planning through deductions, credits, and income shifting can save significant taxes.
2. Business owners should avoid "audit paranoia" and carefully document expenses.
3. Missing depreciation deductions is a common mistake, especially for improvements, components, and personal property.
4. Distinguishing between repairs and improvements is important for deducting costs.
5. Investors enjoy tax benefits like depreciation, while dealers face self-employment taxes and ordinary income.
6. Employing family members can generate tax savings through deductions and reduced payroll taxes.
Top 5 strategies to keep your profits in your pocketTim Miron
The document provides strategies for reducing taxes through effective tax planning, income splitting, and hybrid expenses. The top 5 strategies discussed are: 1) Effective tax planning through incorporation, holding companies, retirement planning, life insurance, and SRED credits. 2) Income splitting using salaries, dividends, property payments, family trusts, and multiple corporations. 3) Hybrid expenses such as home office, automobile, cell phones, and medical expenses. Specific tax savings examples are provided for many of these strategies.
The Tax Diversify Your Retirement Income with Life Insurance sales presentation will help you understand the importance of tax diversification and the benefits that a Custom Whole Life (CWL) policy can provide. In addition to the traditional benefit of death benefit protection, the cash value of the CWL policy accumulates tax-deferred and can generally be accessed on a tax-free basis*.
Use the concept presentation and other materials to discuss how life insurance not only provides death benefit protection, but can also be a tax diversification tool.
Contact me if you would like to discuss
*The cash value is accessed through policy loans, which accrue interest at the current rate, and cash withdrawals. Loans and withdrawals will decrease the total death benefit and total cash value. The supplemental retirement income is not guaranteed.
The document provides an overview of core financial concepts for charting one's financial future, including building wealth, proper protection, debt management, emergency savings, cash flow management, and preserving wealth. It discusses strategies for retirement planning like the 3-legged stool model of pensions, Social Security, and personal savings. It also explains concepts like the Rule of 72 for calculating investment growth and outlines options for working with the company, including becoming a client or pursuing a part-time or full-time career.
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Tax Strategies For Real Estate Investors
1. Tax Strategies
for Real Estate Investors
James R Fisher, CPA/PFS, CTCJames R Fisher, CPA/PFS, CTC
Certified Tax CoachCertified Tax Coach
Whitehouse, OH 43571Whitehouse, OH 43571
419-877-0730419-877-0730
2. The “Secret” to Beating the IRSThe “Secret” to Beating the IRS
““There is nothing wrong with a strategy toThere is nothing wrong with a strategy to
avoid the payment of taxes. The Internalavoid the payment of taxes. The Internal
Revenue Code doesn’t prevent that.”Revenue Code doesn’t prevent that.”
William H. RehnquistWilliam H. Rehnquist
1.1. Tax planning is financial defenseTax planning is financial defense
2.2. Tax planning guarantees resultsTax planning guarantees results
3. Taxable IncomeTaxable Income
++ Add Taxable IncomeAdd Taxable Income
- minus Adjustments
- minus Deductions
x (times Tax Bracket)
- minus Tax Credits
