Ten Things To Do Before Year-End to Pay Less Tax | USTaxAid

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Ten Things To Do Before Year-End to Pay Less Tax

Written by Diane Kennedy, CPA on October 31, 2021

Google “year-end tax planning” and you will find over a dozen articles with information that works for the average wage earner. In this email, we’re going to look at year-end tax planning tips that work for people who have a business (or wants to have one), has real estate investments (or wants to have them) and/or has crypto (or wants to have crypto).

Definitely look at the yearend tax planning tips that are in main stream media. There might be one or two that will work for you. But if you do more than average, your tax plan needs to do more than average.

In this email, we’ll look at 10-year end tax planning things. If you don’t want to read the detail of how to put these in place, here is the TL;DR version:

#1: Move or bundle your itemized deductions.

#2: Start a business

#3: Put your real estate in service

#4: Pay your kids from your business

#5: Set up your business pension

#6:  Check ERC (employee retention credit)

#7: Roth conversion

#8: Harvest losses

#9: Delay income & accelerate expenses

#10: Look for tax credits

#1: Move or bundle your itemized deductions.

Since the Tax Cuts and Jobs Act when into effect 1/1/2018, less people use itemized deductions. The standard deduction went up. Less deductions were available, mainly state and local taxes (limited to $10K) and miscellaneous deductions (which are zero now).

First look for ways to move those deductions, especially lost deductions, to your businesses or investments. Home office, medical expenses expensed through a medical expense reimbursement plant, those are just some of the ways to pick up otherwise lost expenses.

You can bundle itemized deductions by timing your payments. For example, make large charitable contributions every other year. That’s the year you time state income tax estimated payments and real estate property tax. So you end up claiming itemized deductions every other year and taking the standard deductions on the off years.

#2: Start a business. 

More than ever, you need a business. Every tax bill that passes seems to focus on more tax for employees and more loopholes for business owners. Plus, the new Form 1099-K limit is just $600. That means if you sell products or services for over $600 during the year, you’ll have to report them because the IRS is going to find out. 

If you don’t have a true business, you’re going to have a problem. Find out more with Breaking New Form 1099-K Rules Hit Casual Internet Sellers 

#3: Put your real estate in service.

If your property isn’t in service by year end, you can’t deduct anything you spent with the property. No mortgage interest, no property tax, no development or repair costs. Nada

The key is to put your real estate in service first

#4:  Pay your kids from your business.

If you have a business and kids that can work in it, put them to work! The salary you pay will be a tax deduction for you and not taxable for them, if under the filing amount. Plus, once they are employees you can include them in tax benefits like the educational assistance plan.

Three things I tell my clients about hiring kids: #1: Have a written job description #2 Keep a record of hours they work #3: Pay a reasonable salary for the work they do.

#5:  Set up your business pension.

I just hate that so many clients miss this one every year. You can always set up and fund an IRA for your personal pension, but business pensions need to be set up before year end. They don’t have to be funded until you file. But they must be set up before 12/31. 

#6:  Check ERC.

The Employee Retention Credit is complicated to apply for, but certainly worth the time. Here are a couple of articles to get you started. If you have employees, don’t miss this one! You can go back and amend your payroll reports to take advantage of it.

IRS vs Employee Retention Credit


Don’t Miss These New Tax Credits If You Have Employees


#7: Roth conversion

This has more to do with projecting your income and minimizing your tax brackets. If this is going to be a low-income year, this might be a good time to move some tax deferred income to a tax-free Roth. The amount you convert will be taxable as ordinary income.

The ideal is if the value of the convertible part has hit a low (like a dip in stock value) and your income is lower.

The benefit is having a Roth account with some money in it. That’s a strategy the rich use to pay a whole lot less in taxes. 

#8: Harvest losses

If you’re going to have capital gains this year, now is the time to look for capital losses. Do you have property or stock that has gone down in value? Time to dump it? If crypto has gone down in value, you can sell it and then immediately buy back the position. You can’t do that with stock. You have to stay out of the stock for 30 days. 

#9: Delay income & accelerate expenses

When it comes to tax planning, the default answer is almost always delay income and accelerate expenses. Tax later is better than tax now. 

#10: Look for tax credits

There are a lot of tax credits available for businesses these days. We mentioned the ERC above, but don’t forget about the ADA tax credit, small business pension tax credit, and others like the R & D tax credit. 

The Misunderstood R & D Tax Credit


We’ll be covering in-depth yearend tax planning strategies for real estate investors and business owners during Wednesday Coaching in November.

1st Wednesday: Real Estate year-end tax planning

2nd Wednesday: Tax-Busting Strategies, Lesson #2

3rd Wednesday: Business yearend tax planning

4th Wednesday: November Updates

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