Five Year End Tax Planning Ideas That Don’t Work


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five year end tax planning ideas

You can’t plan for 2015 taxes in 2016. If you want to have any control on how much taxes you pay, you need to do something now, before it’s too late.

Here are five plans I’ve recently heard.

#1: Pay as much as you want into a pension account and then you get a deduction.

True or False?

FALSE!

There is a limit to how much you can put into a pension and it’s dependent on two things: Your salary or earned income and the ceiling limit for the type of pension you have.

Pension contributions can work, but you must have earned income first. This is something you must get in place before the end of the year.

#2: Buy real estate before year-end and take a dollar for dollar deduction.

True or false?

FALSE!

I often talk about being able to deduct real estate passive losses against your other income if you meet certain qualifications.
First of all, you have to meet those qualifications.

And then, secondly, you don’t get a dollar for dollar deduction. Sometimes it’s even more! For example, if you buy a $200,000 property with cash, you won’t get depreciation for your land and the personal property and real property are depreciated over 5 – 27.5 (or 39) years. If instead you take the $200,000 and buy a 20% down property for $1 million, you then have a lot more basis to depreciate.

And finally, real property depreciation is done ratably. If you buy it in January, you get 12 months of depreciation. If you buy it in December, you get 1 month.

Real estate investing is great, but you have to know the rules. In my November 3rd coaching class, I talked about depreciation strategies for real estate. There are a bunch! Don’t just assume you can do it yourself without some guidance. Unfortunately, that’s exactly what the IRS auditors are watching for.

#3: Invest in the company and take a deduction.

True or False?

IT DEPENDS!

I wish I had a dollar for every time I’ve heard that strategy in the past month. “I don’t owe taxes because I invested the profits back into the company.”

Does it work? It depends on what exactly you did with the money.

If you invested in advertising, training and personnel, you have a current deduction.

If you invested in inventory, you have added a non-deductible asset expenditure.

Inventory is not a deduction until you sell it. It then becomes a cost of goods sold (COGS) and is a deduction against the sales price.

Until then, you do NOT have a deduction.
There is a reason you see so many end of year inventory reduction sales. Businesses with a lot of inventory at the end of the year end up with no cash and lots of taxes.

LOW inventory at the end of the year is the way to win the tax game.

#4: Pay off debt and take a deduction.

True or false?

FALSE

Paying off debt does not create a tax deduction. It is often a sound business practice, but it won’t get you a tax break.

#5: My bank balance is $XXX, therefore that’s how much income I have to pay tax on.

True or false?

FALSE

You could have taken out personal expenses. You might have bought nondeductible inventory. You could have paid off debt. You could have purchased with financing. There are dozens of reasons why your bank balance doesn’t equal your taxable income.

Get your bookkeeping caught up ASAP so you know how much income you have.

Pro tip: If your bookkeeping is way behind now, waiting to do it probably isn’t going to work. Hire a bookkeeper now while you have time to still do tax planning, once you know your numbers. If you wait until tax time to hire a bookkeeper, you will pay more.

Our Wednesday, November 18th, I’m going to devote our entire coaching class to 101 year end planning tips. The only way you will be able to hear this before it’s too late is through the coaching class. You can join for just $67/month. And, of course, you can quit anytime. The live coaching sessions are recorded. Join today and get a jump start on what DOES work for tax planning this year. Sign up here: https://www.ustaxaid.com/coaching-program/



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