• Earned incomeEarned income
• Interest/dividendsInterest/dividends
• Capital gainsCapital gains
• Pension/IRA/AnnuityPension/IRA/Annuity
• Rent/royaltyRent/royalty
• AlimonyAlimony
• Gambling winningsGambling winnings
• ““Other” incomeOther” income
4. Adjustments to IncomeAdjustments to Income
minusminus Adjustments to IncomeAdjustments to Income
minus Deductions
times Tax Bracket
minus Tax Credits
IRA contributionsIRA contributions
Moving expensesMoving expenses
½ SE tax½ SE tax
SE health insuranceSE health insurance
Keogh/SEPKeogh/SEP
AlimonyAlimony
Student loan interestStudent loan interest
Add Taxable Income
5. Deductions/ExemptionsDeductions/Exemptions
Add Taxable Income
minus Adjustments to Income
minusminus Deductions/ExemptionsDeductions/Exemptions
times Tax Bracket
minus Tax Credits
Medical/dentalMedical/dental
State/local taxesState/local taxes
Foreign taxesForeign taxes
InterestInterest
Casualty/theft lossesCasualty/theft losses
Charitable giftsCharitable gifts
MiscellaneousMiscellaneous
itemized deductionsitemized deductions
6. Tax Brackets
Add Taxable Income
minus Adjustments to Income
minus Deductions
timestimes Tax BracketTax Bracket
minus Tax Credits
Rate Single HoH Joint
10% 0 0 0
15% 8,375 11,950 16,750
25% 34,000 45,550 68,000
28% 82,400 117,650 137,300
33% 171,850 190,550 209,250
35% 373,650 373,650 373,650
7. Tax CreditsTax Credits
Add Taxable Income
minus Adjustments to Income
minus Deductions
times Tax Bracket
minusminus Tax CreditsTax Credits
Family creditsFamily credits
Education creditsEducation credits
First-Time homebuyerFirst-Time homebuyer
Foreign taxForeign tax
General businessGeneral business
Low-income housingLow-income housing
RenovationRenovation
8. Two Kinds of DollarsTwo Kinds of Dollars
Add Taxable Income
minus Adjustments to Income
minus Deductions
times Tax Bracket
minus Tax Credits
Pre-Tax Dollars
After-Tax Dollars
9. Keys to Cutting TaxKeys to Cutting Tax
1.1. Earn as much nontaxable income as possibleEarn as much nontaxable income as possible
2.2. Make the most of adjustments/deductions/creditsMake the most of adjustments/deductions/credits
3.3. Shift income to later years if lower-brackets areShift income to later years if lower-brackets are
anticipatedanticipated
“You lose every time you spend after-tax dollars
that could have been pre-tax dollars.”
11. Make the Most of DepreciationMake the Most of Depreciation
• Divide basis between “land” and “improvements.”
• Assign as much as possible to depreciable improvements.
• The IRS suggests you use local property tax assessments.
• You can use any allocation (such as bank appraisal or your insurer’s
estimate of replacement costs) so long as you show “reasonable basis.”
Land
Not depreciable
Improvements
27.5 – 39 years
Property
12. Break out Land ImprovementsBreak out Land Improvements
Land
None
Improvements
15 years
Land
None
Components
27.5 years
Personal Property
5 years
Improvements
27.5 – 39 years
Property
13. Break out Personal PropertyBreak out Personal Property
Land
None
Improvements
15 years
Land
None
Components
27.5 years
Personal Property
5 years
Improvements
27.5 – 39 years
Property
14. Personal Property ExamplesPersonal Property Examples
CabinetsCabinets Security SystemSecurity System
CountertopsCountertops SignageSignage
CarpetingCarpeting StovetopsStovetops
DishwasherDishwasher Supp. PowerSupp. Power
MicrowaveMicrowave TelephoneTelephone
Oven/RangeOven/Range Walls/PartitionsWalls/Partitions
PA/SoundPA/Sound Washer/DryerWasher/Dryer
RefrigeratorRefrigerator Window Treats.Window Treats.
