Hello all, am receiving a large amount, approx 50k, in a commission payment near the end of December, am looking at tax strategies to reduce the liability as much as possible, outside of the standard business deductions. I will have to move quickly as there will prob be a one week window to work with before the end of the year. One idea is to gift the money to one or more of my 3 kids, whom I trust completely, could also include my brother in the same. How about the idea of forming a family trust/ business for purposes of REI. Or a combination of gifting and business startup to include a property purchase. Any suggestions, questions, ideas, would be much appreciated. Cannot differ the payment to January, otherwise I definitely would.
gifting will not reduce your taxes. it does, however, present the opportunity to pass the wealth on to younger generations without incurring any gift, transfer or estate taxes.
Putting the money into a trust, likewise, will not reduce your taxes. Trusts are an advantageous method, however, to pass the wealth on to younger generations without incurring any gift, transfer or estate taxes.
Putting the money into a business will not reduce your taxes. Of course, you can SPEND the money to generate deductible expenses, but why oh why would you consider spending $1 to “save” 30 cents in tax. If you just pay the tax, at least you have 70 cents left in your pocket. But if you insist on spending your money to “save” taxes, please make the check out to: Mark Wagner.
However, if you want to invest what you have left after taxes in a way that will generate future income/cashflow, real estate might be an effective tool.
Gifts are with after tax money. That won’t help you.
Pay off something that is tax deductible. Pay your property taxes. Pay your insurance bills a bit early.
Or purchase supplies that are an itemized item. Deduct them this year, use them next year. (for me that would be a truckload of hay). Just be sure it is something that is expensed and doesn’t have to be depreciated.
Check with your accountant. Perhaps there is some way to pre-pay next year’s interest on your mortgages.
In fact, check with your accountant and get his advice.
There are some charitable options that will grant you an immediate tax deduction with life time income. You can also structure a preferred stock entity with limited return. Donate the limited return stock for a tax deduction and keep the excess returns. This is an advanced topic and unfortunately you don’t have much time to implement it.
Another option is to fund a 401k or IRA.
thank you all for the input, very much appreciated. :beer
thought I would add that there are a lot of deductions available and methods of increasing deductions that can make a significant difference in how big a cut Uncle Sam takes out of your earnings. the difference can mean several thousand dollars based on a middle to above average income. There are several good articles out specifically targeting end-of-the-year tax strategies, mostly targeting vehicle purchases, Section 179, IRA, gifting, etc. As to why spend a dollar to save 30 cents, that is typical attitude for a # cruncher. I would respond, why not spend a dollar to save two. Example: Buy large SUV, for under market, say 20k, in Dec. Sell SUV for what you paid or more in Jan. Also would like to say that I have been audited several times over the last 20 years, the worst I have had to pay as a result has been a 30% correction, meaning that I have saved approx 80% on deductions that were questionable. An audit doesnt take long, so for a few hours extra work you can cut your tax bill in half or more. And my record keeping was weak at best. As long as the super rich pay an average of 15%, according to Warren Buffett, and his secretary is paying 30%, I have no problem with trying to do the same. OK, enough about philosophy and lets get to something you can actually use…
I just came across the information in the link below, its a seminar course, but the outline of some of what is in the course is definitely worth taking a look at, it should give you a good idea of a variety of additional strategies that you can encorporate into your business, especially auto, travel, entertainment, in-home office deductions. I will be searching to see if I can find this information at no cost and will post my findings if I do. I hope this thread has been helpfull, Happy Holidays to All and a prosperous 2008.
:biggrin and, here is a pretty good site for free info on tax strategies for independent business people, just started looking for this information so, would suspect that there is a ton of information on this subject sitting out there.
If you have assets that show a loss on paper, sell them to realize the loss. Up to $3000 in net capital losses can be used to offset ordinary income.
Contribute the maximum allowed to your traditional IRA and/or 401K.
If you need a new car, before the end of the year purchase a hybrid vehicle that qualifies for a $3000 tax credit. Not all hybrids qualify for the tax credit, and some that did qualify if purchased before October, don’t qualify if purchased at the end of the year.
If you need to replace HVAC in your primary residence before the end of the year, replace with a high energy savings system and get a $300 tax credit.
Donate appreciated assets to charity and take a charitable deduction for the appraised value.
Very good suggestions, Dave, and to all that are reading this thread, those suggestions plus everything else that you can possibly do, totally legit and legal, is outlined on the sites posted above. As a result of this thread and research on-line, I have reduced my tax liability from $23k to less than $8k. The computer is really earning its keep. Happy Holidays :dance2
Sell SUV for what you paid or more in Jan
so, your strategy is to save taxes this year to pay more taxes next year? I’m not sure how this “saves” any taxes.
As to why spend a dollar to save 30 cents, that is typical attitude for a # cruncher.
Too many people lose sight of how much of their hard-earned income they are getting to keep. Most people whine about “not making any money” while they are spending everything they earn to generate deductions to “save” taxes. This is foolish.
Sure, if you’re gonna buy it anyway, might as well make it deductible. But spending money you don’t need to, just to generate deductions to “save” taxes is foolish. You end up spending all your profits. I’d rather pay the 30% taxes and keep the other 70% in my pocket. To save the tax, I have to give up the 70% cash in my pocket.
If it doesn’t generate cash, it’s not worth my time to be doing the busines.
point well taken, Mark. I dont plan to spend for something just for the deduction, I want to maximize my deductions based on what I am spending and expenses of doing business. Instead of gifting, as you pointed out, a better suggestion may have been to pay for services rendered and 1099, and the 1099 income now becomes part time business income and opens up the opportunity to write off expenses such as mileage, travel, meals, etc. that would not be allowed for employees. In this particular case, I am way more happy seeing 10% of my income going to help my family instead of overpaying the govt. anyone who pays 30% and is either self employed or has a “part-time” business such as REI, should not be paying more than 15% tops, based on a 100k income that adds up to 15k difference. Thanks again to all for this most valuable input, it is an area of potential difference of several thousand dollars per year that most dont even think twice about. Happy New Year!
I’m not a tax guy but if you’re kids are under the age of 18 and you’re paying anything for them (car, insurance, school, clothes, food, etc), you can make them an “employee” and write off the expense throughout the year at an average wage. The key is, you don’t give them the money but pay their expenses on their behalf. Also, I believe since they are under the age of 18, the income wouldn’t be taxable on their name. Whala, tax loophole…I think.
I read this somewhere…please correct me if it’s wrong.
Wages paid to minor children employed by a sole proprietor are not subject to payroll taxes (like social security, medicare, and futa).
Furthermore, a kid can earn up to the standard deduction amount and not be taxed on the income.
Accordingly, a sole proprietor can pay his or her kids $5K a year (each) and take the payments as business deductions. However, the payments won’t be income to the kids.
So paying your kids can work… HOWEVER, the kids need to be doing a real job and the wage rate needs to pass the giggle test.
Also, as a CPA that works with several hundred individuals (mostly small businesses and investors), I want to echo Mark’s comments… Too many people focus on reducing their taxes rather than on maximizing their aftertax cash flow and wealth. There is a difference.