With Year-End Upon Us, What Year-End Tax Planning Strategies Do You Use?

Question

With year-end and the holidays rapidly approaching, I thought it might be helpful for investors to share year-end tax planning/tax management strategies with their fellow investors.  We often get so busy at this time of year that we forget to think about tax planning strategies that could help us manage our tax liabilities.  How/what do you do to minimize/manage your taxes?

Eric Z. · Answer

A couple of things I do as a business owner,

I hire my parents. Yes they have to pay tax, but they are in a lower income bracket than I am.

I contribute to solo 401k plan. I believe the maximum is 57k/year. All tax deferred.

@Dave T , I talked to my CPA, and she suggest to bypasses home office deduction, she suggested to categorize most of these expenses into office expense instead.

Dave Toelkes · Answer

Bill,

I assume your question is limited to tax reduction strategies related to our real estate activity.  In that vein, here are a few that some might consider useful

1.   Paying the January mortgage payment in December so the interest is deductible this year may generate a little higher interest deduction.

2.  Refinance a rental property for a lower interest rate or for a lower payment.  Then, any unamortized loan fees from a prior refinance can be realized in full for a higher interest expense on Schedule E.

3.   Many investors bypass the home office deduction because of the "red flag" it raises for an audit.  However, no one should be afraid of an audit if they have a legitimate home office.

4.  Do not ignore depreciation.  It will be taxed eventually as unrecaptured depreciation whether or not the depreciation expense was taken.

5.  Start tax planning now for next year.

Dmitriy Fomichenko · Answer

I agree with Eric Z. that Solo 401k is one of the best tax planning strategies.

Bill Exeter · Answer

One of the areas that is relatively new and often catches some investors by surprise is the Medicare Surcharge, or more commonly known as the Obamacare tax.  This is a tax on interest income, dividend income and certain types of taxable gain (capital gains) when the related income/gain exceeds $200,000 in Adjusted Gross Income ("AGI") if you are single or $250,000 if you are married.  Keep your eye on your AGI and check to see if any sale of property might push you over the $200K/$250K threshold and trigger the Medicare Surcharge.  There may be ways to modify the terms of the sale (installment sale treatment, fractional sales, tax-deferred exchanges, and so forth) so that you can split or spread the gain over a period of time so that you can effectively eliminate the Medicare Surcharge by keeping your AGI under the $200K/$250 level.

With Year-End Upon Us, What Year-End Tax Planning Strategies Do You Use?

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