15. Repairs vs. ImprovementsRepairs vs. Improvements
Repairs Improvements
•Deductible nowDeductible now •Depreciable over timeDepreciable over time
•Keep property in goodKeep property in good
operating conditionoperating condition
•Adapt property to new useAdapt property to new use
•Don’t add valueDon’t add value •Add value to propertyAdd value to property
•Don’t prolong property useDon’t prolong property use •Prolong property useProlong property use
PaintPaint
PlasterPlaster
Repair broken windowsRepair broken windows
Fix gutters, floors, leaksFix gutters, floors, leaks
Room additionRoom addition
Upgrade appliancesUpgrade appliances
LandscapingLandscaping
Replace componentsReplace components
16. Investors vs. DealersInvestors vs. Dealers
Investors Dealer
•Buy as long-termBuy as long-term
investmentinvestment
•Buy with intent to resell inBuy with intent to resell in
ordinary course of businessordinary course of business
•Avoid self-employment taxAvoid self-employment tax •Pay self-employment taxPay self-employment tax
•Depreciation deductionsDepreciation deductions •No depreciation deductionsNo depreciation deductions
•Capital gainsCapital gains •Ordinary incomeOrdinary income
•1031 Exchange1031 Exchange •No 1031 exchangeNo 1031 exchange
19. Employment Tax ComparisonEmployment Tax Comparison
S-Corp FICA
Salary $40,000
FICA $6,120
Net $73,880
Proprietorship SE
Income $80,000
SE Tax $11,304
Net $68,696
S-Corp Saves
$5,184
($73,880-$68,696)
20. Missing Family EmploymentMissing Family Employment
Children age 7+Children age 7+
First $5,700 tax-freeFirst $5,700 tax-free
Next $8,350 taxed at 10%Next $8,350 taxed at 10%
““Reasonable” wagesReasonable” wages
Written job description, timesheet, checkWritten job description, timesheet, check
Account in child’s nameAccount in child’s name
FICA/FUTA savingsFICA/FUTA savings
21. Missing Family EmploymentMissing Family Employment
Children age 7+Children age 7+
First $5,700 tax-freeFirst $5,700 tax-free
Next $8,350 taxed at 10%Next $8,350 taxed at 10%
““Reasonable” wagesReasonable” wages
Written job description, timesheet, checkWritten job description, timesheet, check
Account in child’s nameAccount in child’s name
FICA/FUTA savingsFICA/FUTA savings
22. Missing Medical BenefitsMissing Medical Benefits
Employee benefit planEmployee benefit plan
– Married: Hire spouse (no salary necessary)Married: Hire spouse (no salary necessary)
– Not married: C-corpNot married: C-corp
ReimburseReimburse employeeemployee for medical expensesfor medical expenses
incurred for self, spouse, and dependentsincurred for self, spouse, and dependents
Works with any insuranceWorks with any insurance
– Use your own insuranceUse your own insurance
– Supplement spouse’s coverageSupplement spouse’s coverage
23. MERP/105 PlanMERP/105 Plan
Major medical, LTC, Medicare, “Medigap”Major medical, LTC, Medicare, “Medigap”
Co-pays, deductibles, prescriptionsCo-pays, deductibles, prescriptions
Dental, vision, and chiropracticDental, vision, and chiropractic
Braces, fertility treatments, special schoolsBraces, fertility treatments, special schools
Nonprescription medications and suppliesNonprescription medications and supplies
24. MERP/105 PlanMERP/105 Plan
Written plan documentWritten plan document
No pre-funding requiredNo pre-funding required
– Reimburse employeeReimburse employee
– Pay provider directlyPay provider directly
Bypass 7.5% floorBypass 7.5% floor
Minimize self-employment taxMinimize self-employment tax
25. Health Savings AccountHealth Savings Account
1.1. ““High deductible health plan”High deductible health plan”
- $2,000+ deductible (individual coverage)- $2,000+ deductible (individual coverage)
- $4,000+ deductible (family coverage)- $4,000+ deductible (family coverage)
PlusPlus
1.1. Tax-deductible “Health Savings Account”Tax-deductible “Health Savings Account”
- Contribute & deduct up to $3,000/$5,950 per yearContribute & deduct up to $3,000/$5,950 per year
- Account grows tax-freeAccount grows tax-free
- Tax-free withdrawals for qualified expensesTax-free withdrawals for qualified expenses
26. #8: Missing Car/Truck Expenses#8: Missing Car/Truck Expenses
AAA Driving Costs Survey (2009)
VehicleVehicle Cents/MileCents/Mile
Small SedanSmall Sedan 42.142.1
Medium SedanMedium Sedan 54.054.0
Large SedanLarge Sedan 65.865.8
4WD SUV4WD SUV 68.468.4
MinivanMinivan 58.858.8
Figures assume 15,000 miles/year; $2.30/gallon gasFigures assume 15,000 miles/year; $2.30/gallon gas
27. #10: Missing Tax Coaching Service#10: Missing Tax Coaching Service
TrueTrue Tax PlanningTax Planning
Written Tax PlanWritten Tax Plan
– Family, Home, and JobFamily, Home, and Job
– BusinessBusiness
– InvestmentsInvestments
Review ReturnsReview Returns
Editor's Notes
Are you satisfied with the taxes you pay? (Pause – audience will laugh and say “no.”)
Are you confident you’re taking advantage of every available break? (Pause again)
Is your tax advisor giving you proactive advice for saving on your taxes? (Pause again)
I’ve got bad news and I’ve got good news. The bad news is, you’re right. You do pay too much tax. You’re probably not taking advantage of every tax break you can. And most advisors do a poor job of actually saving their clients money.
The good news is, you don’t have to feel that way. You just need a better plan. Today, we’re going to talk about some of the biggest mistakes that real estate investors make. Then we’ll talk about how to solve them.
(At this point, go ahead and introduce yourself and discuss your credentials.)
What’s the secret to beating the IRS? It’s really no secret at all. It’s planning.
I don’t care how good you and your tax preparer are with a stack of receipts on April 15. If you didn’t know you could write off your kid’s braces as a business expense, there’s nothing we can do.
Tax coaching is about giving you a plan for minimizing your taxes. What should you do? When should you do it? How should you do it?
And tax coaching offers two more powerful advantages.
First, it’s the key to your financial defenses. As an investor, you have two ways to put cash in your pocket. Financial offense is making more. Financial defense is spending less. For most of us in this room, taxes are our biggest expense. So it makes sense to focus our financial defense where we spend the most. Sure, you can save 15% on car insurance by switching to GEICO. But how much will that really save in the long run.
And second, tax coaching guarantees results. You can spend all sorts of time, effort, and money advertising your properties. But that can’t guarantee results. Or you can set up a medical expense reimbursement plan, deduct your daughter’s braces, and guarantee savings.
Let’s start by taking a quick look at how the tax system works. This will “lay a foundation” for understanding the specific strategies we’ll be talking about soon.
The process starts with income. And this includes most of what you’d think the IRS is interested in:
Earned income from wages, salaries, bonuses, commissions, and businesses.
Interest and dividends from bank accounts, stocks, bonds, and mutual funds.
Capital gains from property sales.
Pensions, IRAs, and annuity income.
Rental income and losses
Alimony and gambling winning.
Even illegal income is taxable. The IRS doesn’t care how you make it; they just want their share! (The good news is, if you’re operating an illegal business, you can deduct the same expenses as if you were running a legitimate business. If you’re a bookie, you can deduct the cost of a cell phone you use to take bets.
Once you’ve added up total income, it’s time to start subtracting “adjustments to income.” These are a group of special deductions, listed on the first page of Form 1040, that you can take whether you itemize deductions or not. Total income minus adjustments to income equals “adjusted gross income” or “AGI.” Adjustments to income are also called “above the line” deductions, because you take them “above” AGI.
Adjustments include IRA contributions, moving expenses, half of your self-employment tax, self-employed health insurance, Keogh and SEP contributions, alimony you pay, and student loan interest.
Once you’ve determined adjusted gross income, you can take a standard deduction or itemized deductions, whichever is greater. The standard deduction for 2010 is $5,700 for single taxpayers, $8,400 for heads of households, $11,400 for joint filers, and $5,700 each for married couples filing separately.
Tax deductions reduce your taxable income. If you’re in the 15% bracket, an extra dollar of deductions cuts your tax by 15 cents. If you’re in the 35% bracket, that same extra dollar of deductions cuts your tax by 35 cents.
You can also deduct a personal exemption of $3,650 for yourself, your spouse, and any dependents.
Once you’ve subtracted deductions and personal exemptions, you’ll have taxable income. At that point, the table of tax brackets tells you how much to pay.
You may also owe self-employment tax, which replaces Social Security and Medicare for sole proprietors, partnerships, and LLCs. You’ll also owe state and local income and earnings taxes.
Finally, you’ll subtract any tax credits. These are dollar-for-dollar tax reductions, regardless of your tax bracket. So if you’re in the 15% bracket, a dollar’s worth of tax credit cuts your tax by a full dollar. If you’re in the 35% bracket, an extra dollar’s worth of tax credit cuts your tax by the same dollar.
There’s no secret to tax credits, other than knowing what’s out there.
It’s worth mentioning at this point that many of the Obama administration’s tax proposals involve tax credits, so these will li
Ultimately, there are two kinds of dollars in this world: pre-tax dollars, and after-tax dollars. Pre-tax dollars are great. And after-tax dollars aren’t bad. But they’re not as good as pre-tax dollars.
So here’s the bottom line:
You lose . . . every time you spend after-tax dollars . . . That could have been pre-tax dollars.
Let me repeat that.
You lose . . . every time you spend after-tax dollars . . . That could have been pre-tax dollars.
We’re going to spend the rest of this presentation talking about how to turn after-tax dollars into pre-tax dollars.
We’re going to use three primary strategies.
First, earn as much nontaxable income as possible.
Second, make the most of adjustments to income, deductions, and credits. There’s really no magic to it, other than knowing what’s available.
Finally, shift income to later tax years and lower-bracket taxpayers. This includes making the most of tax-deferred retirement plans and shifting income to lower-bracket children, grandchildren and other family members.
The second big mistake is nearly as important as the first, and that’s fearing, rather than respecting the IRS.
What does the kind of tax planning we’re talking about do to your odds of being audited? The truth is, most experts say it pays to be aggressive. That’s because overall audit odds are so low, that most legitimate deductions aren’t likely to wave “red flags.”
Audit rates are actually at historic lows. For 2008, the overall audit rate was less than one in every 100 returns (.8%). Over half of those audits targeted the Earned Income Tax Credit for low-income working families. The IRS primarily targets small businesses, especially sole proprietorships, and cash industries like pizza parlors and coin-operated laundromats with opportunities to hide income and skim profits. In fact, they publish a series of audit guides that you can download from their web site that tell you exactly what they’re looking for when they audit you!
The IRS doesn’t break out audit statistics for those of you filing Schedule E. However, the combined audit rate for those filing Schedule E or Form 2106, where you report employee business expenses, is just 1.26%.
Take a look at the bottom of the chart. You’ll see that the IRS audits less than one-half of one percent of S-corporations and partnerships. If you’re really worried about being audited, you might consider reorganizing your business to help fly “under the radar.”
If you own your properties individually, jointly with your spouse, or through a single-member LLC, you’ll report income and expenses on Schedule E. If you own them through a partnership, multi-member LLC, or corporation, you’ll report them on Form 8825 and attach it to your partnership or corporation return. In either case, you’ll start with rental income, then subtract operating expenses like advertising, insurance, interest, maintenance and repairs, professional fees, and the like.
You also get to take depreciation deductions. Depreciation is the process of writing off a capital asset, such as a rental property, over a period of time intended to approximate its useful life. For residential properties, this is 27.5 years; for nonresidential properties, it’s 39 years.
Depreciation is especially valuable because it’s not an actual expense. But lots of investors miss valuable depreciation deductions because they don’t know how to make the most of them.
Continued on Next Page
Raw land is nondepreciable. But what about land improvements? Driveways and sidewalks crack, landscaping needs replacing, and pipes from the house to the street deteriorate over time. So you can depreciate land improvements over 15 years. If you miss those assets, you lose money!
You can also break out “personal property” included in your property and depreciate it separately. This process is called “cost segregation,” and it lets you depreciate that personal property over as little as 5 years – which gives you far more deduction in the early years you own your property.
Personal property includes all sorts of assets you can break out to boost depreciation deductions:
(You can read the list yourself or let your audience look over the list themselves.)
The best part is, if you’ve missed out on these deductions in the past, you can still take them. The process is called a “cost segregation study,” and it lets you go as far back as 1987 – calculate what you could have depreciated versus what you actually depreciated – then take the difference as a deduction this year. You won’t even have to amend your old returns – just file Form 3115 with your supporting evidence with the IRS. So please see me if you have real estate you haven’t done this with!
One of the most important decisions you’ll make as you own your properties involves distinguishing between “repairs” and “improvements.” Repairs are deductible immediately as you make them. Improvements are depreciable over time. It usually makes sense to characterize fix-ups as repairs so you can deduct them faster.
The definitions seem straightforward enough. Repairs keep your property in good operating condition. They don’t add value, and they don’t prolong the property’s use. IRS examples include painting, plastering, repairing broken windows, and fixing gutters, floors, and leaks. Improvements adapt your property to new uses, add value, or prolong its use. IRS examples include room additions, upgraded appliances, new landscaping, and replacing components like furnaces, roofs, and windows.
But even the Internal Revenue Manual that tells IRS agents how to audit you admits that distinguishing repairs from improvements is a gray area. You’d think that replacing a roof is pretty clearly an improvement, right? Common sense tells you it adds value and prolongs the property’s life. But a recent tax court case ruled that an investor could deduct a roof as a repair because it just helped keep the property in good operating condition over the course of its existing expected life.
Most investors buy property for long-term investment. Your total return includes current income from rents and long-term capital appreciation. But some investors don’t want to manage tenants or hold long-term. They’d rather buy, maybe rehab or renovate, and flip for quick gain. How does that affect your tax bill?
If you buy a property to hold and manage for long-term gain, it’s considered an investment. There’s no self-employment tax on rental income or gains. You can take depreciation deductions. When you sell, you can take advantage of lower rates for long-tern capital gains. You can even use tax-free exchanges to defer tax on your sale.
But if you buy a property with the intent to resell it in the ordinary course of your trade or business, it’s not considered an investment. It’s considered a “dealer” property. It’s essentially treated like inventory, just as if you were selling groceries or car parts. You’ll owe self-employment tax on your earnings. You can’t take depreciation deductions. Your profit when you sell is treated as ordinary income. And you can’t use tax-free exchanges to defer tax on your sales.
For most “dealer” properties, the biggest problem is self-employment tax. If you want to reduce that tax, you might consider operating that part of your business through an S-corporation.
If you deal in properties as a sole proprietor, or a single-member LLC taxed as a sole proprietorship, you’ll report your net income on Schedule C. You’ll pay tax at whatever your personal rate is. But you’ll also pay self-employment tax, of 15.3% on your first $106,800 of “net self-employment income” and 2.9% of anything above that.
Let’s say your profit at the end of the year is $80,000. You’ll pay regular tax at your regular rate, whatever that is. You’ll also pay about $11,000 in self-employment tax.
The self-employment tax replaces the Social Security and Medicare tax that your employer would pay and withhold if you weren’t self-employed. How many of you plan to retire on Social Security?
An “S” corporation is a special corporation that’s taxed like a partnership. The corporation pays you a reasonable wage for the work you do. If there’s any profit left over, it passes through to you, and you pay the tax on that income on your own return. So the S corporation splits the owners income into two parts, wages and pass-through distributions.
Here’s why the S corporation is so attractive.
You’ll pay the same 15.3% tax on your wages as you would on your self-employment income.
BUT – there’s no Social Security or self-employment tax due on the dividend pass-through.
Let’s say your S corporation earns the same $80,000 as your proprietorship. If you pay yourself $40,000 in wages, you’ll pay about $6,120 in Social Security.
But you’ll avoid employment tax on the income distribution.And that saves you $5,184 in employment tax you would have paid without the S-corporation.
Now let’s talk about the fifth mistake: missing family employment. Hiring your children and grandchildren can be a great way to cut taxes on your income by shifting it to someone who pays less.
Yes, there’s a minimum age. They have to be at least seven years old.
Their first $5,700 of earned income is taxed at zero. That’s because it’s the standard deduction for a single taxpayer – even if you claim them as your dependent. Their next $8,350 is taxed at just 10%. So you can shift a lot of income downstream.
You have to pay them a “reasonable” wage for the service they perform. The Tax Court says a “reasonable wage” is what you’d pay a commercial vendor for the same service, with an adjustment made for the child’s age and experience. So, if your 12-year-old son cuts grass for your rental properties, pay him what a landscaping service might charge. If your 15-year-old helps keep your books, pay him a bit less than a bookkeeping service might charge. Does anyone have a teenager who helps with your web site? What would you pay a commercial designer for that service?
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To audit-proof your return, write out a job description and keep a timesheet.
Pay by check, so you can document the payment.
You have to deposit the check into an account in the child’s name. But it doesn’t have to be his pizza-and-Nintendo fund. It can be a Roth IRA for decades of tax-free growth. It can be a Section 529 college savings plan. Or it can be a custodial account that you control until they turn 21. Now, you can’t use money in a custodial account for your obligations of parental support. But private and parochial school aren’t obligations of parental support. Sleepaway summer camp isn’t an obligation of parental support.
Let’s say your teenage daughter wants to spend two weeks at horse camp. You can earn the fee yourself, pay tax on it, and pay for camp with after-tax dollars. Or you can pay her to work in your business, deposit the check in her custodial account, and then, as custodian stroke the check to the camp. Hiring your daughter effectively lets you deduct her camp as a business expense.
If you hire your child to work in an unincorporated business, you don’t have to withhold for Social Security until they turn 18. So this really is tax-free money. You’ll have to issue them a W-2 at the end of the year. But this is painless compared to the tax you’ll waste if you don’t take advantage of this strategy.
Now let’s talk about health-care costs. Surveys used to show that taxes used to be small business owners’ biggest concern. Now it’s rising health care costs.
If you pay for your own health insurance, you can deduct it as an adjustment to income on Page 1 of Form 1040. If you itemize deductions, you can deduct unreimbursed medical and dental expenses on Schedule A, if they total more than 7.5% of your adjusted gross income. But most of us don’t spend that much.
What if there were a way to write off medical bills as business expenses? There is, and it’s called a Medical Expense Reimbursement Plan, or Section 105 Plan.
This is an employee benefit plan, which means it requires an employee. If you operate your business as a sole proprietorship, partnership, LLC, or S corporation, you’re considered self-employed. So, if you’re married, hire your spouse. If you’re not married, you can do this with a C corporation. But you don’t have to be incorporated. You can do it as a sole proprietor or LLC by hiring your spouse.
The one exception is the S corporation. If you own more than 2% of the stock, you and your spouse are both considered self-employed for purposes of this rule. You’ll need to use another source of income, not taxed as an S corporation, as the basis for this plan.
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Let’s assume you’re a sole proprietor and you’ve hired your husband. The plan lets you reimburse your employee for all medical and dental expenses he incurs for himself – his spouse (which covers you) – and his dependents.
This includes all the expenses you see listed here. Major medical insurance, long-term care coverage, Medicare, and Medigap insurance. Co-pays, deductibles, and prescriptions. Dental, vision, and chiropractic care. Braces for your kids’ teeth, fertility treatments, and special schools for learning-disabled children. It even covers nonprescription medications, vitamins and herbal supplements, and medical supplies. The best part is, this is money you’d spend anyway, whether you get a deduction or not. You’re just moving it from a nondeductible place on your return, to a deductible place.
You’ll need a written plan document, which we can provide you. You’ll need to track your expenses under the plan, which we can also help with. But there’s no special reporting required. You’ll report reimbursements as “employee benefits” on your business or real estate return. You’ll save income tax and any self-employment tax you would otherwise owe on that income.
There’s no pre-funding required. You don’t have to open a special account, like with Health Savings Accounts or flex-spending plans. You don’t have to decide how much to contribute, and there’s no “use it or lose it” rule. It’s just an accounting device that lets you characterize your family medical bills as business expenses.
You can reimburse your employee or pay health-care providers directly. Let’s say your husband needs to pick up a prescription. He can use his own money, and you can reimburse him. Or he can use a business credit card and charge it to the business directly.
If you have non-family employees, you have to include them too. You can exclude employees under age 25, who work less than 35 hours per week, less than nine months per year, or who have worked for you less than three years. Non-family employees may make it too expensive to reimburse everyone as generously as you’d cover your own family. But, if you’re offering health insurance, you can still use a Section 105 plan to cut your employee benefit cost. You can do it by switching to a high-deductible health plan, and using a Section 105 plan to replace those lost benefits.
If a medical expense reimbursement plan isn’t appropriate, consider the new Health Savings Accounts. These arrangements combine a high-deductible health plan with a tax-free savings account to cover unreimbursed costs.
To qualify, you’ll need a “high deductible health plan” with a deductible of at least $2,000 for single coverage or $4,000 for family coverage. Neither you nor your spouse can be covered by a “non-high deductible health plan” or Medicare. The plan can’t provide any benefit, other than certain preventive care benefits, until the deductible for that year is satisfied. You’re not eligible if you’re covered by a separate plan or rider offering prescription drug benefits before the minimum annual deductible is satisfied.
Once you’ve established your eligibility, you can open a deductible savings account. You can contribute up to $3,000 for singles or $5,950 for families. You can use it for most kinds of health insurance, including COBRA continuation and long-term care premiums. You can also use it for the same sort of expenses as a Section 105 plan.
The Health Savings Account isn’t as powerful as the Section 105 Plan. You’ve got specific dollar contribution limits, and there’s no self-employment tax advantage. But Health Savings Accounts can still cut your overall health-care costs.
Now let’s talk about car and truck expenses. I don’t want to take too much time here, but I do want to point out the most common mistake clients make with these expenses.
(At this point, I ask audience members to raise their hands if they take the standard deduction. I remind them that it’s 55 cents/mile, then ask them to tell me what they drive and how much they deduct. The goal here is to show the wide variety of vehicles clients drive . . . and emphasize that the deduction is the same for them all.)
Are you detecting a pattern here? That deduction is the same for everyone, no matter what we drive. Do you think we all spend the same to operate our cars?
It might surprise you to see how much it really costs to operate your car. And it’s not exactly 55 cents per mile!
Every year, AAA publishes a vehicle operating cost survey. Costs vary according to how much you drive – but if you’re taking the standard deduction for a car that costs more than 55 cents/mile, you’re losing money every time you turn the key.
If you’re taking the standard deduction now, you can switch to the “actual expense” method if you own your car, but not if you lease. You can’t switch from actual expenses to the mileage allowance if you’ve taken accelerated depreciation.
Now that you see how business owners miss out on tax breaks, let’s talk about the biggest mistake of all.
What mistake is that?
The biggest mistake of all is failing to plan. Have you all heard the saying “if you fail to plan, you plan to fail”? It’s a cliché because it’s true. Fortunately, our tax coaching service avoids the problem.
We offer true tax planning. We’ll tell you what to do, when to do it, and how to do it.
We start with a three-page “check the box” questionnaire that takes 5 minutes to fill out.
Then we prepare a written tax plan that addresses you family, home, and job, your business, and your investments.
We’ll even review your last three years’ tax returns to see if we can find savings you overlooked.
If you’re serious about the strategies we’ve discussed today, then why not give it a try?
(This is just a suggested close, of course. Your actual close will depend on your goal for the seminar. If you’re like most TaxCoach members, you’ll be inviting participants to meet with you individually. If that’s the case, don’t just ask them to fill out an evaluation or otherwise call them. Strike while the iron is hot, and start scheduling appointments right there on the spot. Many of our members have walked away from seminars with a dozen or more appointments already scheduled! See the Seminar Success Guide for more information on closing seminars for success.)